EMBARCADERO TECHNOLOGIES INC, 424B4, 2000-04-20

EMBARCADERO TECHNOLOGIES INC
424B4, 2000-04-20
COMPUTER INTEGRATED SYSTEMS DESIGN

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Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-30850
and 333-35190

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PROSPECTUS
APRIL 19, 2000

[LOGO]
4,200,000 SHARES OF COMMON STOCK

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EMBARCADERO TECHNOLOGIES, INC.: THE OFFERING:
- -We provide software products that - We are offering 4,200,000 shares of
enable organizations to build and our common stock.
manage e-business applications and - The underwriters have an option to
their underlying databases. purchase up to 600,000 additional
- - Embarcadero Technologies, Inc. shares from Embarcadero to cover
425 Market Street, Suite 425 over-allotments.
San Francisco, California 94105 - This is the initial public offering
(415) 834-3131 of our common stock. Prior to this
offering, there has been no public
SYMBOL AND MARKET: market for our shares.
- - EMBT/Nasdaq National Market - We plan to use the net proceeds from
this offering for working capital
and other general corporate
purposes.
- Closing: April 26, 2000.
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<CAPTION>
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<S> <C> <C>
Per Share Total
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Public offering price: $10.00 $42,000,000
Underwriting fees: 0.70 2,940,000
Proceeds to Embarcadero: 9.30 39,060,000
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</TABLE>

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.

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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
WIT SOUNDVIEW
DLJDIRECT INC.
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[Inside Front Cover Graphics]

Header: Embarcadero Technologies Logo--do more now--Embarcadero
software enables organizations to build and manage
e-business software applications and their underlying
databases.

Description: Three panels of graphics depict the application and database
support provided by Embarcadero products, as follows.

[Multiple Database Vendor Support Graphic]

Header: Databases from Multiple Vendors--Our software supports the
design, development and administration of databases from
multiple vendors.

Description: Graphical illustration of four sets of linked databases,
intended to to show capability of our product to support
databases from multiple vendors.

[Critical Business Applications Graphic]

Header: Critical Business Applications--Our software enables
organizations to build and manage e-business applications.

Description: Graphical illustration of computer screen from our product,
DBArtisan, intended to show ability of our products to build
and manage e-business software applicationsand their
underlying databases through a graphical interface.

[Scalable User Environment Graphic]

Header: Scalable User Environment--Our software be implemented to
support the databases and applications of a single
department or an entire enterprise.

Description: Graphical illustration of variable-sized computers, intended
to show ability of our products to support user environments
of various sizes.
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or any sale of the common stock.

TABLE OF CONTENTS

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Page
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Prospectus Summary................ 4
Risk Factors...................... 8
Special Note Regarding Forward-
Looking Statements.............. 14
Use of Proceeds................... 14
Dividend Policy................... 15
Corporate Information............. 15
Capitalization.................... 16
Dilution.......................... 17
Selected Financial Data........... 18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 19
</TABLE>

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Business.......................... 27
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Page
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Management........................ 39
Related Party Transactions........ 47
Principal Stockholders............ 49
Description of Capital Stock...... 50
Shares Eligible for Future Sale... 52
Underwriting...................... 54
Legal Matters..................... 58
Experts........................... 58
Change in Accountants............. 58
Additional Information............ 58
Index to Financial Statements..... F-1
</TABLE>

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PROSPECTUS SUMMARY

YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING EMBARCADERO AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING IN OUR FINANCIAL STATEMENTS AND THE RELATED NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS.

EMBARCADERO TECHNOLOGIES, INC.

In today's highly competitive markets, a growing number of organizations are
using the Internet to conduct business electronically. This e-business model has
led to the proliferation of new Internet-based, or e-business, software
applications. Businesses are becoming increasingly reliant on these e-business
applications to run critical parts of their operations and to collect important
customer and market information. Organizations must ensure that these
applications are up-and-running with optimal performance. A poorly designed or
poorly performing application can have a significant operational and financial
impact on e-business organizations.

The proliferation of software applications from Internet and e-business
initiatives has increased the demands on databases as organizations face
numerous business and technology challenges, including storing massive amounts
of customer data, handling increasing numbers of users and utilizing information
from disparate systems. To help address these challenges, organizations need an
integrated solution that allows them to manage the database life cycle.

Our suite of products provides an integrated solution to manage the design,
development and administration phases of the database life cycle and enables
organizations to build and manage e-business applications. Our primary products
include:

- ER/STUDIO, which addresses the design phase, enables organizations to
capture business requirements and translate them into database
applications;

- RAPID SQL, which addresses the development phase, enables organizations to
streamline the process of developing complex database code; and

- DBARTISAN, which addresses the administration phase, enables organizations
to ensure the availability, performance, security and recoverability of
databases.

We believe our suite of products enables organizations to:

- DEVELOP AND SUPPORT E-BUSINESS APPLICATIONS. Our products are designed to
work individually and together to provide rapid development and continuous
availability of critical applications as enterprises deploy and extend
their information technology infrastructure for e-business initiatives.

- INCREASE UTILIZATION OF EXISTING DATABASE TECHNOLOGY. Most companies'
infrastructure consists of an assortment of databases from various
software vendors. We can bundle our products to offer an integrated
database life cycle solution for a particular database, such as Oracle, or
to support a

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multi-vendor database environment, such as Oracle, Microsoft SQL Server
and IBM DB2 UDB databases running simultaneously. We believe this provides
the only integrated solution for designing, developing and administering
databases from these different vendors.

- LEVERAGE CONSTRAINED INFORMATION TECHNOLOGY RESOURCES. We design our
products to be easy to use so that experienced database professionals can
do more in less time and less experienced professionals can become
proficient sooner.

- FACILITATE RAPID ADOPTION. Customers can download our products from our
website for evaluation or purchase, install them within minutes and
typically become productive within one hour. As a result, we believe our
customers can realize a faster return on investment than with traditional
solutions, which often involve a lengthy and expensive deployment process.

Our objective is to be the leading provider of software solutions that
enable organizations to build and manage e-business applications and their
underlying databases. The key elements of our strategy include exploiting the
growing development of e-business applications, extending our product
leadership, leveraging our installed customer base and expanding our direct
sales and marketing efforts and international distribution.

We sell our software through a direct telesales organization in North
America and indirectly through our distribution partners worldwide, including an
affiliated distributor in Europe, Embarcadero Europe, Ltd. During 1999, we
issued over 12,600 new user licenses and received maintenance renewals for over
8,800 users. We have thousands of customers across a range of industries,
including technology, telecommunications and financial services.

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THE OFFERING

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Common stock offered................... 4,200,000 shares

Common stock to be outstanding after
the offering......................... 25,720,489 shares

Use of proceeds........................ We plan to use the net proceeds from this offering for
general corporate purposes, including working capital,
expanding our sales and marketing efforts, research and
development, capital expenditures and possible acquisitions
and investments.

Proposed Nasdaq National Market
symbol............................... EMBT
</TABLE>

Unless otherwise indicated, all information in this prospectus:

- assumes no exercise of the underwriters' option to purchase an
over-allotment of up to 600,000 additional shares; and

- gives effect to a two-for-one split of our common stock effected in
February 2000.

The number of shares of our common stock to be outstanding after this offering
includes:

- 21,266,596 shares of our common stock outstanding as of March 27, 2000;
and

- 253,893 shares to be issued upon the conversion of all shares of our
Series A preferred stock upon the closing of this offering.

The number of shares of our common stock to be outstanding after this offering
excludes:

- 4,128,268 shares issuable upon exercise of options outstanding as of
March 27, 2000; and

- 2,905,136 shares available for future issuance under our stock plans as of
March 27, 2000.

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table should be read in conjunction with our financial
statements and related notes appearing elsewhere in this prospectus. The pro
forma information in the table below gives effect to the tax effect of our
conversion from an S corporation to a C corporation for income tax purposes as
if the conversion had taken place on January 1, 1999. The weighted average
number of common shares used in the pro forma net loss per share calculation
includes the number of shares which, based on the initial public offering price,
are equivalent to the excess of 1999 distributions to stockholders over 1999 net
income.

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YEAR ENDED DECEMBER 31,
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1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Revenues:
License................................................. $ 3,434 $ 6,510 $13,406
Maintenance............................................. 1,152 2,609 5,446
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Total revenues........................................ 4,586 9,119 18,852
Gross profit.............................................. 4,254 8,547 17,771
Income from operations.................................... 251 2,013 2,280
Net income................................................ 301 2,028 2,186
Pro forma net loss........................................ (410)
Pro forma net loss per share, basic and diluted........... $ (0.02)
=======
Shares used in pro forma net income per share calculation,
basic and diluted....................................... 20,421
</TABLE>

The pro forma column of the table below gives effect to:

- the sale of 253,893 shares of our Series A preferred stock in
February 2000 for an aggregate purchase price of approximately $1.8
million;

- our conversion from an S corporation to C corporation; and

- the repayment in February 2000 of notes payable to stockholders.

The pro forma as adjusted column of the table below gives effect to:

- the sale in this offering of 4,200,000 shares of common stock at the
initial public offering price of $10.00 per share, less underwriting
discounts and estimated offering expenses payable by Embarcadero.

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AS OF DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $1,804 $2,632 $40,422
Working capital........................................... (256) 1,298 39,088
Total assets.............................................. 6,648 7,720 45,510
Notes payable to stockholders............................. 1,000 -- --
Total stockholders' equity................................ 748 2,302 40,092
</TABLE>

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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
BEFORE BUYING SHARES IN THIS OFFERING. THESE RISKS AND UNCERTAINTIES ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE
UNAWARE OF OR CURRENTLY DEEM IMMATERIAL MAY ALSO BECOME IMPORTANT FACTORS THAT
MAY HARM OUR BUSINESS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE
TO ANY OF THESE RISKS AND UNCERTAINTIES, AND YOU MAY LOSE PART OR ALL OF YOUR
INVESTMENT.

RISKS RELATED TO OUR BUSINESS

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND, AS A
RESULT, OUR STOCK PRICE MAY FLUCTUATE OR DECLINE.

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including seasonal variations in orders for
our products and the factors discussed below under the following captions:

- "We expect to incur significant increases in our operating expenses in the
foreseeable future, which may affect our profitablility;"

- "Acquisitions of companies or technologies may result in disruptions to
our business;"

- "We may lose market share and be required to reduce prices as a result of
competition from existing competitors, independent software vendors and
manufacturers of compatible software;" and

- "If we are not able to enhance our products to adapt to rapid
technological change, our revenues and income may decline."

Fluctuations in operating results are likely to cause corresponding volatility
in our stock price, particularly if our operating results vary significantly
from analysts' expectations.

IF SALES OF DBARTISAN FALL, OUR REVENUES AND INCOME MAY DECLINE.

A large portion of our revenues currently comes from sales of our DBArtisan
product. In 1997, 1998 and 1999, DBArtisan accounted for approximately 66.5%,
56.3% and 48.3%, respectively, of our license revenues in North America. We
expect that sales of DBArtisan will continue to represent a substantial portion
of our license revenues for the foreseeable future. In addition, most of our
customers initiate a relationship with Embarcadero by purchasing DBArtisan and
it is a major source of customer loyalty and goodwill. If sales of DBArtisan
fall significantly, our revenues and income may decline.

IF THE MEMBERS OF OUR MANAGEMENT TEAM ARE UNABLE TO WORK TOGETHER EFFECTIVELY,
OUR ABILITY TO MANAGE AND EXPAND OUR BUSINESS WILL SUFFER.

The members of our management team have not previously worked together, and
we cannot be sure that they will be able to work together effectively as we
expand our operations. Our management team has changed significantly in the past
six months. Ellen Taylor joined us in October 1999 as our President and also
succeeded Stephen Wong, our Chairman, as our Chief Executive Officer. Raj
Sabhlok joined us in January 2000 as Senior Vice President of Finance and
Corporate Development. Walter Scott joined us in January 2000 as Vice President
of Sales. Susan Fleck joined us as our Vice President of Customer Care in
February 2000. We intend to hire other executive officers in the near future. If
these employees cannot work together effectively, our ability to manage and
expand our business will suffer.

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IF WE CANNOT EXPAND OUR OPERATIONS, OUR RATE OF GROWTH AND INCOME MAY DECLINE.

We have recently experienced a period of significant expansion in our
operations. This growth may strain our management, administrative, operational
and financial infrastructure. To support our expanding operations, we have
increased the number of our full-time employees from 33 as of December 31, 1997
to 57 as of December 31, 1998 to 105 as of December 31, 1999; we expect to hire
additional employees in all areas to manage our expanding operations. Our
ability to manage growth requires that we continue to improve our operational,
financial and management controls and procedures. If we are unable to manage
this growth effectively, our rate of growth and our income may decline.

WE EXPECT TO INCUR SIGNIFICANT INCREASES IN OUR OPERATING EXPENSES IN THE
FORESEEABLE FUTURE, WHICH MAY AFFECT OUR PROFITABILITY.

We intend to substantially increase our operating expenses for the
foreseeable future as we increase our sales and marketing, research and
development activities and customer support operations. In connection with these
expanded operations, we will need to significantly increase our revenues in
order to maintain profitability. However, these increased expenses will be
incurred before we realize increased revenues, if any, related to this spending.
If we do not significantly increase revenues from these efforts, our
profitability may decline.

THE PLANNED EXPANSION OF OUR INTERNATIONAL OPERATIONS EXPOSES US TO RISKS.

One aspect of our growth strategy is to expand our international operations.
As a result, we could face a number of risks from our international operations,
including:

- staffing and managing foreign operations;

- increased financial accounting and reporting complexities;

- potentially adverse tax consequences;

- the loss of revenues resulting from currency fluctuations;

- compliance with a wide variety of complex foreign laws and treaties;

- reduced protection for intellectual property rights in some countries; and

- licenses, tariffs and other trade barriers.

The expansion of our international operations may require significant
management attention and financial resources and may place burdens on our
management, administrative, operational and financial infrastructure. Our
possible investments in establishing facilities in other countries may not
produce desired levels of revenue or profitability.

OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED AND INFRINGEMENT CLAIMS OR
INDEPENDENT DEVELOPMENT OF COMPETING TECHNOLOGIES COULD HARM OUR COMPETITIVE
POSITION.

We rely on copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to establish and protect our proprietary
rights. We also enter into confidentiality agreements with employees and
consultants and attempt to restrict access to proprietary information on a
need-to-know basis. Despite such precautions, unauthorized third parties may be
able to copy aspects of our products or obtain and use information that we
consider as proprietary.

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These measures afford only limited protection. Policing unauthorized use of our
products is difficult and we are unable to determine the extent to which piracy
of our software exists. In addition, the laws of some foreign countries do not
protect our proprietary rights as well as United States laws.

We may have to enter into litigation to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others with respect to our rights. Litigation is generally very expensive and
can divert the attention of management from daily operations. Accordingly, any
intellectual property litigation could disrupt our operations and materially
adversely affect our operating results.

We are not aware of any case in which we are infringing the proprietary
rights of others. However, third parties may bring infringement claims against
us. Any such claim is likely to be time consuming and costly to defend, could
cause product delays and could force us to enter into unfavorable royalty or
license agreements with third parties. A successful infringement claim against
us could require us to enter into a license or royalty agreement with the
claimant or develop alternative technology. However, we may not be able to
negotiate favorable license or royalty agreements, if any, in connection with
such claims and we may fail to develop alternative technology on a timely basis.
Accordingly, a successful product infringement claim against us could materially
adversely affect our business and operating results.

OUR BUSINESS WILL SUFFER IF OUR SOFTWARE CONTAINS UNDETECTED ERRORS.

Errors may be found in current versions, new versions or enhancements of our
products after we make commercial shipments. We could face possible claims and
higher development costs if our software contains undetected errors or if we
otherwise fail to meet our customers' expectations. These risks may result in:

- loss of revenues, market share or customers;

- reputational harm;

- diversion of resources;

- increased service and warranty costs;

- legal actions by customers against us; and

- increased insurance costs.

ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR
BUSINESS.

We plan to make strategic acquisitions of companies, products or
technologies as necessary in order to implement our business strategy. If we are
unable to fully integrate acquired businesses, products or technologies with our
existing operations, we may not receive the intended benefits of such
acquisitions. In addition, acquisitions may subject us to unanticipated
liabilities or risks. Any acquisition may temporarily disrupt our operations and
divert management's attention from day-to-day operations.

We may incur debt or issue equity securities to finance future acquisitions.
The issuance of equity securities for any acquisition could be substantially
dilutive to our stockholders. In addition, our profitability may suffer due to
acquisition-related expenses or amortization costs for acquired goodwill and
other intangible assets.

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RISKS RELATED TO OUR INDUSTRY

IF WE ARE NOT ABLE TO ENHANCE OUR PRODUCTS TO ADAPT TO RAPID TECHNOLOGICAL
CHANGE, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.

The market for our products is characterized by rapid technological change,
frequent product introductions and enhancements, uncertain product life cycles
and changes in customer demands and industry standards. Our success depends on
our ability to continue to enhance our current products and to introduce new
products that keep pace with technological developments and satisfy increasingly
complicated customer requirements. However, due to the nature of computing
environments and the performance demanded by customers for database management
software, new products and product enhancements could require longer development
and testing periods than anticipated.

The introduction of new technologies and the emergence of new industry
standards may render our existing products obsolete and unmarketable. Delays in
the general availability of new releases or problems in the installation or
implementation of new releases could materially adversely affect our business
and operating results. We may not be successful in developing and marketing, on
a timely and cost-effective basis, new products or new product enhancements that
respond to technological change, evolving industry standards or customer
requirements, or in achieving market acceptance for our products and product
enhancements.

IF WE ARE NOT ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS WILL
NOT BE ABLE TO GROW.

Our success depends on the continued service of our executive officers and
other key administrative, sales and marketing and support personnel, many of
whom, including our President and Chief Executive Officer, Senior Vice President
of Finance and Corporate Development, Vice President of Sales, and Vice
President of Customer Care have recently joined our company. We intend to hire a
significant number of additional sales, marketing, administrative and research
and development personnel over the next several months. Our business will not be
able to grow if we cannot attract and retain qualified personnel. Competition
for qualified employees is intense and we may not be able to attract, assimilate
or retain highly qualified personnel in the future. There has in the past been
and there may in the future be a shortage of personnel that possess the
technical background necessary to sell, support and develop our products
effectively. Some of our current employees and those that we seek to hire may be
subject to non-competition or non-solicitation covenants that could further
limit our ability to attract or retain qualified personnel.

WE MAY LOSE MARKET SHARE AND BE REQUIRED TO REDUCE PRICES AS A RESULT OF
COMPETITION FROM OUR EXISTING COMPETITORS, INDEPENDENT SOFTWARE VENDORS AND
MANUFACTURERS OF COMPATIBLE SOFTWARE.

The market for our products is highly competitive, dynamic and subject to
rapidly changing technology. We compete primarily against other providers of
database management utilities, which include Computer Associates, Quest Software
and other independent software vendors.

Our products also compete with products offered by the manufacturers of the
database software with which they are compatible, including Oracle, Microsoft
and IBM. Some of these competing products are provided at no charge to their
customers. We expect that companies such as Oracle, Microsoft and IBM will
continue to develop and incorporate into their products applications which
compete with our products and may take advantage of their substantial technical,
financial, marketing and distribution resources in those efforts. We may not be
able to compete effectively with such products, which would materially adversely
affect our business and operating results.

We presently compete on numerous factors, including product functionality
and heterogeneity, reliability, ease-of-use, performance, scalability, time to
market, customer support and total cost of

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ownership. We believe that we currently compete favorably overall. However, the
market for our products is dynamic and we may not compete successfully in the
future with respect to these factors.

Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing and other resources, and greater name
recognition than we do. They also may be able to respond more quickly than we
can to changes in technology or customer requirements. Competition could
seriously impede our ability to sell additional products on acceptable terms.
Our competitors may:

- develop and market new technologies that render our products obsolete,
unmarketable or otherwise less competitive;

- make strategic acquisitions or establish cooperative relationships among
themselves or with other companies, thereby enhancing the functionality of
their products or increasing their operating margins; or

- establish or strengthen cooperative relationships with channel or
strategic partners which limit our ability to sell or to co-market
products through these channels.

Competitive pressures could reduce our market share or require us to reduce our
prices, either of which would materially adversely affect our business and
operating results.

RISKS RELATED TO THIS OFFERING

OUR OFFICERS AND DIRECTORS WILL BE ABLE TO EXERT SIGNIFICANT CONTROL ON THE
COMPANY AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO MAKE DECISIONS WITH WHICH
OUTSIDE STOCKHOLDERS MAY NOT AGREE.

Executive officers, directors and their respective affiliates will own, in
the aggregate, approximately 64.5% of our common stock outstanding following
this offering. These stockholders, if acting together, will be able to decide
all matters which require stockholder approval, including the election of
directors and the approval of mergers or other business combination
transactions.

THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND THE TRADING PRICE OF
THE COMMON STOCK MAY BE CONSIDERABLY LOWER THAN THE OFFERING PRICE.

Prior to this offering, there was no public market for our common stock. An
active public market for our common stock may not develop or be sustained after
this offering. The market price of our common stock may fall below the initial
public offering price. Moreover, the initial public offering price has been
determined based on negotiations between us and the representatives of the
underwriters, based on factors that may not be indicative of future market
performance or the price at which our stock trades after the completion of this
offering.

WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE, MAKING IT DIFFICULT FOR
OUR STOCKHOLDERS TO PREDICT THE RETURN ON THEIR INVESTMENT.

The market price of our common stock may fluctuate significantly in response
to a number of factors, some of which are beyond our control, including:

- quarterly variations in our operating results;

- changes in financial estimates by securities analysts;

- changes in market valuation of software and Internet companies;

- announcements we make related to significant contracts, acquisitions or
product introductions or enhancements;

- additions or departures of key personnel;

- future sales of common stock; and

- stock market price and volume fluctuations, which are particularly
volatile among securities of software and Internet companies.

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A LARGE NUMBER OF SHARES OF OUR COMMON STOCK WILL BE ELIGIBLE FOR SALE SHORTLY
AFTER THE OFFERING, WHICH COULD RESULT IN A DECLINE IN OUR STOCK PRICE.

Sales in the market of a substantial number of shares of our common stock
after the offering could adversely affect the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. On completion of this offering, we will have 25,720,489
shares of common stock outstanding, or 26,320,489 shares if the underwriters'
option to purchase additional shares is exercised in full. The 4,200,000 shares
sold in this offering, which will be 4,800,000 shares if the underwriters'
option to purchase additional shares is exercised in full, will be freely
tradable without restriction or further registration under the federal
securities laws unless purchased by our "affiliates" as that term is defined in
Rule 144 of the Securities Act. The remaining 21,520,489 shares of common stock
outstanding on completion of this offering will be "restricted securities" as
that term is defined in Rule 144.

Substantially all of the holders of our common stock and stock options are
subject to agreements that limit their ability to sell common stock. These
holders cannot sell or otherwise dispose of any shares of common stock for a
period of at least 180 days after the date of this prospectus without the prior
written approval of Donaldson, Lufkin & Jenrette. However, if the average price
of our shares appreciates by a specified amount following the date of this
prospectus, those holders who are not officers, directors or affiliates of
Embarcadero may be eligible to sell up to 25% of their shares either 90 days
after the date of this prospectus or on the second business day following the
release of our next quarterly financial statements, whichever day comes first.
Under these agreements, such holders may also be eligible to sell an additional
25% of their shares 135 days after the date of this prospectus if the average
price of our shares continues to equal or exceed the targeted amount. When these
agreements expire, all of the shares of common stock and the shares underlying
the options will become eligible for sale, in most cases only pursuant to the
volume, manner of sale and notice requirements of Rule 144. See "Shares Eligible
for Future Sale" and "Underwriting."

WE HAVE SUBSTANTIAL DISCRETION AS TO HOW TO USE THE PROCEEDS FROM THIS OFFERING,
SO WE MAY SPEND THE PROCEEDS IN WAYS WITH WHICH OUR STOCKHOLDERS MAY NOT AGREE.

Our management has broad discretion as to how to spend the proceeds from
this offering and may spend the proceeds in ways with which our stockholders may
not agree. We cannot predict that investments of the proceeds will yield a
favorable or any return. See "Use of Proceeds."

YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION, WHICH MAY RESULT IN A DECLINE
IN OUR STOCK PRICE.

The initial public offering price of the common stock is substantially
higher than the pro forma net tangible book value per share of the outstanding
common stock. As a result, you will incur immediate and substantial dilution of
$8.44 per share based upon the initial public offering price of $10.00 per
share. In the event we issue additional shares of common stock in the future,
you may experience further dilution. Furthermore, we have issued options to
purchase common stock at prices significantly below the initial public offering
price. To the extent such options are exercised, you will experience further
dilution.

PROVISIONS OF OUR CHARTER AND BYLAWS AND DELAWARE LAW COULD DETER TAKEOVER
ATTEMPTS THAT MIGHT BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of our Certificate of Incorporation and Bylaws as well as
Delaware law could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders. We are subject to the
provisions of Delaware law which restrict business combinations with interested
stockholders, which may have the effect of inhibiting a non-negotiated merger or
other business combinations. See "Description of Capital Stock."

13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. All forward-looking statements contained in this prospectus are
subject to numerous risks and uncertainties. Actual events or results may differ
materially. In evaluating these statements you should specifically consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any
forward-looking statement. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.

USE OF PROCEEDS

We expect to receive net proceeds of approximately $37.8 million from the
sale of 4,200,000 shares of our common stock in this offering, at the initial
public offering price of $10.00 per share after deducting underwriting discounts
and commissions and estimated expenses payable by us. We will receive
approximately $5.6 million from the sale of an additional 600,000 shares if the
underwriters' over-allotment option is exercised in full.

We plan to use the net proceeds of this offering for working capital,
general corporate purposes and other operating expenses including:

- expanding our sales and marketing;

- capital expenditures; and

- research and development.

We do not have specific uses planned for the net proceeds of this offering.
We believe that we need to retain flexibility with respect to the use of the net
proceeds of this offering to respond to factors affecting our business. The
amounts and timing of these expenditures will vary depending on a number of
factors, including competitive and technological developments, success of our
marketing efforts and the rate of growth of our business. Because of these
uncertainties, we cannot tell you with any reasonable certainty how we plan to
allocate the net proceeds.

We will retain broad discretion in the allocation of net proceeds of this
offering.

A portion of the net proceeds may be used to acquire or make investments in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such acquisitions
or investments. We are considering using a portion of the proceeds of this
offering to exercise our options to acquire the remaining capital stock of our
affiliated distributor, Embarcadero Europe Ltd. The options will expire in
October 2001. If we had exercised these options on March 31, 2000, the cost of
the acquisition would have been approximately $3.0 million.

Pending the uses described above, we will invest the net proceeds in
short-term, interest bearing, investment-grade securities, certificates of
deposit or direct or guaranteed U.S. government obligations, such as Treasury
bills.

14
<PAGE>
DIVIDEND POLICY

In February 2000, we converted from an S corporation to a C corporation for
income tax purposes, effective as of January 1, 2000. As an S corporation, we
paid distributions to our S corporation stockholders in amounts generally
consistent with their allocated share of taxable income. We do not intend to
declare or pay any cash dividends on our common stock in the foreseeable future.
We currently intend to retain all available funds for use in the operation and
expansion of our business. Any future determination to pay dividends will be at
the discretion of our board of directors and will depend on our results in
operations, financial condition, contractual and legal restrictions and other
factors the board deems relevant.

CORPORATE INFORMATION

We were incorporated in the State of California as Client Worx, Inc. on
July 22, 1993 and changed our name to Embarcadero Technologies, Inc. on
October 29, 1993. We reincorporated in Delaware on February 15, 2000. Our
principal executive offices are located at 425 Market Street, Suite 425,
San Francisco, California 94105 and our telephone number is (415) 834-3131. Our
web site address is "www.embarcadero.com". "DBArtisan," "Rapid SQL" and
"ER/Studio" are our registered trademarks. "Embarcadero Technologies" is our
trademark. This prospectus also contains trademarks of other companies. Unless
otherwise indicated, all information in this prospectus assumes the
effectiveness of our amended and restated certificate of incorporation in the
State of Delaware upon the completion of this offering.

15
<PAGE>
CAPITALIZATION

The following table sets forth our cash position, current notes payable to
stockholders and total capitalization as of December 31, 1999.

The pro forma column of the table gives effect to:

- the sale of 253,893 shares of our Series A preferred stock in
February 2000 for an aggregate purchase price of approximately $1.8
million;

- our conversion from an S corporation to a C corporation;

- the repayment in February 2000 of notes payable to stockholders; and

- the authorization of 5,000,000 shares of preferred stock with a par value
of $0.001 and an increase in authorized common stock to 60,000,000 shares
with a par value of $0.001 per share upon our reincorporation in Delaware
on February 15, 2000.

The pro forma as adjusted column of the table gives effect to:

- the conversion of all outstanding shares of our Series A preferred stock
into shares of common stock upon the closing of this offering.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 1,804 $ 2,632 $ 40,422
======= ======= ========
Notes payable to stockholders............................... $ 1,000 $ -- $ --
======= ======= ========
Stockholders' equity:
Preferred stock, $0.001 par value, no shares authorized or
outstanding, actual; 5,000,000 shares authorized and
253,893 shares outstanding, pro forma; 5,000,000 shares
authorized and no shares outstanding, pro forma as
adjusted................................................ $ -- $ -- $ --
Common stock, no par value, 40,000,000 shares authorized,
21,175,564 shares issued and outstanding, actual; $0.001
par value, 60,000,000 shares authorized and 21,175,564
shares outstanding, pro forma; $0.001 par value,
60,000,000 shares authorized and 25,629,457 shares
outstanding, pro forma as adjusted...................... -- 21 26
Additional paid-in capital................................ 14,663 13,549 51,334
Deferred stock-based compensation......................... (10,049) (10,049) (10,049)
Accumulated deficit....................................... (3,866) (1,219) (1,219)
------- ------- --------
Total stockholders' equity.............................. 748 2,302 40,092
------- ------- --------
Total capitalization.................................. $ 1,748 $ 2,302 $ 40,092
======= ======= ========
</TABLE>

This table does not include:

- 4,128,268 shares issuable upon exercise of options outstanding on
March 27, 2000;

- 91,032 shares issued upon exercise of options since December 31, 1999; and

- 2,905,136 shares reserved for future insurance under our stock plans as of
March 27, 2000.

16
<PAGE>
DILUTION

The pro forma net tangible book value of our common stock as of
December 31, 1999 was $2.3 million, or approximately $0.11 per share. Pro forma
net tangible book value per share represents the total pro forma stockholders'
equity less pro forma intangible assets divided by the number of shares of
common stock outstanding, giving effect to the issuance and conversion of all
outstanding shares of our preferred stock.

After giving effect to our sale of 4,200,000 shares of common stock offered
by this prospectus at the initial public offering price of $10.00 per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book value
would have been $40.1 million, or approximately $1.56 per share. This represents
an immediate increase in pro forma net tangible book value of $1.45 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $8.44 per share to new investors of common stock in this offering. The
following table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $10.00
Pro forma net tangible book value per share as of December
31, 1999................................................ $ 0.11
Increase per share attributable to new investors in this
offering................................................ 1.45
------
Pro forma net tangible book value per share after this
offering.................................................. 1.56
------
Dilution to new investors................................... $ 8.44
======
</TABLE>

The following table sets forth, on a pro forma basis as of December 31,
1999, the differences between the number of shares purchased from us, including
the Series A preferred stock which were purchased in February 2000, the total
consideration paid and the average price per share paid by existing stockholders
and by the new investors purchasing shares of common stock in this offering,
before deducting underwriting discounts and commissions and estimated offering
expenses payable by us, at the initial public offering price of $10.00 per
share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 21,429,457 83.6% $ 2,048,000 4.6% $ 0.10
New investors.............................. 4,200,000 16.4 42,000,000 95.4 10.00
---------- ----- ----------- -----
Total.................................... 25,629,457 100.0% $44,048,000 100.0%
========== ===== =========== =====
</TABLE>

To the extent that any shares are issued upon exercise of options that were
outstanding at December 31, 1999 or that additional options are granted after
that date, or reserved for future issuance under our stock plans, there will be
further dilution to new investors. See "Capitalization."

17
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with our
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31,
1998 and 1999 are derived from our financial statements included elsewhere in
this prospectus. The statement of operations data for the years ended
December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995,
1996 and 1997 are derived from our financial statements for the years then
ended.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License (including sales to affiliate of $1,473 in
1999)................................................. $1,881 $2,650 $ 3,434 $ 6,510 $13,406
Maintenance............................................. 79 338 1,152 2,609 5,446
------ ------ ------- ------- -------
Total revenues........................................ 1,960 2,988 4,586 9,119 18,852
Cost of revenues:
License................................................. 60 197 200 321 460
Maintenance (exclusive of non-cash compensation expense
of $26 in 1999)....................................... 42 116 132 251 621
------ ------ ------- ------- -------
Total cost of revenues................................ 102 313 332 572 1,081
------ ------ ------- ------- -------
Gross profit.............................................. 1,858 2,675 4,254 8,547 17,771
Operating expenses:
Research and development (exclusive of non-cash
compensation expense of $18, $63 and $550 in 1997,
1998 and 1999, respectively).......................... 514 1,152 1,874 2,732 4,265
Sales and marketing (exclusive of non-cash compensation
expense of $16, $27 and $277 in 1997, 1998 and 1999,
respectively)......................................... 733 1,007 1,515 2,707 5,388
General and administrative (exclusive of non-cash
compensation expense of $9 and $3,408 in 1998 and
1999, respectively)................................... 109 237 580 996 1,577
Amortization of deferred stock-based compensation....... -- -- 34 99 4,261
------ ------ ------- ------- -------
Total operating expenses.............................. 1,356 2,396 4,003 6,534 15,491
------ ------ ------- ------- -------
Income from operations.................................... 502 279 251 2,013 2,280
Interest income........................................... 42 -- 52 52 88
------ ------ ------- ------- -------
Income before income taxes................................ 544 279 303 2,065 2,368
Provision for income taxes................................ (7) (5) (2) (45) (82)
------ ------ ------- ------- -------
Income before share in affiliated company profit (loss)... 537 274 301 2,020 2,286
Share in profit (loss) of affiliated company.............. -- -- -- 8 (100)
------ ------ ------- ------- -------
Net income................................................ $ 537 $ 274 $ 301 $ 2,028 $ 2,186
====== ====== ======= ======= =======
NET INCOME PER SHARE:
Basic................................................... $ 0.03 $ 0.02 $ 0.02 $ 0.12 $ 0.11
====== ====== ======= ======= =======
Diluted................................................. $ 0.03 $ 0.01 $ 0.01 $ 0.10 $ 0.10
====== ====== ======= ======= =======
SHARES USED IN PER SHARE CALCULATION:
Basic................................................... 16,800 16,800 16,800 16,810 20,070
Diluted................................................. 17,080 20,727 21,078 21,230 21,877
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 327 $ 215 $ -- $ 13 $ 1,804
Working capital........................................... 537 699 1,192 (578) (256)
Total assets.............................................. 754 921 1,590 2,706 6,648
Notes payable to stockholders............................. -- -- -- -- 1,000
Total stockholders' equity (deficit)...................... 604 479 351 (216) 748
</TABLE>

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS
AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES
AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

We provide software products that enable organizations to build and manage
e-business applications and their underlying databases.

We were incorporated in California as Client Worx, Inc. in July 1993 and
changed our name to Embarcadero Technologies, Inc. in October 1993. We
reincorporated in Delaware in February 2000. At our inception, we focused on
developing and marketing software for use with Sybase and Microsoft SQL Server
databases. In December 1993, we introduced Rapid SQL for Sybase and Microsoft
SQL Server database development. In July 1994, we introduced DBArtisan for the
administration of Sybase and Microsoft SQL Server databases. In March 1996, we
released ER/Studio, our database design solution, which was our first product to
offer support for IBM DB2 Universal Database, Informix and Oracle, as well as
Sybase and Microsoft SQL Server. The success of ER/Studio's multi-vendor support
led us to add support for other major databases to our other products. We added
Oracle support to DBArtisan in April 1997 and to Rapid SQL in January 1998. We
added support for IBM DB2 Universal Database to both products in mid-1998. Also
in 1998, we began to enhance our products with add-ons and companion products.
In October 1998, we offered our first standalone companion product, ER/Studio
Viewer, which complemented the ER/Studio product. In April 1999, we introduced
DBArtisan Schema Manager as a standalone companion product and changed the
product name to DBArtisan Change Manager in January 2000. In January 2000, we
introduced PL/SQL Debugger and SQL Profiler add-ons to extend the functionality
of Rapid SQL and DBArtisan.

We derive all of our revenues from the sale of software licenses and related
annual maintenance fees. Our total revenues have increased over each of the past
five years from $2.0 million in 1995 to $18.9 million in 1999. License revenues
are derived from our direct product sales to customers and sales through our
distributors. Pricing of our software licenses varies by product and increases
in proportion to the number of users for whom licenses are purchased.
Maintenance revenues are derived from the sales of annual maintenance contracts
related to the sale of our products, which include technical support and product
upgrades. The pricing of maintenance contracts also varies by product and
increases in proportion to the number of users for whom contracts are purchased.
Annual maintenance contracts may be purchased separately by customers at their
discretion.

We generally recognize software license revenues upon shipment, provided
that a signed contract exists, the fee is fixed and determinable and collection
of the resulting receivable is probable. Revenues from software licenses sold
through distributors are recognized under the same criteria because our
distributors only purchase products to fulfill specific customer orders and do
not hold any inventory of our products. We recognize maintenance revenues,
including amounts allocated from product revenues for ongoing customer support
and product updates, ratably over the period of the maintenance contract, which
is typically one year. Payments for maintenance fees are generally made in
advance and are non-refundable.

We market our software and related maintenance services directly through our
telesales organization in the United States and Canada, and indirectly through
our distribution partners worldwide, including Global Business Solutions, Global
Connections and Multisystems, S.A. Indirect

19
<PAGE>
sales accounted for approximately $3.3 million of our revenues in 1999.
International revenues from licenses and maintenance sold to customers outside
of North America were $224,000 in 1998 and $2.1 million in 1999, representing
2.5% and 10.9% of total revenues in those years. We intend to expand our
international sales activities in an effort to increase revenues from foreign
sales. To date, our primary international distributor has been our affiliate,
Embarcadero Europe Ltd., which has distribution rights in Europe, the Middle
East and Africa. We have recently entered into an agreement with JGC Information
Systems Co., Ltd., a distributor covering Japan.

All of our revenues are denominated in U.S. dollars, except those from
Embarcadero Europe, the revenues of which are denominated in pounds sterling.
Our business with Embarcadero Europe exposes us to currency fluctuations and
currency transaction losses or gains, which are outside of our control.
Historically, fluctuations in foreign currency exchange rates have not had a
material effect on our business. We have not conducted any hedging transactions
to reduce our risk to currency fluctuations, though we may do so as our revenues
from Embarcadero Europe increase.

