PRECISE SOFTWARE SOLUTIONS LTD, F-1/A, 2000-11-15

PRECISE SOFTWARE SOLUTIONS LTD
F-1/A, 2000-11-15
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 2000

REGISTRATION NO. 333-48878

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2 TO

FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------

PRECISE SOFTWARE SOLUTIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NOT APPLICABLE
(EXACT NAME OF REGISTRANT'S NAME IN ENGLISH)

<TABLE>
<S> <C> <C>
ISRAEL 7372 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

1 HASHIKMA STREET
P.O. BOX 88 SAVYON 56518, ISRAEL
972 (3) 635-2566
</TABLE>

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

PRECISE SOFTWARE SOLUTIONS, INC.
ATTN: CHIEF EXECUTIVE OFFICER
690 CANTON STREET
WESTWOOD, MASSACHUSETTS 02090
(781) 461-0700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C> <C> <C>
WILLIAM B. ASHER, ESQ. DR. EDDO DINSTEIN, ADV. JEFFREY S. MARCUS, ESQ. AMIR HALEVY, ADV.
KENNETH J. GORDON, ESQ. VOLOVELSKY, DINSTEIN, MICHELLE A. LOPEZ, ESQ KLEINHENDLER & HALEVY
TESTA, HURWITZ & THIBEAULT, LLP SNEH & CO MORRISON & FOERSTER LLP 30 KALISHER STREET
125 HIGH STREET NOLTON HOUSE 1290 AVENUE OF THE AMERICAS TEL AVIV 65257
BOSTON, MA 02110 14 SHENKAR STREET NEW YORK, NY 1010 ISRAEL
(617) 248-7000 HERZLIYA PITUACH 46725 (212) 468-8000 972 (3) 510-7575
ISRAEL
972 (3) 566-4565
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED NOVEMBER 15, 2000

PROSPECTUS
4,350,000 SHARES

[PRECISE SOFTWARE LOGO]

PRECISE SOFTWARE SOLUTIONS LTD.
ORDINARY SHARES
------------------------

Precise Software Solutions Ltd. is selling 2,594,085 shares and Precise
shareholders are selling 1,755,915 shares.

The shares are quoted on the Nasdaq National Market under the symbol
"PRSE." On November 14, 2000, the last sale price of the shares as reported on
the Nasdaq National Market was $25.625 per share.

INVESTING IN OUR ORDINARY SHARES INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to Precise.................. $ $
Proceeds to the selling shareholders................... $ $
</TABLE>

The underwriters may also purchase up to an additional 652,500 shares from
certain Precise shareholders and us at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares will be ready for delivery in New York, New York on or about
, 2000.

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

MERRILL LYNCH & CO.
CIBC WORLD MARKETS
DAIN RAUSCHER WESSELS
WIT SOUNDVIEW
FAC/EQUITIES

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

The date of this prospectus is , 2000.
<PAGE> 3

[INSIDE FRONT COVER]
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Price Range of Our Ordinary Shares.......................... 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 31
Management.................................................. 44
Principal and Selling Shareholders.......................... 51
Description of Share Capital................................ 55
Related Party Transactions.................................. 58
Shares Eligible for Future Sale............................. 59
United States Federal Income Tax Considerations............. 61
Israeli Taxation and Investment Programs.................... 65
Conditions in Israel........................................ 70
Enforceability of Civil Liabilities......................... 72
Underwriting................................................ 73
Legal Matters............................................... 75
Experts..................................................... 75
Where You Can Find More Information......................... 76
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<PAGE> 5

[This Page Intentionally Left Blank]
<PAGE> 6

SUMMARY

This summary does not contain all of the information that may be important
to you. You should read the entire prospectus before making an investment
decision.

PRECISE SOFTWARE SOLUTIONS LTD.

We are a provider of Information Technology infrastructure performance
management software. This infrastructure consists of networks, operating
systems, servers, applications, databases and storage devices that must
proactively support traditional and electronic business activities. Our software
optimizes the performance of an organization's infrastructure, which is
fundamental to its ability to generate revenues, attract and retain customers
and maintain its competitive position. For example, an online merchant must
ensure that a user shopping on its Web site is experiencing quality performance
or else the merchant risks losing that customer to a competitor. Using our
software, an organization can easily and rapidly detect performance slowdowns,
isolate the root cause, determine the impact on its business and suggest
remedial action before users are impacted.