As the deemed estimated fair market value of our stock exceeded the exercise
price of options granted in 1997, 1998 and 1999, we recognized deferred
compensation which is amortized over the vesting period of the options. In 1999,
we have recognized a deferred compensation expense of $14.2 million in
connection with the issuance of options to various employees, which is being
amortized over a four-year period from the date the options were issued. Future
non-cash amortization based on options granted through December 31, 1999 is
expected to be $5.8 million, $2.8 million, $1.2 million and $255,000 in the
years 2000, 2001, 2002 and 2003, respectively. Subsequent to December 31, 1999
we issued approximately 2,042,000 options at exercise prices ranging from $1.25
to $12.00. As a result of the issuance of such options, we will record deferred
stock compensation of approximately $11.5 million in the first quarter of 2000.
The compensation associated with the issuance of such options will be amortized
over the four-year vesting period of the options.

20
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth our statement of operations data as a
percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License................................................... 74.9% 71.4% 71.1%
Maintenance............................................... 25.1 28.6 28.9
------- ------- -------
Total revenues.......................................... 100.0 100.0 100.0

Cost of revenues:
License................................................... 4.4 3.5 2.4
Maintenance............................................... 2.9 2.8 3.3
------- ------- -------
Total cost of revenues.................................. 7.2 6.3 5.7
------- ------- -------

Gross profit................................................ 92.8 93.7 94.3
Operating expenses:
Research and development.................................. 40.9 30.0 22.6
Sales and marketing....................................... 33.0 29.7 28.6
General and administrative................................ 12.6 10.9 8.4
Amortization of deferred stock-based compensation......... 0.7 1.1 22.6
------- ------- -------
Total operating expenses................................ 87.3 71.7 82.2
------- ------- -------
Income from operations...................................... 5.5 22.1 12.1
Interest income............................................. 1.1 0.6 0.5
------- ------- -------
Income before income taxes.................................. 6.6 22.7 12.6
Provision for income taxes.................................. (0.0) (0.5) (0.4)
------- ------- -------
Income before share in affiliated company profit (loss)..... 6.6 22.2 12.2
Share in profit (loss) of affiliated company................ -- 0.1 (0.6)
------- ------- -------
Net income.................................................. 6.6% 22.2% 11.6%
======= ======= =======
</TABLE>

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

REVENUES

TOTAL REVENUES. Total revenues were $4.6 million, $9.1 million and
$18.9 million in 1997, 1998 and 1999, representing increases of 98.8% from 1997
to 1998 and 106.7% from 1998 to 1999.

LICENSE. License revenues were $3.4 million, $6.5 million and $13.4 million
in 1997, 1998 and 1999, representing increases of 89.6% from 1997 to 1998 and
105.9% from 1998 to 1999. The increase in license revenues from 1997 to 1998 and
from 1998 to 1999 was due to greater market acceptance of our products. These
increases were enhanced by the introduction of new versions of our ER/Studio and
Rapid SQL products during 1998 and new versions of our ER/Studio and DBArtisan
products in 1999.

MAINTENANCE. Maintenance revenues were $1.2 million, $2.6 million and $5.4
million in 1997, 1998 and 1999, representing increases of 126.5% from 1997 to
1998 and 108.7% from 1998 to 1999. The increase in maintenance revenues from
1997 to 1998 and from 1998 to 1999 was due to an increase in the number of
maintenance licenses sold.

21
<PAGE>
COST OF REVENUES

LICENSE. Cost of license consists primarily of product media and packaging,
shipping fees, royalties and duplication services. Cost of license was $200,000,
$321,000 and $460,000 in 1997, 1998 and 1999, representing increases of
$121,000, or 60.5%, from 1997 to 1998 and $139,000, or 43.3%, from 1998 to 1999.
The increase in cost of license was due to an increase in licenses sold and to a
lesser extent an increase in royalties paid. Royalties increased $30,000 from
1997 to 1998 and $106,000 from 1998 to 1999. Cost of license represented 5.8%,
4.9% and 3.4% of license revenues in the respective periods. The cost of license
as a percentage of license revenues may vary in the future depending on the mix
of internally developed versus externally licensed products and product
components. The licensing of third-party products or product components could
result in royalty payments and a corresponding increase in cost of license as a
percentage of license revenues.

MAINTENANCE. Cost of maintenance consists of salaries and related costs for
customer support personnel. Cost of maintenance was $132,000, $251,000 and
$621,000 in 1997, 1998 and 1999, representing increases of $119,000, or 90.2%,
from 1997 to 1998 and $370,000 or 147.4%, from 1998 to 1999. The increases in
cost of maintenance was due to an increase in the number of customer support
personnel hired to service our customer base. The total number of employees in
technical support increased from two to fourteen from 1997 to 1999. Cost of
maintenance represented 11.5%, 9.6% and 11.4% of maintenance revenues in the
respective periods. We expect the cost of maintenance to increase in future
periods as we hire more support personnel.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel and related expenses, including payroll, employee
benefits, and equipment and software required to develop, test and enhance
products. Research and development expenses were $1.9 million, $2.7 million and
$4.3 million in 1997, 1998 and 1999, representing increases of $858,000, or
45.8%, from 1997 to 1998 and $1.5 million, or 56.1%, from 1998 to 1999. The
increase in research and development expenses was due to an increase in the
number of employees hired as software and product developers and also due to an
increase in hiring outside contractors to support product development efforts.
Compensation and related expenses, including outside recruiter fees, for
research and development increased $332,000 from 1997 to 1998 and $1,463,000
from 1998 to 1999. Outside contractor fees increased $490,000 from 1997 to 1998
and decreased $186,000 from 1998 to 1999. Research and development expenses
represented 40.9%, 30.0% and 22.6% of total revenues in 1997, 1998 and 1999. We
expect research and development expenses to increase in future periods as
additional development personnel are hired and as we expand our product
development activities.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions earned by sales personnel, recruiting costs, trade show,
travel and other marketing communication costs, such as advertising and
promotion. Sales and marketing expenses were $1.5 million, $2.7 million and $5.4
million in 1997, 1998 and 1999, representing increases of $1.2 million, or
78.7%, from 1997 to 1998 and $2.7 million, or 99.0%, from 1998 to 1999. The
increase in sales and marketing expenses from 1997 to 1998 was primarily due to
increases of $806,000 in salaries and related expenses and $436,000 in marketing
and advertising expenses. The increase in sales and marketing expenses from 1998
to 1999 was primarily due to increases of $1,156,000 in salaries and related
expenses, and $1,140,000 in marketing and advertising expenses. Sales and
marketing expenses represented 33.0%, 29.7% and 28.6% of total revenues in the
respective periods. We plan to invest substantial resources to expand our
selling efforts and to execute marketing programs that build the awareness and
brand equity of our products. As a result, we expect sales and marketing
expenses to increase in future periods.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related expenses and costs related to our
infrastructure expansion. General and administrative

22
<PAGE>
expenses were $580,000, $996,000 and $1.6 million in 1997, 1998 and 1999,
representing increases of $416,000, or 71.7%, from 1997 to 1998 and $581,000, or
58.3%, from 1998 to 1999. The increase in general and administrative expenses
from 1997 to 1998 was due to costs associated with the expansion of our
infrastructure. The increase in general and administrative expenses from 1998 to
1999 was due primarily to an increase in salaries and related expenses of
$390,000 and increased rents associated with facilities expansion of $189,000.
General and administrative expenses represented 12.6%, 10.9% and 8.4% of total
revenue in the respective periods. We expect total general and administrative
expenses to increase as we expand our administrative staff and facilities to
support larger operations.

AMORTIZATION OF DEFERRED STOCK COMPENSATION. As the deemed fair market
value of our stock exceeded the exercise price of options granted in 1997, 1998
and 1999, we recognized deferred compensation, which we are amortizing over the
vesting periods of the options. The total amount of deferred compensation
recorded from formation through December 31, 1999 is $14,443,000. Future
non-cash amortization based on options granted through December 31, 1999 is
expected to be $5.8 million, $2.8 million, $1.2 million and $255,000 in the
years 2000, 2001, 2002, and 2003. The amortization expense was $34,000, $99,000
and $4,261,000 in 1997, 1998 and 1999.

INTEREST INCOME. Interest income was $52,000, $52,000 and $88,000 in 1997,
1998 and 1999, representing no change from 1997 to 1998 and an increase of
$36,000 from 1998 to 1999. The increase in interest income from 1998 to 1999
resulted from an increase in our average cash balances.

PROVISION FOR INCOME TAXES. Provision for income taxes was $2,000, $45,000
and $82,000 in 1997, 1998 and 1999 representing increases of $43,000 from 1997
to 1998 and $37,000 from 1998 to 1999. The effective income tax rate was 0.7%,
2.2% and 3.5% in 1997, 1998 and 1999. In February 2000, we converted to a C
corporation for income tax purposes, effective January 1, 2000. Accordingly, we
are now subject to regular federal and state income taxes.

SHARE IN PROFIT (LOSS) OF AFFILIATED COMPANY. In September, 1998, we
acquired a 44% interest in Embarcadero Europe Ltd., which became our affiliated
distributor in the United Kingdom and Europe. Our share in profit (loss) of
Embarcadero Europe was $8,000 in 1998 and ($100,000) in 1999. The 1998 share in
profits was immaterial due to the short period of time the entity operated in
that year. In 1999, the affiliate implemented a multi-year business plan, which
emphasized expanding markets and sales growth and which resulted in operational
overhead and costs exceeding revenues.

23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following table sets forth the unaudited statements of operations data
for the eight quarters in the period ended December 31, 1999, as well as such
data expressed as a percentage of total revenues for the periods indicated. This
data has been derived from our unaudited financial statements that have been
prepared on the same basis as the audited financial statements included in this
prospectus, and, in the opinion of our management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the information when read in conjunction with the financial statements and the
notes thereto included in this prospectus. Our quarterly operating results have
varied substantially in the past and may vary substantially in the future. You
should not draw any conclusions about our future results for any period from the
results of operations for any particular quarter.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
License..................... $1,522 $1,649 $1,611 $1,728 $1,406 $3,163 $4,103 $4,734
Maintenance................. 471 592 687 859 1,032 1,219 1,583 1,612
------ ------ ------ ------ ------ ------ ------ ------
Total revenues............ 1,993 2,241 2,298 2,587 2,438 4,382 5,686 6,346
Cost of revenues:
License..................... 70 84 64 103 89 102 162 107
Maintenance(1).............. 47 55 63 86 108 129 197 187
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues.... 117 139 127 189 197 231 359 294
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 1,876 2,102 2,171 2,398 2,241 4,151 5,327 6,052
Operating expenses:
Research and
development(1)............ 610 709 658 755 667 936 946 1,716
Sales and marketing(1)...... 453 767 673 814 1,035 1,207 1,445 1,701
General and
administrative(1)......... 209 198 195 394 238 277 386 676
Amortization of deferred
stock-based
compensation.............. 27 21 21 30 29 464 1,345 2,423
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses................ 1,299 1,695 1,547 1,993 1,969 2,884 4,122 6,516
------ ------ ------ ------ ------ ------ ------ ------
Income from operations........ 577 407 624 405 272 1,267 1,205 (464)
Interest income............... 10 16 12 14 16 16 20 36
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes.... 587 423 636 419 288 1,283 1,225 (428)
Provision for income taxes.... (12) (8) (11) (14) (24) (24) (31) (3)
------ ------ ------ ------ ------ ------ ------ ------
Income before share in
affiliated company profit
(loss)...................... 575 415 625 405 264 1,259 1,194 (431)
Share in profit (loss) of
affiliated company.......... -- -- -- 8 (21) (23) (23) (33)
------ ------ ------ ------ ------ ------ ------ ------
Net income.................... $ 575 $ 415 $ 625 $ 413 $ 243 $1,236 $1,171 $ (464)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

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

(1) Amounts exclude amortization of deferred stock-based compensation, which is
reported above as a separate operating expense, for the quarters ended:

<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cost of maintenance....... $ -- $ -- $ -- $ -- $ 2 $ 2 $ 2 $ 20

Research and
development............. 17 13 15 18 17 65 256 212

Sales and marketing....... 8 5 4 10 9 7 6 255

General and
administrative.......... 2 3 2 2 1 390 1,081 1,936
------ ------ ------ ------ ------ ------ ------ ------

$ 27 $ 21 $ 21 $ 30 $ 29 $ 464 $1,345 $2,423
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

24
<PAGE>
As a percentage of total revenue:

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License..................... 76.4% 73.6% 70.1% 66.8% 57.7% 72.2% 72.2% 74.6%
Maintenance................. 23.6 26.4 29.9 33.2 42.3 27.8 27.8 25.4
------ ------ ------ ------ ------ ------ ------ ------
Total revenues............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License..................... 3.5 3.7 2.8 4.0 3.7 2.3 2.8 1.7
Maintenance................. 2.4 2.5 2.7 3.3 4.4 3.0 3.5 2.9
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues.... 5.9 6.2 5.5 7.3 8.1 5.3 6.3 4.6
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 94.1 93.8 94.5 92.7 91.9 94.7 93.7 95.4
Operating expenses:
Research and development.... 30.6 31.6 28.6 29.2 27.4 21.4 16.6 27.0
Sales and marketing......... 22.7 34.2 29.3 31.5 42.4 27.5 25.4 26.8
General and
administrative............ 10.5 8.8 8.5 15.2 9.8 6.3 6.8 10.7
Amortization of deferred
stock-based
compensation.............. 1.4 0.9 0.9 1.2 1.2 10.6 23.7 38.2
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 65.1 75.6 67.3 77.0 80.8 65.8 72.5 102.7
------ ------ ------ ------ ------ ------ ------ ------
Income from operations........ 29.0 18.2 27.2 15.7 11.1 28.9 21.2 (7.3)
Interest income............... 0.5 0.7 0.5 0.6 0.7 0.4 0.3 0.6
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes.... 29.5 18.9 27.7 16.2 11.8 29.3 21.5 (6.7)
Provision for income taxes.... (0.6) (0.4) (0.5) (0.5) (1.0) (0.5) (0.5) (0.1)
------ ------ ------ ------ ------ ------ ------ ------
Income before affiliated
company profit (loss)....... 28.9 18.5 27.2 15.7 10.8 28.7 21.0 (6.8)
Share in profit (loss) of
affiliated company.......... -- -- -- 0.3 (0.9) (0.5) (0.4) (0.5)
------ ------ ------ ------ ------ ------ ------ ------
Net income.................... 28.9% 18.5% 27.2% 16.0% 9.9% 28.2% 20.6% (7.3)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

Our total revenues have generally increased in each period presented. The
increase in license revenues in the quarter ended June 30, 1999 was primarily
due to increased sales of new versions of two of our products, which were
released in March 1999. The increase in maintenance revenues was primarily due
to the recognition of maintenance revenues attributable to our growing installed
customer base. Total operating expenses have increased as we have grown our
infrastructure to support our expanding operations, including expanding our
sales force and increasing our research and development and general and
administrative headcount and related expenses.

We have experienced seasonal patterns in the past and we expect to
experience seasonal patterns in future periods. Specifically, we would expect to
experience stronger demand for our products during the quarter ending
December 31 and weaker demand in the quarter ending March 31 due to the fact
that the budget cycles of our December 31 fiscal year-end customers generally
result in their spending more in the last quarter and less in the first quarter
of the year.

RECENT DEVELOPMENTS

In February 2000, we: (i) sold 253,893 shares of our Series A preferred
stock for an aggregate purchase price of approximately $1.8 million;
(ii) converted from an S corporation to a C corporation for income tax purposes
effective January 1, 2000; and (iii) reincorporated from California to Delaware.
We expect to incur a non-cash charge against earnings attributable to common
stockholders of approximately $1.2 million in the first quarter of 2000 as a
result of the beneficial conversion feature of the Series A preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our business to date from cash generated by our operations.
As of December 31, 1999, we had cash of $1.8 million.

Cash provided by operating activities was $192,000, $3.2 million and
$7.2 million in 1997, 1998 and 1999. The increases in 1998 and 1999 were
primarily due to increases in net income, amortization of

25
<PAGE>
deferred stock-based compensation, deferred revenue resulting from additional
maintenance contracts and accrued expenses, offset by increases in accounts
receivable resulting from increased sales.

Cash used in investing activities was $176,000, $305,000 and $882,000 in
1997, 1998 and 1999. Cash used in investing activities was primarily for
purchases of property and equipment in each period. Capital expenditures totaled
$176,000, $297,000 and $882,000 in 1997, 1998 and 1999.

Cash used in financing activities was $231,000, $2.9 million and
$4.5 million in 1997, 1998 and 1999 and is due primarily to distributions to
stockholders as a result of our status as an S corporation for income tax
purposes.

We have options to acquire the remaining 56% of Embarcadero Europe's capital
stock. If we had exercised our options on March 31, 2000, the acquisition would
have cost approximately $3.0 million. The other holders of the capital stock of
Embarcadero Europe have options to sell us their 56% of Embarcadero Europe's
capital stock. If they had exercised their options on March 31, 2000, the cost
to us would have been approximately $1.5 million. The options expire in
October 2001.

We have a $2,000,000 revolving credit facility with a bank that bears
interest at the prime rate and expires on May 31, 2001. At April 14, 2000, no
balance was outstanding under this facility. The facility is secured by accounts
receivable and other assets. Our credit facility requires us to maintain various
quarterly financial covenants, including convenants related to our tangible net
worth, working capital and total liabilities. We were in compliance with all of
the financial convenants under the facility at April 14, 2000.

We believe that our existing cash balances and cash equivalents and cash
from operations will be sufficient to finance our operations through at least
the next 12 months. If additional financing is needed, there can be no assurance
that such financing will be available to us on commercially reasonable terms, or
at all.

YEAR 2000 COMPLIANCE

The year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. We believe that all
of our material systems are substantially year 2000 compliant. To our knowledge,
we have not experienced any significant problems as a result of year 2000
issues.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and will be adopted
in the year 2001. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. We do not expect the adoption of this standard to have a material impact
on our results of operations, financial positions or cash flows.

In December 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-9, modification of SOP 97-2, "Software Revenue
Recognition with Respect to Certain Transactions." SOP 98-9 will be effective
for transactions that are entered into in fiscal years beginning after
March 15, 1999. Retroactive application is prohibited. We do not expect the
adoption of this standard to have a material impact on our results of
operations, financial positions or cash flows.

FOREIGN EXCHANGE RISK

As sales to Embarcadero Europe increase, we will be exposed to greater
volatility in fluctuations of the pound sterling. In the event we exercise our
option to acquire Embarcadero Europe, we will be exposed to volatility in
fluctuations of other currencies as well. To date, we have not used hedging
contracts to hedge our foreign-currency fluctuation risks. We will assess the
need to utilize financial instruments to hedge currency exposures on an ongoing
basis. We also do not use derivative financial instruments for speculative
trading purposes.

26
<PAGE>
BUSINESS

OVERVIEW

We provide software products that enable organizations to build and manage
e-business applications and their underlying databases. Our suite of products
allows customers to manage the database life cycle, which is the process of
creating, deploying and enhancing databases in response to evolving business and
software application requirements. By simplifying the management of the database
life cycle, our products allow organizations to rapidly develop and ensure the
availability of critical e-business applications. During 1999, we issued more
than 12,600 new user licenses and received more than 8,800 maintenance renewals.
We have thousands of customers across a range of industries, including
technology, telecommunications and financial services.

INDUSTRY BACKGROUND

In today's highly competitive markets, a growing number of organizations are
using the Internet to conduct business electronically. This e-business model has
led to the proliferation of new Internet-based, or e-business, software
applications. Businesses are becoming increasingly reliant on these e-business
applications to run critical parts of their operations and to collect important
customer and market information. These applications will continue to gain in
strategic importance as organizations seek to access and store an increasing
volume of information while providing access to that information to a greater
number of users.

While the Internet has fundamentally changed how organizations gather,
manage and distribute information, it has also presented a new set of business
and technology challenges. Given limited IT resources and intense time-to-market
pressures, organizations must ensure that the right software applications are
designed and built on time and within budget. Organizations must ensure that
these applications are up-and-running with optimal performance. Downtime--either
scheduled or unplanned--must be kept to an absolute minimum. The Internet allows
customers to quickly evaluate and switch to competing products or services,
thereby increasing the need for successful application performance. A poorly
designed or poorly performing application can have a significant operational and
financial impact, such as poor customer service, a reduction in brand equity or
significant lost revenue.

Software applications for e-business are designed to provide reliable
storage and flexible access to critical business information. Databases, which
are a proven technology for storing and accessing information, provide the
essential infrastructure of e-business applications. Dramatic improvements in
the cost and performance of computer hardware and networking technologies are
accelerating the proliferation of databases supporting e-business strategies.
The proliferation of software applications from Internet and e-business
initiatives has increased the demands on databases as organizations face
numerous business and technology challenges, including storing massive amounts
of customer data, handling increasing numbers of users and utilizing information
from disparate systems.

Historically, organizations have relied on a combination of highly trained
professionals and an assortment of software tools to manage their databases. As
e-business applications have proliferated, so have the demands placed on IT
professionals who must ensure the availability and performance of the underlying
databases. Many organizations struggle to keep pace with the simultaneous
pressures to build more applications, support more users and manage more data
within increasingly complex computing environments. At the same time, these
organizations are finding it increasingly difficult to staff database management
positions due to the limited supply of qualified IT professionals. As a result,
experienced database administrators and developers are being asked to do more in
less time and less experienced IT personnel are being asked to become more
proficient at a faster rate. This strain on IT professionals is compounded by
the growing complexity of IT systems and the need to be proficient with
different types of databases.

27
<PAGE>
Traditional software solutions for managing databases do not adequately
address the challenges of today's e-business environment. Many of these
solutions are designed for expert database administrators and developers and are
therefore too complex for less experienced IT personnel. This complexity often
prevents users of these solutions from becoming proficient without extensive
training. Also, these traditional solutions do not lend themselves to rapid
deployment, often requiring a lengthy installation process and extensive
configuration. These solutions can end up costing more than the database
software they are designed to manage. In many cases, traditional database
management solutions operate only on a single type of database, such as Oracle.
Since businesses often use databases from several different vendors to support
their e-business applications, IT professionals are forced to use a variety of
database-specific products to manage this heterogeneous environment. These
problems with traditional software solutions typically increase the time between
conception and implementation, making it difficult for organizations to rapidly
develop applications to meet changing e-business objectives.

Most traditional solutions also fail to adequately address the database life
cycle. Databases must first be designed and created, then frequently redesigned
and enhanced to support changing applications. This database life cycle includes
three phases: design, development and administration. The design phase focuses
on translating business requirements into technical specifications. The
development phase translates these technical specifications into software
applications. The administration phase involves concurrently managing these
software applications while ensuring their availability, performance, security
and recoverability. As business needs change, the process starts over again with
the need for new or enhanced applications. Most traditional solutions require
users to employ different software products with unique user interfaces and
capabilities to address each phase of the database life cycle.

As a result, we believe that there is a significant opportunity for a
database management solution that meets the demands of the e-business
environment. This solution should provide the following benefits:

- accelerate time-to-market by allowing users to produce effective work
results sooner;

- enhance the reliability and availability required of e-business
applications;

- alleviate the strain on IT resources, especially database professionals;

- provide a suite of solutions to manage the database life cycle; and

- manage an increasingly diversified and distributed database
infrastructure.

28
<PAGE>
THE EMBARCADERO SOLUTION

We provide software products that enable organizations to build and manage
e-business applications and their underlying databases. Our suite of software
solutions is designed to:

DEVELOP AND SUPPORT E-BUSINESS APPLICATIONS. Our solution allows customers
to rapidly develop applications that meet the rigorous requirements of today's
e-business environment. Our suite of products enables customers to manage the
phases of the database life cycle from a common user interface, which reduces
the training required to learn and use our products. As a result, we believe
that users can more efficiently create, maintain and enhance e-business
applications with our integrated suite of products. Our design products allow
customers to reduce the time between conception and implementation of their
e-business applications. Our development products allow companies to create and
test complex application code from an easy-to-use graphical user interface. Our
administration products ensure the performance, security, availability and
recoverability of e-business applications across a diverse mix of underlying
databases.

INCREASE UTILIZATION OF EXISTING TECHNOLOGY. Our products enable
organizations to more effectively utilize their existing database
infrastructure. Most large organizations employ a mix of databases to support
different business applications. We believe our suite of products, with its
multi-vendor support, provides the only integrated solution for designing,
developing and administering a variety of databases.

LEVERAGE CONSTRAINED IT RESOURCES. Our products enable organizations to
enhance the productivity of IT professionals in managing the database life
cycle. Our products increase the productivity of both experienced database
administrators and less experienced IT professionals through the intuitive user
interface used across our entire product line. This reduces the amount of
training needed to begin using our software and simplifies the complexity of
database programming. Our products also allow organizations to replace numerous,
costly point or database-specific solutions with an integrated solution which
addresses each phase of the database life cycle.

FACILITATE RAPID ADOPTION. From our inception, we have strived to make it
easy for our customers to discover, try, purchase and use our products. We
design our products to leverage the Internet by promoting downloaded trial
versions, enabling the purchase of our products, providing upgrades and offering
maintenance directly from our web site. We also design our products to install
within minutes with minimal configuration and to require limited on-going
maintenance. Customers can rapidly implement and utilize our products in
designing, developing and managing the databases that support their critical
applications. We believe these factors give our products a competitive advantage
relative to most traditional solutions.

GROWTH STRATEGY

Our objective is to become the leading provider of software solutions that
enable organizations to build and manage e-business applications and their
underlying databases. The key elements of our strategy are to:

EXPLOIT THE GROWING DEVELOPMENT OF E-BUSINESS APPLICATIONS. We plan to
continue to design our products for, and market our products to, organizations
implementing e-business applications. We believe that the growth and strategic
importance of the Internet is significantly increasing the development of new
software applications to conduct e-business. We believe that many of our
existing customers have increased their purchases of our products to support
their e-business applications. We also believe new Internet-based companies are
purchasing our products to quickly and reliably introduce new e-business
applications. During 1999, many Internet-based companies became our customers,
including CarsDirect.com, E*TRADE, eStamp, GoTo.com, InterVU, NetZero and
Yahoo!. We intend to increase our sales to both existing and new customers who
are developing and deploying e-business applications.

29
<PAGE>
EXTEND PRODUCT LEADERSHIP. We believe that our suite of products provides
the leading software solution to manage the database life cycle. Our products
share a core technology architecture, which we believe provides significant
advantages over competing products. This architecture reduces the cost of
product development, accelerates the time-to-market for new products and enables
us to maintain a common interface across the entire product suite. Our current
products already feature a number of important technologies for facilitating the
sharing and publication of applications and information over the Internet,
including Java, HTML and XML. We plan to build upon our database and Internet
technologies to enhance and expand our product offerings for e-business
initiatives and incorporate new technologies as they are introduced to the
market. We may seek to enhance our product leadership through the licensing or
acquisition of complementary technologies or businesses.

LEVERAGE OUR INSTALLED CUSTOMER BASE. We believe that our installed
customer base represents a significant revenue opportunity. During 1999, we
issued over 12,600 new user licenses and received maintenance renewals for over
8,800 users. Most of our customers initially purchase only one or two of our
products for a limited number of users in specific business locations. We
believe that we can sell more deeply into our installed customer base by selling
additional licenses of purchased products, by cross-selling other products and
by expanding departmental deployments into enterprise-wide implementations.

EXPAND OUR DIRECT SALES AND MARKETING EFFORTS. We plan to increase sales by
expanding our telesales efforts and building a field sales organization. Our
direct telesales force reduces the need for remote sales offices and customer
site visits by effectively using the telephone and Internet for product
demonstrations and product sales. We believe this direct telesales approach
allows us to respond more rapidly to customer needs while maintaining an
efficient, low-cost sales model. To complement our telesales efforts, we are
building a focused field sales organization to further penetrate and better
manage major accounts in the United States. In particular, we believe that a
field sales organization will facilitate enterprise-wide implementations of our
products by new and existing customers. We also plan to direct marketing efforts
at IT management, focusing on the value that our products can create for
organizations when developing, deploying and maintaining critical e-business
applications.

EXPAND OUR INTERNATIONAL DISTRIBUTION. We plan to expand our international
distribution capabilities. Although our products are sold worldwide, revenues
outside of North America represented only 10.9% of total revenues in 1999 and
were generated primarily by our affiliated distributor, Embarcadero Europe Ltd.
We believe there is a significant opportunity to expand sales of our software
products internationally. We have recently entered into an agreement with a
distributor covering Japan. We intend to increase our international distribution
by expanding direct selling efforts through Embarcadero Europe, initiating
distribution in Japan and developing stronger relationships with other
international distributors.

30
<PAGE>
PRODUCTS

Our suite of products enables organizations to design, develop and
administer databases which support e-business applications. Our products are
designed to work individually and together to provide rapid development and
optimal performance of applications that are critical as enterprises deploy and
extend their information technology infrastructure. We can bundle our products
to offer an integrated database life cycle solution for a particular database,
such as Oracle, or to support a multi-vendor database environment, such as
Oracle, Microsoft SQL Server and IBM DB2 UDB databases running simultaneously.
Our products and their functionality are summarized below:

<TABLE>
DATABASE LIFE
CYCLE PHASE
PRODUCT DESCRIPTION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Design ER/Studio Captures business requirements and translates them into
database applications from a graphical user interface

Development Rapid SQL Streamlines the process of developing complex database
code in a graphical environment

Administration DBArtisan Ensures the availability, performance, security and
recoverability of applications through the management of
a mix of database types from a single graphical console

DB Artisan Change Provides software configuration management for databases
Manager by storing accurate records of database changes over
time
</TABLE>

Our products run on personal computers using Windows operating systems and
manage databases that run in Unix, Windows NT and Linux environments. Our
products support each of the most widely-used database platforms, including
Oracle, Microsoft SQL Server, IBM DB2 Universal Database and Sybase.

DATABASE DESIGN

ER/STUDIO. ER/Studio addresses the design phase of the database life cycle.
Designing a software application begins with a detailed understanding of both
the business requirements addressed by the application and their technical
ramifications. By carefully creating a blueprint of business requirements for an
application, organizations are more likely to successfully build and rapidly
deploy reliable applications.

ER/Studio automates the process of capturing business requirements for an
application and its underlying database. With its intuitive graphical user
interface, ER/Studio allows users to design databases using pictures or objects
and reduces the need for users to know and write software code. ER/Studio
automatically converts these objects into database code, which users can easily
review and edit with simple mouse commands. In addition to designing new
applications, customers can use ER/Studio to maintain, enhance and integrate
existing applications. They can use ER/Studio's capabilities to reverse-engineer
existing applications into easily understood diagrams. Once captured in a design
format, users can easily annotate the intended functions of an application's
elements.

31
<PAGE>
DATABASE DEVELOPMENT

RAPID SQL. Rapid SQL addresses the development phase of the database life
cycle. A large portion of the software technology underlying an application is
database code that implements business requirements. For example, database code
required for e-commerce sites includes routines that check for the availability
of inventory or that validate a purchaser's credit card number. Problems in
writing complex database code can lead to substantial delays or even failure of
the development project.

Rapid SQL offers a rich graphical environment that streamlines the process
of developing complex database code. Rapid SQL allows users to write database
code more efficiently by using templates that reduce the need for manual coding.
It also streamlines the testing process by automatically identifying programming
errors. With Rapid SQL, customers can improve their productivity, cut
development times and reduce programming errors.

DEBUGGER. Debugger is an add-on product to both DBArtisan and Rapid SQL
that extends their functionality to help troubleshoot database-programming
errors. Developers often find it difficult to locate the source of programming
errors, especially with large and complex database code. Generally, the hardest
part of fixing an error is finding its underlying cause. Debugger is designed to
simplify the process of troubleshooting errors by leading users through the
execution of code in order to identify the source of errors quickly.

DATABASE ADMINISTRATION

DBARTISAN. DBArtisan addresses the administration phase of the database
life cycle. After launching e-business applications, organizations rely on IT
professionals to maintain the performance, availability, security and
recoverability of the underlying databases. Database administration requires the
constant attention of IT staff. Typical management tasks include backing up the
information stored in a database, analyzing database integrity, controlling
access to customer accounts and information, upgrading to new versions of
databases, testing proposed changes to a database before implementing them and
monitoring the availability of servers. Many of these projects can take hours,
even days, to complete using traditional solutions.

DBArtisan is designed to simplify database administration and facilitate
day-to-day database management. Its easy-to-use graphical console permits the
simultaneous administration of several databases and automates many tedious
administrative tasks. For example, using DBArtisan, IT professionals can copy
code from one database to another without manually entering any code, review
graphs that indicate how much space is available in various databases and
rapidly identify the source of a problem with an application. These capabilities
can increase users' productivity and reduce human error, which can lead to
increased application availability and performance.

DBARTISAN CHANGE MANAGER. DBArtisan Change Manager is a companion product
to DBArtisan that is designed to extend its basic functionality to provide
software configuration management for databases. DBArtisan Change Manager
automates the tedious and error-prone process of capturing and managing complete
definitions of databases, known as database schemas. It allows users to capture
and archive objects comprising a database application and promotes the
recoverability of databases by storing accurate records of database changes over
time. For example, an Internet-based financial services company used DBArtisan
Change Manager to safely move database code changes from development to test to
production and shorten system downtime for database changes. As a result, the
customer experienced fewer planned and unplanned outages of its web site.

32
<PAGE>
CUSTOMERS

We have thousands of customers representing a wide, cross-industry spectrum
of industrial corporations, service companies, financial institutions,
government agencies and technology companies. During 1999, we issued over 12,600
new user licenses and received maintenance renewals for over 8,800 users
worldwide.

A representative sample of companies that have purchased at least $75,000 in
software licenses and maintenance since January 1, 1997 includes:

TECHNOLOGY

- - America Online

- - Hewlett-Packard

- - Intel

- - IBM

- - Micron Technology

- - UUNet

TELECOMMUNICATIONS

- - AT&T

- - Bell Mobility

- - BellSouth

- - Excel Communications

- - MCI WorldCom

- - U.S. West

- - Williams Communications

ENERGY

- - Bonneville Power

- - PG&E

- - Sonat Energy Services

- - TransCanada Pipelines

FINANCIAL SERVICES

- - Aetna

- - Banc One

- - Bank of America

- - Bear Stearns

- - CNA Financial

- - Donaldson, Lufkin & Jenrette

- - Dun & Bradstreet

- - Fidelity

- - FleetBoston Financial

- - GE Capital

- - Jackson National Life Insurance

- - John Hancock

- - MBNA

- - Merrill Lynch

- - Morgan Stanley Dean Witter

- - Northwestern Mutual

- - Providian Financial

- - Prudential

- - Reuters

- - State Street Global Advisors

- - Strong Capital Management

SERVICES

- - Andersen Consulting

- - Computer Sciences Corporation

- - EDS

- - Frank Russell Company

- - Greyhound Lines

- - Nielsen Media Research

OTHER

- - 3M

- - Anheuser-Busch

- - Blue Cross and Blue Shield

- - Kaiser Foundation Health Plan

- - NBC

- - Owens-Illinois

- - Sandia National Laboratories

- - Sony

- - State of Washington

- - Walt Disney

CASE STUDIES

The following case studies have been chosen to illustrate how some
well-known companies are using our products to address different phases of the
database life cycle.

NORTHROP GRUMMAN

Northrop Grumman is a leading defense electronics, system integration and
information technology company that provides an array of world-class
technologies and core competencies to military and commercial markets.

BUSINESS CHALLENGE. Northrop Grumman Integrated Systems and Aerostructures
Sector utilizes large database applications to support the manufacturing of
airplanes. For example, Northrop Grumman's TRACAT management system tracks
problems that arise during the production of an aircraft and their resolution.
The critical nature of applications such as the TRACAT system makes it crucial
that the database development team at Northrop Grumman Integrated Systems and
Aerostructures Sector build and maintain databases that can support vast amounts
of data and users while maintaining data integrity.

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<PAGE>
SOLUTION. Northrop Grumman Integrated Systems and Aerostructures Sector
selected ER/Studio as its solution for the design and maintenance of databases
that run critical applications. Utilizing ER/ Studio, Northrop Grumman
Integrated Systems and Aerostructures Sector's database developers have been
able to create and maintain very large and scalable databases. ER/Studio's
ability to generate a visual picture of the multiple and complex relationships
among Northrop Grumman ISA's databases allows its database administrators to
easily build applications and extend their functionality. Northrop Grumman
Integrated Systems and Aerostructures Sector's database administrators have also
found that ER/Studio can help in other difficult, error-prone database
management tasks, such as the comparing, synchronizing and moving of a database,
which is known as a database migration. According to Northrop Grumman Integrated
Systems and Aerostructures Sector's IT staff, ER/Studio allowed one programmer
to accomplish a difficult database migration in four days, a task which might
have taken multiple developers weeks otherwise to complete.

CYBERGOLD

CyberGold is an online incentives marketing company with an Internet
community estimated by CyberGold to have approximately 4.5 million members.

BUSINESS CHALLENGE. To attract and retain members, CyberGold constantly
introduces new promotions, content and features to its web sites. The
implementation of these enhancements can require complex database programming,
which CyberGold needs to accomplish as quickly as possible with minimal errors.
These programming changes are critical to CyberGold because most actions a
consumer takes in interacting with CyberGold's web site, including signing up,
logging in, earning incentive rewards and purchasing an item, involve database
access and updates.

SOLUTION. To support the demands of its constantly changing web site,
CyberGold selected Rapid SQL for the development of its web sites' underlying
databases. CyberGold believes that Rapid SQL simplifies the development process
because it provides an easy-to-use development environment capable of
automatically generating code necessary to accomplish complex programming tasks
with optimal results. According to CyberGold's IT staff, Rapid SQL has led to
increased productivity, shorter development cycles and improved software
quality. With Rapid SQL, CyberGold IT professionals can more quickly write
complex database programming instructions that deliver valuable information and
reports to management, enabling them to make more timely business decisions.

MCI WORLDCOM

MCI WorldCom is a global leader in communications services with operations
in more than 65 countries.

BUSINESS CHALLENGE. The growth of MCI WorldCom's business largely depends
on the success of its sales force. A key tool for its sales organization is its
Forecast Information Revenue Sales Tool application, which generates, tracks and
reports on sales activities. The application must be available continuously
because any downtime could result in poor customer service and erroneous
customer information provided to decision makers. MCI WorldCom must ensure that
the application and the underlying databases are designed effectively, developed
rapidly and managed to provide optimal availability and performance.

SOLUTION. MCI WorldCom chose our suite of database design, development and
administrative products to manage the life cycle of the database underlying one
of its most critical applications. According to MCI WorldCom's IT staff, the
easy-to-use integrated product suite of ER/Studio, Rapid SQL and DBArtisan lets
them move from design to production in a fraction of the time that it took prior
to adopting our solution. Additionally, the improved ability to identify
performance bottlenecks and database errors using our products ensures that the
application will be continuously available to the sales force, once it is in
production. Also, by having its designers, developers and database

34
<PAGE>
administrators standardize on a solution with a consistent user interface, MCI
WorldCom has experienced enhanced communication, collaboration and productivity
associated with its development projects.

SALES AND MARKETING

NORTH AMERICAN SALES. We sell our software in the U.S. and Canada primarily
through our direct telesales force, which has allowed us to build a broad
customer base efficiently. By leveraging the effective use of the telephone and
the Internet for product evaluations and sales, our direct telesales approach
allows us to respond more rapidly to customer needs while maintaining an
efficient, low-cost sales model. We intend to continue to build our telesales
organization. In addition, we plan to complement our direct telesales effort
with a focused field sales organization that will target major accounts. The
field sales organization is intended to help us further penetrate and better
manage large customer accounts and to drive larger sales transactions and
enterprise-wide implementation of our products. Currently, sales cycles range
between 2-3 months for departmental sales and up to 12 months for large-scale
implementations.