Global competitive pressures are driving organizations to continuously seek
new and improved ways to better serve their customers. To enhance their
competitiveness, organizations are implementing e-business initiatives that rely
on the Internet. For example, enterprise resource planning, or ERP,
applications, the means through which an organization controls, manages and
expands its business operations, are now being extended over the Internet to
include external users to effect data exchange and e-commerce transactions. In
addition, there are new categories of companies that are emerging to take
advantage of the Internet, including application service providers and
management service providers. To enable and support e-business initiatives, a
complex, layered infrastructure of technologies and services has evolved. The
complexity is driven by a number of factors, including heterogeneous
technologies with rapidly changing standards and protocols, an increase in the
number of internal and external users and a vast increase in the volume of
transactions and amount of data supported. What is vital about this Information
Technology infrastructure is the level of performance it delivers to internal
users, customers, partners and vendors. Poor performance or downtime can have a
significant negative impact on an organization's productivity, revenues,
customer satisfaction and earnings.

Efficient management of the infrastructure involves addressing the needs
and problems of all constituencies across the extended enterprise. Each class of
user has different performance requirements and defines, and refers to, its own
performance metrics and problems differently. Technology support personnel must
reconcile these disparate needs and manage the infrastructure without employing
techniques or technologies that consume additional database and system
resources. In addition, infrastructure performance must align with business
priorities so that, for example, critical revenue-generating applications, such
as completing an online sale, are processed prior to non-revenue generating
applications, such as posting data to an organization's accounting system.
Because of these challenges, organizations are investing heavily in software to
manage and optimize the Information Technology infrastructure. Dataquest
estimates that organizations spent $2.4 billion in 1999 and expect to spend $4.7
billion in 2003 on availability and performance management software. Existing
software solutions can assist in locating certain problems, but are often costly
and time-consuming to deploy, unable to pinpoint the source of the problem and
consume database resources in the process. As a result, we believe there is a
need for rapidly deployable software that proactively monitors an organization's
Information Technology infrastructure to optimize performance without utilizing
additional database and system resources. We believe we fill this need.

We sell our software directly through a sales force of over 40
professionals and indirectly through resellers and one original equipment
manufacturer, or OEM. Our OEM relationship is with EMC Corporation, or EMC, a
leading provider of enterprise storage systems, software and services. EMC
integrates our products with similar EMC software used for improving storage
system performance and sells the bundled product to its customers. Amdocs, a
provider of information systems solutions to telecommunications companies and
our leading reseller, offers our software as an add-on product to their current
offering. Our current customers include Boeing, Carnival Cruise Lines, Chevron,
Cox Communications, Deutsche Telekom, Excite@Home, Ford Motor Company,
Mannesmann AG, One 2 One, Qwest Communications, Southwestern Bell, Staples and
The Hartford. Revenues from these customers accounted for 13.7% and 7.9%,
respectively, of our total revenues in 1999 and the nine months ended September
30, 2000.

We were incorporated in Israel in 1990. Our offices in Israel are located
at 1 Hashikma Street, Savyon, Israel 56518, and our telephone number is 972 (3)
635-2566. Our U.S. subsidiary is located at 690 Canton Street, Westwood,
Massachusetts 02090, and our telephone number is (781) 461-0700. Our Web site is
located at www.precise.com, and information contained on it does not constitute
part of this prospectus.

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<PAGE> 7

RECENT DEVELOPMENT

On October 27, 2000, we entered into an agreement to acquire Savant
Corporation for $20 million in a combination of cash and ordinary shares. Savant
creates and markets a suite of real-time diagnostic and proactive management
solutions. Savant's Diagnostic Center product provides users with an unattended,
real-time illustrated view of database and application activity as well as the
ability to predict and manage performance and availability issues. We expect to
integrate Savant's software products into our own product offerings in order to
provide a more comprehensive solution for our customers.

In connection with the Savant transaction, we will exchange approximately
512,445 of our ordinary shares for all Savant's outstanding shares of capital
stock, vested stock options and warrants. We will also pay $2.5 million in cash.
If revenue from Savant's products and services exceed certain thresholds in the
year ending December 31, 2001, we will issue additional ordinary shares. We
intend to account for the transaction as a purchase. Completion of the
acquisition is subject to regulatory approval and customary closing conditions
and is expected to close in the fourth quarter of 2000.

THE OFFERING

Ordinary shares offered by
Precise........................... 2,594,085 shares

Ordinary shares offered by selling
shareholders...................... 1,755,915 shares

Ordinary shares outstanding after
this offering..................... 24,520,463 shares

Use of proceeds................... We intend to use the net proceeds of this
offering to expand our sales and distribution
channels, to invest in research and
development activities and for working
capital and general corporate purposes,
including possible acquisitions of
complementary technologies, products or
businesses.