INTERNATIONAL SALES. We sell our software internationally primarily through
distributors and plan to expand our global distribution capabilities.
International sales represented 10.9% of our total revenues in 1999 and were
generated primarily by our affiliated distributor, Embarcadero Europe Ltd.,
which manages the sales, marketing, distribution and support of our products in
Europe, the Middle East and Africa. In other overseas markets, we intend to sell
our products through independent distributors, which will generally have
non-exclusive distribution rights for their respective territories. We have
entered into a three-year agreement with a Japanese distributor with exclusive
rights to sell our products to end users in Japan. Our international
distributors perform sales, marketing and technical support functions for their
local customers.

MARKETING. Our marketing efforts focus on generating sales leads and
building brand awareness about our products. Our marketing efforts include
advertising in trade journals, promoting a strong web presence, maintaining an
active public relations program, attending user group conferences, participating
in major database trade shows and forging strategic alliances with other
technology companies. We plan to increase our marketing efforts directed at IT
management to facilitate wider deployments of our products. In addition, we may
enter into strategic marketing relationships with other companies whose business
goals complement our own.

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<PAGE>
CUSTOMER SERVICE AND SUPPORT

CUSTOMER SERVICE. Our customer service department handles customer
inquiries about product licensing. Customer service representatives activate
customer licenses and are responsible for managing maintenance renewals. We team
customer service representatives with salespeople in order to provide a
coordinated approach to customer sales and service requirements.

TECHNICAL SUPPORT. Customers receive technical support for the first
60 days after licensing a product. In addition, customers may extend the period
of technical support by purchasing maintenance contracts. We offer optional
annual service contracts to customers that entitle them to receive all product
upgrades and technical support. Our standard maintenance contract covers a
12-month period, is payable in advance and is renewable at the customer's
option.

Technical support is provided for North American customers through our
offices in San Francisco, California. We currently offer technical support from
6 a.m. to 6 p.m., Pacific Time, Monday through Friday. In the future, we plan to
offer premium service plans providing for around-the-clock service for an
additional fee. We deliver technical support by email, fax or telephone.
Depending on the product involved and the nature of the inquiry, a technical
support dispatcher assigns and routes cases to the appropriate technical support
engineer. As sales of our products grow, we plan to hire more support personnel.

Internationally, our distributors are generally responsible for providing
customer service and technical support.

RESEARCH AND DEVELOPMENT

Our research and development efforts are focused primarily on enhancing our
core technology and existing products, and developing additional applications
that enable organizations to manage the database life cycle. Members of our
research and development group have extensive experience in databases, database
management software, enterprise applications and Internet technologies. We
organize our research and development staff into discrete engineering teams
responsible for specific products in each phase of the database life cycle. Our
core engineering team is responsible for enhancing our current database
administration products and exploring new product technologies for the
administration phase of the database life cycle. Separate engineering teams
focus on our database design and database development product lines. We
supplement our internal software development efforts by using outside
contractors when we believe they can perform discrete programming tasks more
effectively. In addition, we are establishing relationships with contractors
that may undertake product development efforts in exchange for fees and/or
royalties.

Our software development approach consists of a well-defined methodology
that provides guidelines for planning, controlling and implementing projects. We
employ a daily-build process that increases the collaboration, communication and
accountability of all software development team members individually and
collectively. Because we build on a core architecture, our products are tightly
integrated, which helps to reduce the number of application development errors.
Our engineering teams work closely with our quality assurance organization in an
effort to ensure quality product releases. As each product development program
approaches release, the software undergoes rigorous, iterative testing, bug
fixing, code stabilization and documentation.

Our future success depends largely on our ability to continue enhancing
existing products and to develop new ones that reinforce our competitive
position and our value proposition to customers. We have made and will continue
to make substantial financial and organizational investments in research and
development. Extensive product development input is obtained through customer
feedback, by monitoring evolving user requirements and by evaluating competing
products. We have instituted a

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<PAGE>
product marketing function that is responsible for translating customer
requirements and market opportunities into product development initiatives that
our engineering teams can execute.

PROPRIETARY RIGHTS

We license our software products primarily under shrink-wrap licenses
included as part of product packaging. Shrink-wrap licenses are not negotiated
with or signed by individual licensees and purport to take effect upon the
opening of the product package or downloading of the product from the Internet.
These measures afford only limited protection. Policing unauthorized use of our
products is difficult and we are unable to determine the extent to which piracy
of our software exists. In addition, the laws of some foreign countries do not
protect our proprietary rights as well as United States laws.

We may have to enter into litigation to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others with respect to our rights. Litigation is generally very expensive and
can divert the attention of management from daily operations. Accordingly,
intellectual property litigation could materially adversely affect our business
and operating results.

COMPETITION

Our products also compete with products offered by the manufacturers of the
database services with which they are compatible, including Oracle, Microsoft
and IBM. Some of these competing products are provided at no charge to their
customers. We expect that companies such as Oracle, Microsoft and IBM will
continue to develop and incorporate into their products applications which
compete with our products and may take advantage of their substantial financial,
technical, marketing and distribution resources in those efforts.

We presently compete on numerous factors, including product functionality
and heterogeneity, reliability, ease-of-use, performance, scalability,
time-to-market, customer support and total cost of ownership. We believe that we
currently compete favorably overall. However, the market for our products is
dynamic and we may not compete successfully in the future with respect to one or
more of these factors.

Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing and other resources and greater name
recognition than we do. They also may be able to respond more quickly than we
can to changes in technology or customer requirements. Competition

37
<PAGE>
could seriously impede our ability to sell additional products on acceptable
terms. Our competitors may:

- develop and market new technologies that render our products obsolete,
unmarketable or otherwise less competitive;

- establish or strengthen cooperative relationships with channel or
strategic partners which limit our ability to sell or to co-market
products through these channels.

EMPLOYEES

As of December 31, 1999, we had 105 employees, 43 of whom were engaged in
research and development, 36 in sales and marketing, 14 in customer service and
support and 12 in finance and administration. Our future performance depends
largely on our continuing ability to attract, train and retain highly qualified
technical, sales, service, marketing and managerial personnel. None of our
employees is represented by a collective bargaining agreement. We have not
experienced any work stoppages and consider our relations with our employees to
be good.

FACILITIES

Our principal offices currently occupy approximately 14,500 square feet in
San Francisco, California pursuant to leases that expire in June 2004. In
addition, we maintain a research and development facility of approximately 4,600
square feet in Pacific Grove, California pursuant to leases that expire in
August 2002 and December 2003.

We believe that our facilities are adequate for the next six to nine months
and that, if required, we can lease suitable additional space on commercially
acceptable terms to accommodate expansion.

LEGAL PROCEEDINGS

We are not currently a party to any material pending legal proceedings.

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<PAGE>
MANAGEMENT

OFFICERS AND DIRECTORS

The following table sets forth information regarding our officers and
directors as of April 18, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---------- --------
<S> <C> <C>
EXECUTIVE OFFICERS
Stephen R. Wong........................ 40 Chairman
Ellen W. Taylor........................ 62 President, Chief Executive Officer and
Director
Raj P. Sabhlok......................... 36 Senior Vice President of Finance and
Corporate Development
Walter F. Scott III.................... 33 Vice President of Sales
Coleen J. Weeks........................ 39 Vice President of Marketing

OTHER OFFICERS
Susan A. Fleck......................... 56 Vice President of Customer Care
Nigel C. Myers......................... 32 Vice President of Product Development
Jeffrey Newman......................... 45 Vice President of Product Development

DIRECTORS
Frank J. Polestra(1)(2)................ 74 Director
Dennis J. Wong(2)...................... 43 Director
Michael J. Roberts(1).................. 42 Director
</TABLE>

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

(1) Member of the audit committee

(2) Member of the compensation committee

EXECUTIVE OFFICERS

STEPHEN WONG is a co-founder of Embarcadero and has served as our
Chairman since July 1993. From July 1993 until October 1999, Mr. Wong also
served as our Chief Executive Officer. From May 1985 to May 1990, Mr. Wong
served as an associate, and subsequently as a partner, of Montgomery Medical
Ventures, a venture capital firm, where he specialized in technology
transfer and early stage investments. Mr. Wong holds his A.B. from Harvard
College and an M.B.A. from the Harvard Business School. Mr. Wong and Dennis
Wong, a member of our board of directors, are brothers.

ELLEN TAYLOR has served as our President and Chief Executive Officer
since October 1999. From December 1998 until October 1999, she served as
Vice President for Worldwide Marketing at Weather Services
International, Inc., a division of Litton Industries. From June 1998 until
September 1998, she served as Senior Vice President of PC DOCS, a document
and knowledge management company. From May 1996 until December 1997, Ms.
Taylor served as Chief Operating Officer of Wright Strategies, Inc, a
personal digital assistant software company. From May 1991 until
October 1995, Ms. Taylor served as Vice President and General Manager of the
Norton Utilities Product Group of Symantec Corp., a software company.
Ms. Taylor holds a B.A. degree from San Diego State University.

RAJ SABHLOK has served as our Senior Vice President of Finance and
Corporate Development since January 2000. From March 1995 until
December 1999, he served as the Director of Business Development of BMC
Software, Inc., a software company. From February 1988 until February 1995,
Mr. Sabhlok held a number of technical, marketing and sales management
positions with

39
<PAGE>
The Santa Cruz Operation, Inc., a UNIX software development company.
Mr. Sabhlok holds a B.A. degree in Mathematics from the University of
California, Santa Cruz.

WALTER SCOTT III has served as our Vice President of Sales since
January 2000. From April 1994 to January 2000, he worked in several
executive sales positions including Senior Program Director of Americas
Marketing, Sales Manager of Growth Accounts and Senior Sales Representative
at BMC Software, Inc. Mr. Scott holds a B.A. degree in Marketing and an
M.B.A. degree from the University of Maine.

COLEEN WEEKS is a co-founder of Embarcadero and has served as our Vice
President of Marketing since August 1999. From January 1995 through
July 1999, Ms. Weeks served as our Vice President of Sales and Marketing and
from July 1993 through December 1994 as our Director of Marketing.
Previously, she was Director of Marketing for QCR Associates, a
pharmaceutical marketing research firm, from November 1988 until July 1993.
Ms. Weeks holds a B.A. degree from Georgia State University.

OTHER OFFICERS

SUSAN FLECK has served as our Vice President of Customer Care since
February 2000. From September 1997 until January 2000, Ms. Fleck served as
Vice President of Engineering Services responsible for quality assurance,
quality engineering, customer support, documentation, training and release
management for New Era of Networks, Inc., a software company. From
April 1991 to September 1996, she served as Director of Quality Assurance at
Attachmate Corporation, an enterprise information access and management
software and services company. Ms. Fleck holds a B.S. degree in Computer
Science from Kean College.

NIGEL MYERS is a co-founder of Embarcadero has served as our Vice
President of Product Development overseeing our San Francisco product
development group since July 1993. Mr. Myers holds a B.S. degree from Pace
University.

JEFFREY NEWMAN has served as our Vice President of Product Development
overseeing our Pacific Grove product development group since August 1999.
From November 1988 to July 1999, Mr. Newman served as co-founder and
President of NewCon Software Inc., a software consulting firm. From 1982 to
October 1988, he served as a senior software engineer with Digital
Research Inc., an operating systems software company.

DIRECTORS

FRANK POLESTRA has served as a director since November 1999. He has been
the Managing Director of Ascent Venture Partners since March 1999. From 1980
to February 1999, Mr. Polestra served as President of Pioneer Capital Corp.,
a venture capital firm. Mr. Polestra holds Ph.D. and M.S. degrees in
physical chemistry from Yale University and a Doctor of Chemistry degree
from the University of Naples, Italy.

DENNIS WONG has served as a director since July 1993. He is currently
the Managing Director of SPI Holdings, a real estate investment company
which he formed in September 1995. He is also the President of Prism Capital
Corp., an investment company which he formed in 1989. Mr. Wong holds an A.B.
degree from Harvard College and an M.B.A. degree from the Harvard Business
School. Mr. Wong is a trustee of the San Francisco Museum of Modern Art.
Mr. Wong and Stephen Wong, our Chairman, are brothers.

MICHAEL ROBERTS has served as a director since March 2000. He has been
Senior Lecturer and Executive Director of Entrepreneurial Studies at Harvard
Business School since June 1997. From 1995 through May 1997, Mr. Roberts
served as an independent consultant to new ventures primarily in the health
care services, wireless communications, automobile services and restaurant
industries. Mr. Roberts received his A.B. degree from Harvard College, and
an M.B.A. and Ph.D. degrees from Harvard Business School.

40
<PAGE>
STRATEGIC ADVISOR

ARTHUR ROCK has served as a strategic advisor to us since February 2000. Mr.
Rock has been Principal of Arthur Rock & Co., a venture capital firm, since
1969. He was a director of Intel Corporation from its founding in 1968 until
1999 and held positions of Chairman of the Executive Committee and lead Director
of the Board of Directors. Mr. Rock has been a director of AirTouch
Communications, Inc. and a trustee of the California Institute of Technology and
serves as a director of Echelon Corporation. Mr. Rock received a B.S. degree in
Political Science and Finance from Syracuse University and an M.B.A. degree from
Harvard University.

CLASSIFIED BOARD OF DIRECTORS

Our bylaws provide that all directors will be part of a classified board of
directors, consisting of three classes of directors, each serving staggered
three-year terms. As a result, only a portion of our directors will be elected
each year. We will elect directors to initial staggered terms prior to the
closing of this offering. See "Description of Capital Stock--Effect of Certain
Provisions of Our Certificate of Incorporation, Bylaws and the Delaware
Anti-Takeover Statute."

BOARD COMMITTEES

We have established an audit committee and a compensation committee. Frank
Polestra and Michael Roberts are currently members of the audit committee. We
intend to appoint another member to our Board and to the audit committee within
three months of the closing of this offering. The audit committee makes
recommendations to the board of directors regarding the selection of independent
auditors, reviews the scope of audit and other services by our independent
auditors, reviews the accounting principles and auditing practices and
procedures to be used for our financial statements and reviews the results of
those audits.

Frank Polestra and Dennis Wong are members of the compensation committee.
The compensation committee makes recommendations to the board of directors
regarding our stock and compensation plans, approves compensation of certain
officers and grants stock options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Dennis Wong, a member of the compensation committee, is the brother of
Stephen Wong, the former Chief Executive Officer and the current Chairman of
Embarcadero. During 1999, Stephen Wong received $60,000 in salary and $90,000 in
bonus compensation.

DIRECTOR COMPENSATION

Directors do not receive any cash fees for their service on the board or any
board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
board committee meetings. From time to time, directors who are not employees of
Embarcadero have received grants of options to purchase shares of our common
stock. Following this offering, directors will receive automatic option grants
under our 2000 Nonemployee Directors Option Plan. See "Stock Plans--2000
Nonemployee Directors Option Plan."

INDEMNIFICATION

Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for: (1) breach of their duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) unlawful payments of
dividends or unlawful stock repurchases or redemption's, or (4) any transaction
from which the director derived an improper personal benefit. This limitation of
liability

41
<PAGE>
does not apply to liabilities arising under the federal or state securities laws
and does not affect the availability of equitable remedies such as injunctive
relief or rescission.

Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers, and may indemnify our other employees and agents, to
the fullest extent permitted by law. We believe that indemnification under our
certificate of incorporation and bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws permit such indemnification.

We intend to enter into agreements to indemnify our directors and officers,
in addition to the indemnification provided for in our bylaws. These agreements,
among other things, will indemnify our directors and officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of Embarcadero arising out of services as one of our directors
or officers or such person's services to any of our subsidiaries or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified directors and officers.

There is no pending litigation or proceeding involving a director or officer
of Embarcadero in which indemnification is required or permitted, and we are not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.

EXECUTIVE COMPENSATION

The following table sets forth information regarding the compensation for
the fiscal year ended December 31, 1999 paid by us to each person who served as
Chief Executive Officer and to our other executive officers who received salary
and bonus compensation in 1999 of more than $100,000. These persons are
collectively referred to as the "Named Executive Officers." The compensation
table excludes other compensation in the form of perquisites and other personal
benefits that constitutes the lesser of $50,000 or 10% of the total salary and
bonus earned by each of the Named Executive Officers in 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- --------------------------- --------- -------- ------------
<S> <C> <C> <C>
Ellen W. Taylor (1)........................................ 44,141 -- 880,000(4)
President and Chief Executive Officer
Stephen R. Wong (2)........................................ 60,000 90,000 1,200,000(5)
Chief Executive Officer
Stuart E. Browning (3)..................................... 60,000 75,000 --
Vice President
Nigel C. Myers............................................. 60,000 75,000 --
Vice President of Development
Coleen J. Weeks............................................ 120,000 85,498 --
Vice President of Marketing
</TABLE>

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

(1) Ms. Taylor became our President and Chief Executive Officer on October 18,
1999. Her current annual salary is $220,000.

42
<PAGE>
(2) Mr. Wong served as our Chief Executive Officer from July 1993 through
October 1999 and currently serves as our Chairman.

(3) Mr. Browning served as a Vice President of the company until February 1,
2000.

(4) Three options granted on October 18, 1999 comprise this aggregate amount.
One option covers 440,000 shares and has an exercise price of $0.25 per
share. The second option covers 220,000 shares and has an exercise price of
$2.50 per share. The third option covers 220,000 shares and has an exercise
price of $5.00 per share. Each of the options expires on October 18, 2006.

(5) This option was granted on May 31, 1999 and has an exercise price per share
is $0.25. The option expires on May 31, 2006.

OPTIONS GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to stock options
granted during the fiscal year ended December 31, 1999 to each of the Named
Executive Officers. All options were granted under Embarcadero's 1993 Stock
Option Plan. Unless stated otherwise, options granted under that plan normally
vest over a four-year period in sixteen equal quarterly installments.

The percentage of options granted is based on an aggregate of 2,599,400
options we granted during the fiscal year ended December 31, 1999 to our
employees, including the Named Executive Officers.

The potential realizable value amounts in the last two columns of the
following chart are calculated by assuming a base price of $10.00 per share and
represent hypothetical gains that could be achieved for the respective options
if exercised and sold at the end of the option term. The assumed 5% and 10%
annual rates of stock price appreciation from the date of grant to the end of
the option term are provided in accordance with rules of the SEC and do not
represent our estimate or projection of the future common stock price. Actual
gains, if any, on stock option exercises are dependent on the future performance
of the common stock, overall market conditions and the option holder's continued
employment through the vesting period. This table does not take into account any
actual appreciation in the price of the common stock from the date of grant to
the present.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
------------------------------------------------- OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES IN PRICE/$ EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ellen W. Taylor........... 440,000 16.9 $ 0.25 10/18/06 6,081,241 8,464,355
220,000 8.5 2.50 10/18/06 2,545,620 3,737,178
220,000 8.5 5.00 10/18/06 1,995,620 3,187,178
Stephen R. Wong........... 1,200,000 46.2 0.25 5/31/06 16,585,202 23,084,605
Stuart E. Browning........ -- -- -- -- -- --
Nigel C. Myers............ -- -- -- -- -- --
Coleen J. Weeks........... -- -- -- -- -- --
</TABLE>

43
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information regarding exercised stock options
during the fiscal year ended December 31, 1999 and unexercised options held as
of December 31, 1999 by each of the Named Executive Officers. All options were
granted under Embarcadero's 1993 Stock Option Plan.

There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the initial
public offering price of $10.00 per share, less the applicable exercise price
per share, multiplied by the number of shares underlying such options.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ellen W. Taylor............ -- -- -- 880,000 -- 7,040,000
Stephen R. Wong............ 800,000 7,920,000 150,000 1,050,000 1,462,500 10,237,500
Stuart E. Browning......... 800,000 7,920,000 -- -- -- --
Nigel C. Myers............. 800,000 7,920,000 -- -- -- --
Coleen J. Weeks............ -- -- -- -- -- --
</TABLE>

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

EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS

Our 1993 Stock Option Plan provides that, upon a change in control of
Embarcadero, each outstanding option will generally become fully vested unless
the surviving corporation assumes the option or replaces it with a comparable
option.

We have entered into a letter agreement with Ms. Taylor, our President and
Chief Executive Officer, dated September 27, 1999. Under the letter agreement,
Ms. Taylor receives an annual base salary of $220,000 and is eligible for an
annual bonus of up to $130,000. Ms. Taylor also received an option to purchase
440,000 shares of common stock with an exercise price of $0.25 per share, an
option to purchase 220,000 shares of common stock at an exercise price of $2.50
per share and an option to purchase 220,000 shares of common stock at an
exercise price of $5.00 per share. In the event of a change of control within
six months of the commencement of Ms. Taylor's employment, or if the company
enters into an agreement that could result in a change of control within such
six-month period and the change of control occurs within nine months of the
commencement of her employment, Ms. Taylor's options will become exercisable
with respect to 50% of the underlying shares of common stock. In addition,
Ms. Taylor's options will become exercisable with respect to 25% of the
underlying shares of common stock if Ms. Taylor's employment with Embarcadero is
terminated without cause on or before October 19, 2000 or, if her employment
with Embarcadero is terminated without cause after October 19, 2000, her options
will continue to vest for six months following her termination. Ms. Taylor is
also entitled to twelve months' severance pay and benefits following her
termination without cause.

We have entered into a letter agreement with Mr. Sabhlok, our Senior Vice
President of Finance and Corporate Development, dated January 24, 2000. Under
the letter agreement, Mr. Sabhlok receives an annual base salary of $200,000 and
is eligible for an annual bonus up to $75,000. Mr. Sabhlok also received an
option to purchase 500,000 shares of common stock at an exercise price of $1.50
per share and an option to purchase 100,000 shares of common stock at an
exercise price of $5.00 per share. In the event of a change of control within
six months of the commencement of Mr. Sabhlok's employment, or if the company
enters into an agreement that could result in a change of control within such
six-month period and the change of control occurs within nine months of the
commencement of his employment, Mr. Sabhlok's option will become exercisable
with respect to the greater (1) of the number of underlying shares of common
stock that will enable him to realize $5 million of value or (2) 150,000 shares.
In addition, Mr. Sabhlok's options will become exercisable with respect to 25%
of

44
<PAGE>
the underlying shares of common stock if Mr. Sabhlok's employment with
Embarcadero is terminated without cause on or before January 24, 2001 or, if his
employment with Embarcadero is terminated without cause after January 24, 2001,
his options will continue to vest for six months following his termination.
Mr. Sabhlok is also entitled to six months' severance pay and benefits following
his termination without cause. We have also agreed to reimburse Mr. Sabhlok for
up to 70% of any losses that he suffers in the event that he is unable to
realize gains on stock options from his former employer. In March 2000, we
reimbursed Mr. Sabhlok $306,711 pursuant to this agreement.

We have entered into a letter agreement with Mr. Scott, our Vice President
of Sales, dated December 31, 1999. Under the letter agreement, Mr. Scott
receives an annual base salary of $200,000 and is eligible for an annual bonus
of up to $300,000. Mr. Scott also received an option to purchase 500,000 shares
of common stock at an exercise price of $1.50 per share and an option to
purchase 100,000 shares of common stock at an exercise price of $5.00 per share.
In the event of a change of control within six months of the commencement of
Mr. Scott's employment, or if the company enters into an agreement that could
result in a change of control within such six-month period and the change of
control occurs within nine months of the commencement of his employment,
Mr. Scott's option will become exercisable with respect to the greater of (1)
the number of underlying shares of common stock that will enable him to realize
$6 million of value or (2) 150,000 shares. In addition, Mr. Scott's options will
become exercisable with respect to 25% of the underlying shares of common stock
if Mr. Scott's employment with Embarcadero is terminated without cause on or
before January 2, 2001 or, if his employment with Embarcadero is terminated
without cause after January 2, 2001, his options will continue to vest for six
months following his termination. Mr. Scott is also entitled to six months'
severance pay and benefits following his termination without cause. We have also
agreed to reimburse Mr. Scott for up to 70% of the losses that he suffers in the
event that he is unable to realize gains on stock options from his former
employer. In March 2000, we reimbursed Mr. Scott $76,872 pursuant to this
agreement.

EMPLOYEE BENEFIT PLANS

STOCK OPTION PLAN. Our board of directors adopted our 1993 Stock Option Plan on
November 1, 1993. The plan was amended and restated in February 2000. This plan
provides for the grant of incentive stock options to our employees and
nonstatutory stock options to our employees, directors and consultants. As of
March 27, 2000, 11,300,000 shares of common stock were reserved for issuance
under this plan. Of these shares, 4,466,596 were issued upon exercise of stock
options, 4,128,268 shares were subject to outstanding options and 2,705,136
shares were available for future grant.

Our board of directors or a committee appointed by the board administers the
stock option plan and determines who is granted options and the terms of options
granted, including the exercise price, the number of shares subject to
individual option awards and the vesting period of options.

The exercise price for incentive stock options granted under the plan may
not be less than 100% of the fair market value of our common stock on the option
grant date. The exercise price of nonstatutory options must generally be not
less than 85% of the fair market value of our common stock on the option grant
date.

Options generally expire seven years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
plan provides that no participant may receive options covering more than 600,000
shares in any one-year period.

An option under the plan will generally become fully vested upon a change of
control, unless the surviving corporation assumes the option or provides an
economically equivalent substitute for the option. A change in control includes:

- an acquisition of 50% or more of our outstanding stock by any person or
entity;

45
<PAGE>
- a sale of all or substantially all of our assets;

- a merger of Embarcadero after which our own stockholders own 50% or less
of the company or any successor company; or

- any other transaction which our board of directors determines, in its
discretion, would materially alter the structure, ownership or control of
the company.

Except as otherwise determined by the board or committee administering the
plan, a participant may not transfer rights granted under our stock option plan
other than by will, the laws of descent and distribution or as otherwise
provided under the plan.

Our board of directors may amend the plan at any time, subject to any
required stockholder approval. The plan will terminate in November 2003 unless
terminated earlier by the board of directors.

2000 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN. We adopted the 2000 Nonemployee
Directors Stock Option Plan in February 2000 and have reserved a total of
200,000 shares of common stock for issuance thereunder. Of these shares, 25,000
were subject to outstanding options as of April 14, 2000. Under the plan, each
nonemployee director receives an automatic grant of a nonstatutory stock option
to purchase 25,000 shares of common stock on the date on which such person first
becomes a director. At the first board of directors meeting immediately
following each annual stockholders meeting beginning with the 2001 annual
stockholders meeting, Embarcadero will automatically grant each nonemployee
director a nonstatutory option to purchase 5,000 shares of common stock. The
exercise price of options under the plan will be equal to the fair market value
of the common stock on the date of grant. The maximum term of the options
granted under the plan is ten years. The options become exercisable over three
years in equal quarterly installments. The plan will terminate in
February 2010, unless terminated earlier in accordance with the provisions of
the plan.

401(K) PLAN. In October 1999 our board of directors adopted a Retirement Savings
and Investment Plan covering our full-time employees located in the United
States. This plan is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended, so that contributions to this plan by
employees, and the investment earnings thereon, are not taxable to employees
until withdrawn. Pursuant to the plan, employees may elect to reduce their
current compensation from a minimum of one percent of their annual compensation
up to the statutory prescribed annual limit ($10,500 in 2000) and to have the
amount of the reduction contributed to the plan. We do not currently make
additional matching contributions on behalf of plan participants.

46
<PAGE>
RELATED PARTY TRANSACTIONS

EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS

We have entered into letter agreements with Ellen Taylor, our President and
Chief Executive Officer, Raj Sabhlok, our Senior Vice President of Finance and
Corporate Development, and Walter Scott, our Vice President of Sales, which
describes the terms and conditions of their employment with Embarcadero. See
"Management--Employment and Change of Control Arrangements."

OPTION GRANTS

We have granted options to our directors and executive officers, and we
intend to grant additional options to our directors and executive officers in
the future. See "Management--Option Grants in Last Fiscal Year" and
"Management--Director Compensation."

INDEMNIFICATION AGREEMENTS

We intend to enter into indemnification agreements with our directors and
executive officers. Such agreements may require us, among other things, to
indemnify our officers and directors, other than for liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. See "Management--Indemnification."

LOANS TO OFFICERS AND DIRECTORS

On March 1, 1999, we loaned $40,000 to each of Stephen R. Wong, our
Chairman, Dennis J. Wong, a director, Stuart E. Browning, our former Vice
President, and Nigel C. Myers, our Vice President of Product Development, and
$55,000 to Jeffrey Newman, our Vice President of Product Development. Each of
the loans was extended to finance the exercise of stock options.
Messrs. S. Wong, D. Wong, Browning and Myers exercised options to purchase
800,000 shares of our common stock with their loans, and Mr. Newman exercised
options to purchase 1,100,000 shares of common stock with his loan. In
connection with the loans, we received promissory notes in the amount of the
loans, each bearing interest at the prevailing prime rate. Principal and
interest were due no later than March 1, 2001. All of the notes were repaid in
full in December 1999.

OTHER RELATED PARTY TRANSACTIONS

Stuart Browning, a former Vice President of the company, resigned his
position with Embarcadero effective February 1, 2000. In February 2000, we
entered into an agreement with Mr. Browning which provides for him to receive
severance payments in the aggregate amount of $120,000 and continued medical
benefits for up to twelve months.

In August 1999, we entered into a three-year office lease for our Pacific
Grove facility with NewCon Software, a corporation controlled by Jeffrey Newman,
who serves as our Vice President of Product Development. Our monthly payments
under the lease are $10,000.

We believe that the transactions above were made on terms no less favorable
to us than could have been obtained from unaffiliated parties. All future
transactions, including loans between us and our officers, directors, principal
stockholders and their affiliates, will be approved by a majority of the board
of directors, including a majority of the independent and disinterested
directors, and will continue to be made on terms no less favorable to us than
could have been obtained from unaffiliated parties.

In September, 1998, we acquired a 44% interest in Embarcadero Europe Ltd.,
which became our affiliated distributor. In connection with our acquisition of
an equity interest in Embarcadero Europe,

47
<PAGE>
we also entered into a distribution agreement pursuant to which we granted
Embarcadero Europe rights to distribute our products in Europe, the Middle East
and Africa. We have options until October 2001 to acquire the remaining 56% of
Embarcadero Europe's capital stock at a price equal to 56% of two times
Embarcadero Europe's gross revenues for the twelve months prior to the month in
which we exercise our options. If we had exercised our options on March 31,
2000, the acquisition would have cost approximately $3.0 million. The other
holders of the capital stock of Embarcadero Europe have options until October
2001 to sell their 56% of Embarcadero Europe's capital stock to us at a price
equal 56% of Embarcadero Europe's gross revenues for the twelve months prior to
the month in which they exercise their options. If they had exercised their
options on March 31, 2000, the cost to us would have been approximately
$1.5 million.

48
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of April 18, 2000 and as adjusted to reflect the sale of the shares offered
by this prospectus for:

- each person who is known by us to beneficially own more than 5% of our
common stock;

- each of our directors;

- each of the Named Executive Officers; and

- all of our directors and executive officers as a group.

Percentage of ownership is based on 21,520,489 shares of common stock
outstanding as of April 18, 2000, giving effect to the conversion of our
preferred stock into common stock upon the closing of this offering, and
25,720,489 shares outstanding after this offering, assuming no exercise of the
underwriters' over-allotment options.

Beneficial ownership is calculated based on requirements of the Securities
and Exchange Commission. All shares of the common stock subject to options
currently exercisable or exercisable within 60 days after April 18, 2000 are
deemed to be outstanding for the purpose of computing the percentage of
ownership of the person holding such options, but are not deemed to be
outstanding for computing the percentage of ownership of any other person.

Unless otherwise indicated below, each stockholder named in the table has
sole or shared voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.

Unless otherwise indicated in the table, the address of each individual
listed in the table is Embarcadero Technologies, Inc., 425 Market Street, Suite
425, San Francisco, California 94105.

<TABLE>
<CAPTION>
PERCENTAGE OF
OPTIONS SHARES
INCLUDED IN -------------------
NUMBER OF SHARES BENEFICIAL BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP OFFERING OFFERING
- ------------------------ ------------------ ----------- -------- --------
<S> <C> <C> <C> <C>
Stephen R. Wong.................................. 4,998,000 225,500 24.0% 19.4%
Stuart E. Browning............................... 4,800,000 -- 22.3 18.7
Nigel C. Myers (1)............................... 4,800,000 -- 22.3 18.7
Dennis J. Wong (2)............................... 4,782,500 -- 22.2 18.6
Jeffrey Newman................................... 1,100,000 -- 5.1 4.3
Coleen J. Weeks (3).............................. 800,000 -- 3.7 3.1
Ellen W. Taylor.................................. 110,000 110,000 * *
Frank J. Polestra................................ -- -- -- --
Michael J. Roberts............................... -- -- -- --
All directors and executive officers as a group
(10 persons) (4)............................... 16,591,000 335,500 77.4% 64.5%
</TABLE>

- ------------------------
* Less than 1% of Embarcadero's outstanding common stock.

(1) Includes 124,545 shares held of record by the Trustee of the Myers "Limers"
Trust. Nigel Myers is a trustee of the trust.

(2) Includes 150,000 shares held of record by the Ethan Wong Investment Trust
and 150,000 shares held of record by the Audrey Wong Investment Trust.
Dennis Wong is a trustee for each trust.

(3) Includes 50,000 shares held of record by the Coleen Weeks 2000 Grantor
Retained Annuity Trust, Trust Number 1 and 50,000 shares held of record by
the Coleen Weeks 2000 Grantor Retained Annuity Trust Number 2. Coleen Weeks
is the trustee of each trust.

(4) Does not include shares held by Stuart Browning, a former Vice President of
the company who resigned effective February 1, 2000.

49
<PAGE>
DESCRIPTION OF CAPITAL STOCK

At the closing of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock and 5,000,000 shares of preferred stock.

The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation to be effective after the closing of this
offering, our bylaws and the provisions of applicable Delaware law.

COMMON STOCK

As of April 18, 2000, there were 21,266,596 shares of common stock
outstanding held of record by approximately 51 stockholders. There will be
25,720,489 shares of common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options,
after giving effect to the sale of common stock in the offering and the
conversion of our outstanding preferred stock.

Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders.

Subject to preferences to which holders of preferred stock issued after the
sale of the common stock offered hereby may be entitled, holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor.
In the event of our liquidation, dissolution or winding up, holders of common
stock will be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock.

Holders of common stock have no preemptive or conversion rights or other
subscription rights, and there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock, which we may designate in the future.

PREFERRED STOCK

Upon the closing of this offering, each share of our outstanding Series A
preferred stock will automatically convert into one share of common stock. After
the closing, the board of directors will be authorized, subject to any
limitations prescribed by law, without stockholder approval, from time to time
to issue up to an aggregate of 5,000,000 shares of preferred stock, $0.001 par
value per share, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
board of directors. The rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of our outstanding voting stock. We have no present plans to
issue any shares of preferred stock.

EFFECT OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND THE
DELAWARE ANTI-TAKEOVER STATUTE

CERTIFICATE OF INCORPORATION AND BYLAWS. Provisions of our amended and restated
certificate of incorporation and bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. Such provisions could limit the

50
<PAGE>
price that investors might be willing to pay in the future for shares of our
common stock. These provisions allow us to issue preferred stock without any
vote or further action by the stockholders, require advance notification of
stockholder proposals and nominations of candidates for election as directors,
eliminate the ability of our stockholders to act by written consent and do not
provide for cumulative voting in the election of directors. Our bylaws provide
for the division of the board of directors into three classes, with each class
serving three-year terms. In addition, our bylaws provide that special meetings
of the stockholders may be called only by the board of directors and that the
authorized number of directors may be changed only by resolution of the board of
directors. These provisions may make it more difficult for stockholders to take
corporate actions and could have the effect of delaying or preventing a change
in control of Embarcadero.

DELAWARE ANTI-TAKEOVER STATUTE. We are subject to Section 203 of the Delaware
General Corporation Law. This law prohibits a Delaware corporation from engaging
in any "business combination" with any "interested stockholder," unless any of
the following conditions are met. The law will not apply if:

- prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;

- 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 persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

- on or subsequent to the date of the transaction, the business combination
is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder.

Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of our
assets involving the interested stockholder;

- subject to exceptions, any transaction that results in the issuance or
transfer by us of any of our stock to the interested stockholder; and

- 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 an entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person.

REGISTRATION RIGHTS

After this offering, the holders of 253,893 shares of common stock issuable
upon the conversion of our Series A preferred stock upon the closing of this
offering will be entitled to registration rights in the event we register any
shares of our common stock under the Securities Act. If we plan to register any
shares of our common stock, we have to notify those stockholders and they may be
entitled to include all or part of their shares in the registration. However,
these registration rights are subject to conditions and limitations, including
the right of underwriters to limit the number of shares included in a
registration.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.

51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, (assuming no exercise of the underwriters'
over-allotment option) we will have outstanding an aggregate of
25,720,489 shares of common stock outstanding, assuming no exercise of
outstanding options. Of the total outstanding shares, the 4,200,000 shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by our
affiliates, as that term is defined under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 as described below.

SALES OF RESTRICTED SHARES

The remaining 21,520,489 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. Except for 45,000 shares, which
will be eligible for sale under Rule 144(k) on the effective date, all of these
shares will be subject to "lock-up" agreements providing that the stockholder
will not offer, sell or otherwise dispose of any of the shares of common stock
owned by them for a period of 180 days after the date of this offering. However,
holders of such restricted shares who have not been officers, directors or
affiliates of Embarcadero on or since the date of this prospectus may offer,
sell or otherwise dispose of 25% of their shares on the earlier of 90 days after
the date of this offering or on the second trading day after the first public
release of Embarcadero's quarterly results if the last recorded sale price on
the Nasdaq National Market for 20 of the 30 trading days ending on such date is
at least twice the price per share in the initial public offering. These
stockholders may also offer, sell or otherwise dispose of an additional 25% of
their shares 135 days after the date of this offering if the price per share of
common stock has achieved the same target level. However, Donaldson, Lufkin &
Jenrette, may in its sole discretion, at any time without notice, release all or
any portion of the shares subject to lock-up agreements. Upon expiration of the
lock-up agreements, 15,010 shares will become eligible for sale pursuant to
Rule 144(k), 16,755,000 shares will become eligible for sale under Rule 144 and
4,466,596 shares will become eligible for sale under Rule 701.

ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
(LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)

<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES COMMENTS
- ---- ---------- -----------------------------------
<S> <C> <C>
At the effective date........................... 45,000 Shares saleable under Rule 144(k)

90 days after the effective date or
second trading day following first public
release of quarterly earnings (1)............. 41,649 Shares saleable under Rule 701

135 days after the effective date (1)........... 41,649 Shares saleable under Rule 701

180 days after the effective date
(expiration of lock-up)....................... 21,138,298 Shares saleable under Rule 144,
144(k) and 701

February 17, 2001............................... 253,893 Shares saleable under Rule 144
</TABLE>

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

(1) The number of shares listed may be offered, sold or traded provided that the
last recorded sale price per share for 20 of the 30 trading days ending on
such date is at least twice the initial public offering price per share.

52
<PAGE>
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock option
plans. Based upon the number of shares subject to outstanding options as of
April 14, 2000 and currently reserved for issuance under both of these plans,
this registration statement would cover approximately 6,833,404 shares. Shares
registered under the registration statement will generally be available for sale
in the open market immediately after the 180-day lock-up agreements expire.

RULE 144

In general, under Rule 144 as currently in effect, a person including an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell in "broker's transactions" or to market
makers, within any three-month period, a number of shares that does not exceed
the greater of:

- 1% of the number of shares of common stock then outstanding (which will
equal approximately 257,000 shares immediately after this offering); or

- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current public
information about Embarcadero.

RULE 144(k)

Under Rule 144(k), a person who is deemed to have not been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.

RULE 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144. However,
holders of shares that would otherwise be saleable under Rule 701 are subject to
the contractual restrictions described above which restrict the sale or
disposition of such shares for 180 days following the effective date.

53
<PAGE>
UNDERWRITING

Subject to the terms and conditions of an underwriting agreement, dated
April 19, 2000, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), U.S. Bancorp Piper
Jaffray Inc., Wit SoundView Corporation and DLJDIRECT Inc. (the
"representatives"), have severally agreed to purchase from the Company the
respective number of shares of common stock set forth opposite their names
below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,587,500
U.S. Bancorp Piper Jaffray Inc.............................. 793,750
Wit SoundView Corporation................................... 793,750
DLJDIRECT Inc............................................... 100,000
Banc of America Securities LLC.............................. 50,000
Chase H&Q................................................... 50,000
CIBC World Markets Corp..................................... 50,000
Credit Suisse First Boston Corporation...................... 50,000
Deutsche Bank Alex Brown.................................... 50,000
First Union Securities, Inc................................. 50,000
Fleetboston Robertson Stephens Inc.......................... 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 50,000
Thomas Weisel Partners...................................... 50,000
Adams, Harkness & Hill, Inc................................. 25,000
George K. Baum & Company.................................... 25,000
The Chapman Company......................................... 25,000
First Albany Corporation.................................... 25,000
Johnston, Lemon & Co. Incorporated.......................... 25,000
C.L. King & Associates, Inc................................. 25,000
Lebenthal & Co., Inc........................................ 25,000
Legg Mason Wood Walker, Incorporated........................ 25,000
McDonald Investments Inc., a KeyCorp Company................ 25,000
Moors & Cabot Inc........................................... 25,000
Parker/Hunter Incorporated.................................. 25,000
Raymond James & Associates, Inc............................. 25,000
The Robinson-Humphrey Company, LLC.......................... 25,000
Sanders Morris Harris....................................... 25,000
Sands Brothers & Co., Ltd................................... 25,000
The Seidler Companies Incorporated.......................... 25,000
Suntrust Equitable Securities Corporation................... 25,000
Tucker Anthony Cleary Gull.................................. 25,000
Wachovia Securities, Inc.................................... 25,000
---------
Subtotal................................................ 4,200,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of legal matters and to
various other conditions. The underwriters are obligated to purchase and accept
delivery of all the shares of common stock offered hereby (other than those
shares covered by the over-allotment option described below) if any are
purchased.

The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to

54
<PAGE>
dealers (including the underwriters) at such price less a concession not in
excess of $0.42 per share. The underwriters may allow, and such dealers may
re-allow, to other dealers a concession not in excess of $0.10 per share. After
the initial offering of the common stock, the public offering price and other
selling terms may be changed by the representatives at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

An electronic prospectus will be available on the web sites maintained by
DLJDIRECT Inc., an affiliate of DLJ, and Wit Capital Corporation, an affiliate
of Wit SoundView Corporation. The information on these web sites relating to the
offering is not part of this prospectus and has not been approved or endorsed by
Embarcadero or the underwriters, and should not be relied on by prospective
investors.

Embarcadero has granted to the underwriters an option, exercisable within
30 days after the date of this prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 600,000 additional shares of common
stock at the initial public offering price less underwriting discounts and
commissions. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such underwriter's percentage underwriting
commitment in the offering as indicated in the preceding table.

The following table sets forth the items of compensation to be included as
underwriting compensation under the rules of the National Association of
Securities Dealers, Inc.:

<TABLE>
<CAPTION>
TOTAL
PER SHARE
WITHOUT OVER- WITH OVER- WITHOUT OVER- WITH OVER-
ALLOTMENT ALLOTMENT ALLOTMENT ALLOTMENT
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us............................. $.70 $.70 $2,940,000 $3,360,000

Additional deemed compensation paid by us .03 .02 116,672 116,673
---- ---- ---------- ----------

Total.................................... $.73 $.72 $3,056,672 $3,476,673
==== ==== ========== ==========
</TABLE>

We will pay to the underwriters discounts and commissions in an amount equal
to the public offering price per share of common stock less the amount the
underwriters pay to us per share of common stock.

Employees of DLJ invested in the private placement of our Series A preferred
stock in February 2000, purchasing an aggregate of 41,669 shares of Series A
preferred stock on the same terms and conditions as the other investors in the
private placement, including price per share. Series A preferred stock is
convertible into common stock on a 1-for-1 basis. Pursuant to the rules of the
National Association of Securities Dealers, Inc. the 41,669 share of Series A
preferred stock purchased by employees of DLJ are presumed to be underwriting
compensation. The additional deemed compensation included in the chart above was
computed in accordance with the rules of the National Association of Securities
Dealers, Inc. The 41,669 shares of common stock issuable upon conversion of the
Series A preferred stock purchased by employees of DLJ are restricted as to
sale, transfer, assignment, pledge or hypothecation for a period of one year
following the effective date of this prospectus.

Embarcadero has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect thereof.

55
<PAGE>
Each of Embarcadero, its executive officers and directors and its
stockholders have agreed, subject to exceptions, not to (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
or (ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common stock
(regardless of whether any of the transactions described in clause (i) or
(ii) is to be settled by the delivery of common stock, or such other securities,
in cash or otherwise) for a period of 180 days after the date of this prospectus
without the prior written consent of DLJ. However, 25% of the shares of common
stock subject to the restrictions described above (other than shares owned by
directors, officers or affiliates) will be released from these restrictions if
the reported last sale price of the common stock on the Nasdaq National Market
is at least twice the initial public offering price for 20 of the 30 consecutive
trading days ending on the last trading day of the 90-day period after the date
of this prospectus. These shares will be released on the later to occur of the
90-day period after the date of this prospectus and the second trading day after
the first public release of our quarterly results. An additional 25% of the
shares subject to the restrictions described above will be released from these
restrictions if the reported last sale price of the common stock on the Nasdaq
National Market is at least twice the initial public offering price for 20 of
the 30 consecutive trading days ending on the last trading day of the 135-day
period after the date of this prospectus.

Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered hereby will be determined by negotiation among Embarcadero and the
representatives. The factors to be considered in determining the initial public
offering price include:

- the history of and the prospects for the industry in which Embarcadero
competes;

- the past and present operations of Embarcadero;

- the historical results of operations of Embarcadero;

- the prospects for future earnings of Embarcadero;

- the recent market prices of securities of generally comparable companies;
and

- the general condition of the securities markets at the time of the
offering.

The underwriters have reserved up to an aggregate of 400,000 shares of the
common stock to be sold in this offering for sale to some of our employees and
associates of our employees and directors, and to other individuals or companies
who have commercial arrangements or personal relationships with us. Up to
200,000 of these shares will be reserved for our employees, directors and
vendors and will be administered by DLJ. Through this directed share program, we
intend to ensure that our employees, directors and vendors have the opportunity
to purchase our common stock at the same price that we are offering our shares
to the general public. Prospective participants in this program will not receive
any investment materials other than a copy of this prospectus, and will be
permitted to participate in this offering at the initial public offering price
presented on the cover page of this prospectus. No commitment to purchase shares
by any participant in this program will be accepted until after the registration
statement of which this prospectus is a part is effective and an initial public
offering price has been established. The number of shares available for sale to
the general public will be reduced by the number of shares sold through this
program. Any shares reserved for the directed share program which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.

Up to 200,000 shares will be reserved for the benefit of selected customers
and users of our products pursuant to a directed share program being
administered by Wit SoundView Corporation's

56
<PAGE>
affiliate, Wit Capital Corporation. We cannot assure you that any of the
reserved shares subject to this program will be so purchased. The number of
shares of common stock available for sale to the general public in this offering
will be reduced by the number of reserved shares sold pursuant to this program.
Any reserved shares not purchased through this program will be offered to Wit
Capital Corporation customers on the same basis as the other shares in this
offering pursuant to Wit Capital's ordinary rules and procedures. Purchases of
the reserved shares pursuant to the directed share program administered by Wit
Capital Corporation may only be made through an account at Wit Capital in
accordance with Wit Capital's procedures for opening an account and transacting
in securities. In addition, Wit SoundView Corporation is an underwriter of
additional shares in the offering.

Other than in the United States, no action has been taken by Embarcadero or
the underwriters that would permit a public offering of the shares of common
stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of common stock offered hereby may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of common stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.

In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot the offering, creating a syndicate
short position. The underwriters may bid for and purchase shares of common stock
in the open market to cover such syndicate short position or to stabilize the
price of the common stock. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members, if the syndicate repurchases
previously distributed common stock in syndicate covering transactions, in
stabilization transactions or otherwise. These activities may stabilize or
maintain the market price of the common stock above independent market levels.
The underwriters are not required to engage in these activities, and may end any
of these activities at any time.

In the past, DLJ has provided, and may in the future provide, financial
advisory services to Embarcadero.

Because employees of DLJ beneficially own more than 10% of the Company's
outstanding preferred stock prior to this offering, which beneficially owned
preferred stock will automatically convert into common stock representing
approximately 0.2% of the outstanding common stock upon consummation of this
offering, this offering is being conducted in accordance with Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. Rule 2720
requires that a "qualified independent underwriter" within the meaning of
Rule 2720 participate in the preparation of the registration statement and
prospectus for the offering and conduct due diligence as part of such
preparation. In addition, if a bona fide independent market does not exist for
the offered securities, the public offering price can be no higher than that
recommended by the qualified independent underwriter. U.S. Bancorp Piper Jaffray
Inc. has accepted the responsibility of acting as the "qualified independent
underwriter" with respect to this offering and, accordingly, the initial
offering price specified on the cover page of this prospectus does not exceed
that recommended by U.S. Bancorp Piper Jaffray Inc. in its capacity as such.

57
<PAGE>
LEGAL MATTERS

The validity of the common stock being offered by Embarcadero will be passed
upon for Embarcadero by Heller Ehrman White & McAuliffe LLP, San Diego,
California which has acted as our counsel in connection with this offering.
Stephen C. Ferruolo, a member of Heller Ehrman White & McAuliffe LLP, is
Secretary of Embarcadero. Certain matters will be passed upon for the
underwriters by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California.

EXPERTS

Our financial statements at December 31, 1998 and 1999 for each of the three
years in the period ended December 31, 1999 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

CHANGE IN ACCOUNTANTS

In December 1999, our board of directors dismissed Odenburg, Ullakko,
Muranishi and Co. as our independent accountants and subsequently appointed
PricewaterhouseCoopers LLP as our independent accountants. There were no
disagreements with the former accountants during the years ended December 31,
1997 and 1998 or during any subsequent interim period preceding their
replacement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the former accountants' satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection with
their reports. The former independent accountants issued an unqualified report
on the financial statements as of and for the years ended December 31, 1997 and
1998. We did not consult with PricewaterhouseCoopers LLP on any accounting or
financial reporting matters in the periods prior to their appointment.

ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules) under the Securities Act, with respect to the shares to
be sold in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock offered in this prospectus, reference is
made to the registration statement, including the exhibits thereto, and the
financial statements and notes filed as a part thereof. With respect to each
such document filed with the SEC as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved.

We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
public reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's web site at "www.sec.gov".

58
<PAGE>
INDEX TO FINANCIAL STATEMENTS

EMBARCADERO TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Changes in Stockholders' Equity (Deficit)..... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Embarcadero Technologies, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Embarcadero
Technologies, Inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Jose, CA
February 17, 2000

F-2
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13 $ 1,804 $ 1,804
Trade accounts receivable, net of allowance for doubtful
accounts of $114 in 1998 and $153 in 1999............... 1,674 2,834 2,834
Related party accounts receivable......................... 176 696 696
Prepaid and other current assets.......................... 481 310 310
Deferred tax assets....................................... -- -- 244
------ ------- -------
Total current assets.................................... 2,344 5,644 5,888

Property and equipment, net................................. 342 958 958
Investment in affiliated company............................ 16 -- --
Other assets................................................ 4 46 46
------ ------- -------
Total assets................................................ $2,706 $ 6,648 $ 6,892
====== ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 216 $ 806 $ 806
Deferred revenue.......................................... 2,706 4,094 4,094
Notes payable to stockholders............................. -- 1,000 1,000
Deferred tax liabilities.................................. -- -- 518
------ ------- -------
Total current liabilities............................... 2,922 5,900 6,418

Commitments (Note 6)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock: no par value; 40,000,000 shares authorized;
16,838,344 and 21,175,564 shares issued and outstanding
at December 31, 1998 and 1999........................... -- -- --
Additional paid-in capital................................ 232 14,663 10,523
Deferred stock-based compensation......................... (96) (10,049) (10,049)
Accumulated deficit....................................... (352) (3,866) --
------ ------- -------
Total stockholders' equity (deficit).................... (216) 748 474
------ ------- -------
Total liabilities and stockholders' equity (deficit)........ $2,706 $ 6,648 $ 6,892
====== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
License (including sales to affiliate of $1,473 in
1999)................................................... $ 3,434 $ 6,510 $ 13,406
Maintenance............................................... 1,152 2,609 5,446
---------- ---------- ----------
Total revenues........................................ 4,586 9,119 18,852
COST OF REVENUES:
License................................................... 200 321 460
Maintenance (exclusive of non-cash compensation expense of
$26 in 1999)............................................ 132 251 621
---------- ---------- ----------
Total cost of revenues................................ 332 572 1,081
---------- ---------- ----------
Gross profit................................................ 4,254 8,547 17,771

OPERATING EXPENSES:
Research and development (exclusive of non-cash
compensation expense of $18, $63 and $550 in 1997, 1998
and 1999, respectively)................................. 1,874 2,732 4,265
Sales and marketing (exclusive of non-cash compensation
expense of $16, $27 and $277 in 1997, 1998 and 1999,
respectively)........................................... 1,515 2,707 5,388
General and administrative (exclusive of non-cash
compensation expense of $0, $9 and $3,408 in 1997, 1998
and 1999, respectively)................................. 580 996 1,577
Amortization of deferred stock-based compensation......... 34 99 4,261
---------- ---------- ----------
Total operating expenses.............................. 4,003 6,534 15,491
---------- ---------- ----------
Income from operations...................................... 251 2,013 2,280
Interest income............................................. 52 52 88
---------- ---------- ----------
Income before income taxes.................................. 303 2,065 2,368
Provision for income taxes.................................. (2) (45) (82)
---------- ---------- ----------
Income before share in affiliated company profit (loss)..... 301 2,020 2,286
Share in profit (loss) of affiliated company................ -- 8 (100)
---------- ---------- ----------
Net income.................................................. $ 301 $ 2,028 $ 2,186
========== ========== ==========
NET INCOME PER SHARE:
Basic..................................................... $ 0.02 $ 0.12 $ 0.11
========== ========== ==========
Diluted................................................... $ 0.01 $ 0.10 $ 0.10
========== ========== ==========
SHARES USED IN PER SHARE CALCULATION:
Basic..................................................... 16,800 16,810 20,070
========== ========== ==========
Diluted................................................... 21,078 21,230 21,877
========== ========== ==========
PRO FORMA DATA (UNAUDITED) (NOTES 2 AND 5):
Income before income taxes, as reported................... $ 2,368
Pro forma income tax provision............................ (2,678)
Share in loss of affiliated company....................... (100)
----------
Pro forma net loss........................................ $ (410)
==========
Pro forma net loss per share, basic and diluted............. $ (0.02)
==========
Shares used in pro forma net loss per share, basic and
diluted................................................... 20,421
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE EARNINGS STOCKHOLDERS'
-------------------- PAID-IN STOCK-BASED FROM (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS DEFICIT) (DEFICIT)
-------- --------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997....... 16,800 $ -- $ 1 $ -- $ -- $ 477 $ 478

Deferred compensation related
to stock options granted..... -- -- 61 (61) -- -- --
Amortization of deferred stock-
based compensation........... -- -- -- 34 -- -- 34
Distributions to
stockholders................. -- -- -- -- -- (463) (463)
Net income..................... -- -- -- -- -- 301 301
------ --------- ------- -------- ----- ------- -------

BALANCE AT DECEMBER 31, 1997..... 16,800 -- 62 (27) -- 315 350

Exercise of common stock
options...................... 38 -- 2 -- -- -- 2
Deferred compensation related
to stock options granted..... -- -- 168 (168) -- -- --
Amortization of deferred stock-
based compensation........... -- -- -- 99 -- -- 99
Distributions to
stockholders................. -- -- -- -- -- (2,695) (2,695)
Net income..................... -- -- -- -- -- 2,028 2,028
------ --------- ------- -------- ----- ------- -------

BALANCE AT DECEMBER 31, 1998..... 16,838 -- 232 (96) -- (352) (216)

Exercise of common stock
options...................... 4,337 -- 217 -- (216) -- 1
Payment on notes receivable
from
stockholders for purchase of
common stock................. -- -- -- -- 216 -- 216
Deferred compensation related
to stock options granted..... -- -- 14,214 (14,214) -- -- --
Amortization of deferred stock-
based compensation........... -- -- -- 4,261 -- -- 4,261
Distributions to
stockholders................. -- -- -- -- -- (5,700) (5,700)
Net income..................... -- -- -- -- -- 2,186 2,186
------ --------- ------- -------- ----- ------- -------

BALANCE AT DECEMBER 31, 1999..... 21,175 $ -- $14,663 $(10,049) $ -- $(3,866) $ 748
====== ========= ======= ======== ===== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 301 $ 2,028 $ 2,186
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 128 178 252
Provision for doubtful accounts....................... 50 39 50
Amortization of deferred stock-based compensation..... 34 99 4,261
Share in loss (profit) of affiliated company.......... -- (8) 100
Loss on disposal of property and equipment............ 4 12 14
Changes in assets and liabilities:
Trade accounts receivable........................... (761) (502) (1,210)
Related party accounts receivable................... -- (176) (520)
Prepaid and other current assets.................... (130) (342) 170
Accounts payable and accrued liabilities............ 133 58 506
Deferred revenue.................................... 431 1,857 1,389
Other long-term assets.............................. 2 -- (42)
------- ------- -------
Net cash provided by operating activities....... 192 3,243 7,156
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (176) (297) (882)
Investment in affiliated company.......................... -- (8) --
------- ------- -------
Net cash used in investing activities........... (176) (305) (882)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft............................................ 232 (232) --
Distributions to stockholders............................. (463) (2,695) (4,700)
Proceeds from exercise of stock options................... -- 2 1
Payments on notes receivable from stockholders............ -- -- 216
------- ------- -------
Net cash used in financing activities........... (231) (2,925) (4,483)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (215) 13 1,791
Cash and cash equivalents at beginning of year.............. 215 -- 13
------- ------- -------
Cash and cash equivalents at end of year.................... $ -- $ 13 $ 1,804
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes................................ $ 3 $ -- $ 56
======= ======= =======
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred stock-based compensation......................... $ 61 $ 168 $14,214
======= ======= =======
Notes payable (distribution) to stockholders.............. $ -- $ -- $ 1,000
======= ======= =======
Exercise of common stock options for notes receivable..... $ -- $ -- $ 216
======= ======= =======
</TABLE>

The accompanying notes are in integral part of these financial statements.

F-6
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1--THE COMPANY:

Embarcadero Technologies, Inc. (the "Company") was incorporated in
California on July 23, 1993 and reincorporated in Delaware on February 15, 2000.
The Company provides software products that enable organizations to build and
manage e-business applications and their underlying databases.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. These estimates include levels of allowances for accounts receivable,
valuation of deferred tax assets and value of the Company's capital stock.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, trade accounts receivable, accounts payable
and accrued liabilities and notes payable to stockholders approximate fair value
due to their short maturities.

CONCENTRATION OF CREDIT RISK

The Company maintains its cash and cash equivalents with high credit quality
financial institutions. The Company has not experienced any losses on its
deposits of cash and cash equivalents. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company records an allowance for doubtful
accounts receivable for credit losses at the end of each period based on
analysis of individual aged accounts receivable balances. As a result of this
analysis, the Company believes that its allowance for doubtful accounts is
adequate at December 31, 1998 and 1999.

The activity in the allowance for the doubtful accounts may be summarized as
follows (in thousdands):

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Allowance balance at January 1........................... $35 $ 84 $114
Amounts charged to expense............................... 50 39 50
Amounts written off...................................... (1) (9) (11)
--- ---- ----
Allowance balance at December 31......................... $84 $114 $153
=== ==== ====
</TABLE>

There was no single customer that accounted for more than 10% of the total
revenues in all periods presented.

F-7
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. Leasehold improvements are amortized on a
straight line basis over the lesser of their estimated useful life or the lease
term. Gains and losses from the disposal of property and equipment are taken
into income in the year of disposition. Repairs and maintenance costs are
expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates the recoverability of long-lived assets in accordance
with 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"). SFAS 121 requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the future undiscounted
cash flows applicable to such assets.

REVENUE RECOGNITION

Total revenues consist of revenues earned under software license agreements
and maintenance agreements. The Company adopted the provisions of Statement of
Position 97-2, or SOP 97-2, effective January 1, 1998. SOP 97-2 supersedes
Statement of Position 91-1, "Software Revenue Recognition" and delineates the
accounting for software product and maintenance revenues. Under SOP 97-2,
revenues from software license agreements are recognized upon shipment, provided
that a signed contract exists, the fee is fixed and determinable and collection
of the resulting receivable is probable.

Revenues from software licenses sold through distributors are recognized
under the same SOP 97-2 criteria because distributors only purchase products to
fulfill specific customer orders and do not hold any inventory of the Company's
products.

For contracts with multiple obligations (e.g., deliverable and undeliverable
products and maintenance), revenues are allocated to each component of the
contract based on objective evidence of its fair value, which is specific to the
Company. The Company recognizes revenues allocated when the criteria for product
revenue set forth above are met. The Company recognizes revenues from
maintenance fees, including amounts allocated from product revenues for ongoing
customer support and product updates ratably over the period of the maintenance
contract. Payments for maintenance fees are generally made in advance and are
non-refundable.

Prior to the adoption of SOP 97-2, effective January 1, 1998, the Company
recognized revenues from the sale of products upon shipment if remaining
obligations were insignificant and collection of the resulting accounts
receivable was probable. Provisions for the estimated obligations were accrued
upon shipment. Revenues from software maintenance contracts, including amounts
unbundled from product sales, were deferred and recognized ratably over the
period of the contract.

COST OF REVENUES

Cost of license revenues includes costs associated with the delivery of
software products and royalties for third party embedded software. Cost of
maintenance revenues include salaries and related expenses for the service
organization.

F-8
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK-BASED COMPENSATION

Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for employee stock options under Accounting Principles Board
Opinion ("APB") No. 25 and follows the disclosure-only provisions of SFAS 123.
Under APB No. 25, compensation expense is based on the difference, if any, on
the date of the grant, between the estimated fair value of the Company's shares
and the exercise price of options to purchase that stock.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Software development costs are included in research and development and are
expensed as incurred. Under Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" some software development costs are capitalized after
technological feasibility is established. The capitalized cost is then amortized
on a straight-line basis over the estimated product life, or on the ratio of
current revenues to total projected product revenues, whichever is greater. To
date, the period between technological feasibility, which generally has been
defined as the establishment of a working model, typically occurs when the beta
testing commences, and the general availability of such software has been short
and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.

COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company did not have any
significant components that are required to be reported in comprehensive income
other than its net income.

INCOME TAXES

The Company elected to be taxed under the S corporation provisions of the
Internal Revenue Code. Historically, the stockholders of the Company were
allocated their pro rata share of the Company's income in their individual
returns. Due to its S corporation status, the Company was only subject to
California corporate state income taxes. In February 2000, the Company converted
from an S corporation to a C corporation, effective as of January 1, 2000,
accordingly, the Company will now be subject to regular federal and state income
taxes.

PRO FORMA BALANCE SHEET INFORMATION (UNAUDITED)

The pro forma balance sheet gives effect to the termination of the Company's
S corporation tax status as if such termination had occured on December 31,
1999.

Upon termination of its S corporation status, the Company was required to
recognize deferred income taxes for cumulative temporary differences between
income for financial and tax reporting purposes. Had the Company been a
C corporation at December 31, 1999, the cumulative deferred

F-9
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
income tax liability, net, calculated in accordance with SFAS No. 109,
"Accounting for Income Taxes," would have approximated $274,000 (see also Note
5).

Upon termination of S corporation status, the accumulated deficit is
required to be reclassified to additional paid in capital; the pro forma balance
sheet reflects such reclassification.

HISTORICAL NET INCOME PER SHARE

The Company computes historical net income per share in accordance with SFAS
No. 128, Earnings per Share. Basic earnings per share is computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities by including stock options in the weighted
average number of common shares outstanding for a period, if dilutive.

A reconciliation of the numerator and denominator used in the calculation of
historical basic and diluted net income per share follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Historical net income per share, basic and diluted:
Numerator for net income, basic and diluted............. $ 301 $ 2,028 $ 2,186
------- ------- -------
Denominator for basic earnings per share:
Weighted average vested common shares outstanding... 16,800 16,810 20,070
------- ------- -------
Net income per share basic.............................. $ 0.02 $ 0.12 $ 0.11
======= ======= =======
Denominator for diluted earnings per share:
Weighted average vested common shares outstanding... 16,800 16,810 20,070
Effect of dilutive securities-
Common stock options............................ 4,278 4,420 1,807
------- ------- -------
Weighted average common and common equivalent
shares............................................ 21,078 21,230 21,877
------- ------- -------
Net income per share diluted............................ $ 0.01 $ 0.10 $ 0.10
======= ======= =======
Anti dilutive securities not included in net income per
share calculation-common stock options.................. -- -- 109
======= ======= =======
</TABLE>

PRO FORMA NET LOSS AND NET LOSS PER SHARE (UNAUDITED)

The pro forma net loss gives effect to the tax provision that would have
been required by the termination of the Company's S corporation tax status had
such termination occurred on January 1, 1999.

The Company computes pro forma net income per share in accordance with SFAS
No. 128, Earnings Per Share, as if the Company had converted from an
S corporation to a C corporation in 1999. In accordance with SEC administrative
policies, the weighted average number of common shares outstanding used in the
pro forma per share calculation also includes the number of common shares

F-10
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
which, based on the initial public offering estimated price, are equivalent to
the excess of 1999 distributions to stockholders over 1999 net income.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and will be adopted
in the year 2001. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The Company does not expect the adoption of this standard to have a
material impact on its results of operations, financial positions or cash flows.

In December 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-9, modification of SOP 97-2, "Software Revenue
Recognition with Respect to Certain Transactions." SOP 98-9 will be effective
for transactions that are entered into in fiscal years beginning after
March 15, 1999. Retroactive application is prohibited. The Company does not
expect the adoption of this standard to have a material impact on its results of
operations, financial position or cash flows.

NOTE 3--BALANCE SHEET ACCOUNTS (IN THOUSANDS):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software........................... $ 582 $ 976
Furniture and fixtures.................................... 35 205
Leasehold improvements.................................... 7 159
----- -----
624 1,340
Less: Accumulated depreciation and amortization........... (282) (382)
----- -----
$ 342 $ 958
===== =====
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Payroll and related expenses.............................. $ 51 $ 305
Sales tax payable......................................... 36 132
Accrued state income tax.................................. 45 82
Other..................................................... 84 287
----- -----
$ 216 $ 806
===== =====
</TABLE>

NOTE 4--RELATED PARTY TRANSACTIONS

In September 1998 the Company invested $8,000 in a foreign entity,
Embarcadero Europe Limited ("EEL"), resulting in an approximate 44% ownership
interest in EEL. The investment is accounted for under the equity method. The
Company has options to acquire the remaining 56% ownership interest in EEL. At
December 31, 1999, if the Company exercised its options, the cost would be
approximately $3 million. The holders of the remaining ownership interest in EEL
have options to sell their interests to the Company. At December 31, 1999, if
the holders exercised their options, the cost to the Company

F-11
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
would be approximately $1.5 million. The options expire in October 2001. In 1998
and 1999, the Company had software product and maintenance revenue from EEL
totaling $18,000 and $1,870,000 and reimbursed EEL for marketing and
administrative expenses of $156,000 and $714,000.

The Company leases office space controlled by an individual who became a
stockholder and employee of the Company in 1999. Total payments for rent were
$51,000 during the year ended December 31, 1999.

NOTE 5--PRO FORMA INCOME TAXES (UNAUDITED)

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
CURRENT:
U.S. federal.............................................. $2,123
State and local........................................... 560
------
Total current income taxes.............................. 2,683
------
DEFERRED:
U.S. federal.............................................. (37)
Other..................................................... 32
------
Total deferred income taxes............................. (5)
------
Net income taxes............................................ $2,678
======
</TABLE>

The reconciliation between the effective pro forma income tax rate and the
U.S. federal statutory rate is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-------------
<S> <C>
U.S. federal taxes at statutory rate........................ $ 900
Permanent difference--non-deductible expenses............... 1,384
State taxes, net of federal tax benefit..................... 394
------
Pro forma tax provision................................... $2,678
======
</TABLE>

F-12
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED)
Pro forma deferred tax assets and liabilities consist of the following (in
thousands):

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
<S> <C>
DEFERRED TAX ASSETS:
Accruals and allowances................................... $ 244
-----
Total deferred tax assets............................... 244
-----
DEFERRED TAX LIABILITIES:
Depreciation.............................................. $ (45)
Cash to accrual basis..................................... (473)
-----
Total deferred tax liabilities.......................... (518)
-----
Net deferred tax liability.................................. $(274)
=====
</TABLE>

NOTE 6--COMMITMENTS

ROYALTY OBLIGATIONS

In December 1998, the Company entered into an agreement to license and
integrate certain third party software into the Company's products, under which
the Company is obligated to pay royalties on proceeds from sales of such
products. The initial term of the agreement is two years. The agreement is
automatically extended for additional one-year terms thereafter, unless either
party gives at least two months' advance notice of termination. In 1999, the
Company paid royalty fees of $101,000 under this agreement.

REIMBURSEMENT OF EXPENSES

In connection with the Company's investment in EEL (see Note 4), the Company
was obligated to reimburse EEL for marketing and distribution expenses of
$43,000 a month. Effective September 1999, the Company agreed to amend the
agreement to reimburse expenses at the higher of a rate of 25% of EEL's gross
revenues or a monthly amount of $43,000.

LEASES

The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through 2004. Rent expense for the year
ended December 31, 1997, 1998 and 1999 was $86,000, $118,000 and $308,000. The
terms of the facility lease provide for rental payments on a graduated scale.
The Company recognizes rent expense on a straight-line basis over the lease
period, and has accrued for rent expense incurred but not paid.

F-13
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--COMMITMENTS (CONTINUED)

Future minimum lease payments under noncancelable operating leases,
including lease commitments entered into subsequent to December 31, 1999 are as
follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED OPERATING
DECEMBER 31, LEASES
- ------------ ---------
<S> <C>
2000........................................................ $ 621
2001........................................................ 618
2002........................................................ 613
2003........................................................ 469
2004........................................................ 170
------
Total minimum lease payments............................ $2,491
======
</TABLE>

NOTE 7--STOCK OPTION PLANS

In November 1993, the Company adopted the 1993 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. At December 31, 1999, the Company
had reserved 12,000,000 shares of Common Stock for issuance under the Plan. In
February 2000, the Company amended and restated the Plan to reserve 11,300,000
shares of Common Stock for issuance.

Options under the Plan may be granted for periods of up to ten years and at
prices no less than 100% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that the
exercise price of an ISO and NSO granted to a 10% stockholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant.
Options are exercisable at such times and under such conditions as determined by
the Board of Directors.

Activity under the Plan is set forth as follows:

<TABLE>
<CAPTION>
NUMBER WEIGHTED
NUMBER OF OPTIONS AVERAGE
OF SHARES ISSUED AND EXERCISE AGGREGATE
AVAILABLE OUTSTANDING PRICE PRICE
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balances, January 1, 1997........................ 7,500,000 4,500,000 $0.05 $ 225,000
Options granted.................................. (84,400) 84,400 0.05 4,220
Options cancelled................................ 40,000 (40,000) 0.05 (2,000)
---------- ---------- ----------
Balances, December 31, 1997...................... 7,455,600 4,544,400 0.05 227,220
Options granted.................................. (176,600) 176,600 0.05 8,830
Options exercised................................ -- (38,344) 0.05 (1,917)
Options cancelled................................ 96,056 (96,056) 0.05 (4,803)
---------- ---------- ----------
Balances, December 31, 1998...................... 7,375,056 4,586,600 0.05 229,330
Options granted.................................. (2,599,400) 2,599,400 0.85 2,209,490
Options exercised................................ -- (4,337,220) 0.05 (216,861)
Options cancelled................................ 169,980 (169,980) 0.23 (39,095)
---------- ---------- ----------
Balances, December 31, 1999...................... 4,945,636 2,678,800 0.81 $2,182,864
========== ========== ==========
</TABLE>

F-14
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCK OPTION PLANS (CONTINUED)
For financial reporting purposes, the Company has determined that the
estimated value of common stock determined in anticipation of the Company's
initial public offering (see Note 10) was in excess of the exercise price, which
was deemed to be the fair market value as of the dates of grant. In connection
with the grants of such options, the Company recognized deferred compensation of
approximately $61,000 in 1997, $168,000 in 1998 and $14,214,000 in 1999.
Deferred stock-based compensation will be amortized over the vesting periods
utilizing the multiple option method; approximately $34,000 was expensed in the
year ended December 31, 1997, $99,000 in 1998 and $4,261,000 in 1999. Future
amortization based on options granted through December 31, 1999 is expected to
be $5,830,000, $2,762,000, $1,202,000 and $255,000 in the years 2000, 2001, 2002
and 2003, respectively.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31, 1999 OPTIONS EXERCISABLE AT
------------------------------------------- DECEMBER 31, 1999
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ----------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.05.................. 344,400 8.04 $0.05 328,190 $0.05
0.25.................. 1,774,400 9.52 0.25 800,904 0.25
0.50.................. 120,000 9.82 0.50 69,278 0.50
2.50-5.00............. 440,000 9.80 3.75 22,308 3.75
--------- ---- ----- --------- -----
2,678,800 9.39 0.81 1,220,680 0.27
========= =========
</TABLE>

FAIR VALUE DISCLOSURES

The Company has adopted the disclosure-only provisions of Statement of
Financing Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Had compensation cost for the Company's stock-based compensation
plan been determined based on the fair value at the grant dates for the awards
under a method prescribed by SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported........................................ $ 301 $2,028 $2,186
Pro forma.......................................... 300 2,027 2,088
Basic net income per share:
As reported........................................ 0.02 0.12 0.11
Pro forma.......................................... 0.02 0.12 0.10
Diluted net income per share:
As reported........................................ 0.01 0.10 0.10
Pro forma.......................................... 0.01 0.10 0.10
</TABLE>

F-15
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCK OPTION PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rate.......................... 6.13% 5.42% 5.00%
Expected life.................................... 3 years 3 years 3.5 years
Expected dividends............................... $ -- $ -- $ --
</TABLE>

The weighted average per share fair value of common stock options granted
during 1997, 1998 and 1999 was $0.94, $1.85 and $6.75.

NOTE 8--EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) defined contribution plan covering all
employees. Under the plan, employees are permitted to contribute a portion of
gross compensation not to exceed standard limitations provided by the Internal
Revenue Service. The Company has not made any contributions under this plan
since inception.

NOTE 9--SEGMENT REPORTING

The Company operates in one industry segment. The Company's geographic sales
data based on customer destination is defined by region: North America, United
Kingdom (U.K.) and Other. Sales in the U.K. are transacted by the Company's
affiliated distributor, Embarcadero Europe Ltd. The affiliated distributor as
well as other distributors handle regions outside the U.K. and North America.

Revenue by geographic region was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
North America............................................... $4,330 $8,895 $16,800

U.K......................................................... 160 160 1,975

Other....................................................... 96 64 77
------ ------ -------

$4,586 $9,119 $18,852
====== ====== =======
</TABLE>

NOTE 10--SUBSEQUENT EVENTS

INITIAL PUBLIC OFFERING

In January 2000, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock.

F-16
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--SUBSEQUENT EVENTS (CONTINUED)
REINCORPORATION

In February 2000, the Company reincorporated in Delaware. At the time of its
reincorporation, the Company increased the number of its authorized common stock
to 60,000,000 shares, authorized 5,000,000 shares of preferred stock and
effected a two-for-one stock split of its outstanding common stock. All share
and per share information included in these financial statements have been
retroactively adjusted to reflect the stock split.

NONEMPLOYEE DIRECTORS STOCK OPTION PLAN

In February 2000, the Company's Board of Directors and stockholders adopted
the 2000 Nonemployee Directors Stock Option Plan under which nonemployee
directors will automatically be granted options to purchase shares of common
stock on their election and on each annual stockholders' meeting, beginning with
the annual stockholders meeting in 2001.

A total of 200,000 shares of common stock have been authorized for issuance
under the 2000 Nonemployee Directors Stock Option Plan.

1993 STOCK OPTION PLAN

In February 2000, the Company's Board of Directors and stockholders approved
the amendment and restatement of the 1993 Stock Option Plan. A total of
11,300,000 shares of common stock have been authorized for issuance under the
1993 Stock Option Plan as amended.

SERIES A CONVERTIBLE PREFERRED STOCK

In February 2000, the Company sold 253,893 shares of Series A convertible
preferred stock for proceeds of approximately $1,828,030. The holders of
Series A convertible preferred stock have certain rights and preferences
including voting rights, dividends, liquidation and conversion. Shares of
Series A convertible preferred stock automatically convert into common shares
upon the closing of the initial public offering of the Company's common stock.
The conversion ratio of the series A convertible preferred stock as of
February 15, 2000 is 1:1. The Company will incur a non-cash charge (beneficial
conversion feature) against earnings attributable to common stockholders of
approximately $1.2 million in the quarter ending March 31, 2000.

F-17
<PAGE>

<S> <C>
[Inside Back Cover Graphics]

Header: Embarcadero Technologies Logo--do more now--Database
Design--Database Development--Database Administration.

Description: Graphical illustration representing the three phases of the
database lifecycle, intended to show the capability of our
products to manage databases from the design phase through
the development phase and the administration phase.
</TABLE>
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------

APRIL 19, 2000

[LOGO]

4,200,000 SHARES OF COMMON STOCK

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

P R O S P E C T U S

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

DONALDSON, LUFKIN & JENRETTE

U.S. BANCORP PIPER JAFFRAY

WIT SOUNDVIEW

DLJDIRECT INC.

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

We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Embarcadero
have not changed since the date hereof.

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

Until May 14, 2000 (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.

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