Risk Factors...................... See "Risk Factors" for a discussion of
factors you should carefully consider before
deciding to invest in our ordinary shares.

Nasdaq National Market symbol..... "PRSE"
------------------------

The number of ordinary shares that will be outstanding after this offering
is based on the number of ordinary shares outstanding as of September 30, 2000.
This information excludes:

- 5,447,260 ordinary shares issuable upon exercise of options outstanding
as of September 30, 2000, with a weighted average exercise price of $5.29
per share;

- an additional 1,885,740 ordinary shares reserved for issuance pursuant to
options issuable under our share option and incentive plans;

- 667,000 ordinary shares reserved for issuance under our 2000 employee
share purchase plan; and

- 512,445 ordinary shares which will be issued upon the consummation of our
acquisition of Savant Corporation and additional ordinary shares which
may be issued based on achievement of certain post acquisition
performance targets.

Unless otherwise indicated, the information in this prospectus:

- reflects a two-for-three reverse share split completed in April 2000;

- reflects the conversion of all of our outstanding preferred shares into
ordinary shares in July 2000 upon the closing of our initial public
offering; and

- assumes the underwriters will not exercise their over-allotment option.

All references in this prospectus to "dollars" or "$" are to U.S. dollars
and all references to "NIS" are to New Israeli Shekels.

2
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes our consolidated statement of operations
data for the periods presented. You should read this information in conjunction
with "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the related notes appearing elsewhere in this
prospectus. Precise has prepared its consolidated financial statements in U.S.
dollars and in accordance with U.S. generally accepted accounting principles.
The pro forma basic and diluted net loss per share reflects the automatic
conversion of our preferred shares into ordinary shares.

The following table indicates a summary of our balance sheet at September
30, 2000:

- on an actual basis; and

- on an as adjusted basis to give effect to the issuance and sale of the
2,594,085 ordinary shares offered by us in this offering, at an estimated
public offering price of $27.00 per share after deducting the estimated
underwriting discount and offering expenses, and our anticipated
application of the net proceeds.

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $25,447 $ 90,485
Marketable securities....................................... 29,149 29,149
Working capital............................................. 54,034 119,072
Total assets................................................ 90,554 155,592
Total shareholders' equity.................................. 82,479 147,517
</TABLE>

3
<PAGE> 9

RISK FACTORS

Investing in our ordinary shares will provide you with an equity ownership
interest in Precise. As a Precise shareholder, you will be subject to risks
inherent in our business. The performance of your shares will reflect the
performance of our business relative to, among other things, our competition,
industry conditions and general economic and market conditions. The value of
your investment may decline and could result in a total loss. You should
carefully consider the following factors, as well as the other information in
this prospectus, before deciding to invest in our ordinary shares.

RISKS RELATED TO OUR BUSINESS

BECAUSE OF THE SIGNIFICANT PURCHASE PRICE OF OUR SOFTWARE PRODUCTS AND THE
CORRESPONDING CARE THAT OUR POTENTIAL CUSTOMERS EXERCISE IN MAKING A PURCHASE
DECISION, WE EXPECT THAT OUR QUARTERLY OPERATING RESULTS WILL CONTINUE TO
FLUCTUATE AND THIS COULD CAUSE THE TRADING PRICE OF OUR SHARES TO FLUCTUATE OR
DECLINE

Like many software and technology related companies, our quarterly
operating results have varied significantly in the past. Because of the
significant purchase price of our software products, our customers exercise care
in making a purchase decision. We believe that this caution, in combination with
the other factors listed below, exposes us to larger variability in quarterly
operating results relative to other software or technology companies. Since our
operating results are likely to vary significantly in the future, we believe
that period-to-period comparisons of our operating results are not meaningful
and you should not rely upon our results in any one quarter as an indicator of
our future performance. If our quarterly revenues and operating results fail to
meet or exceed the expectations of securities analysts or investors, the market
price of our ordinary shares could fall substantially. Our operating results
vary depending on a number of factors, many of which are outside our control,
including:

- varying budgeting cycles and available funds of our customers and
potential customers;

- the length and variability of our sales cycle;

- varying size, timing and contractual terms of enterprise-wide orders for
our software;

- changes in demand for Oracle databases, with which our software operates,
and related enterprise application software;

- seasonality in our revenues, which have been lower historically in the
first and third quarters;

- changes in gross margins resulting from the mix of domestic and
international sales;

- software defects and other product quality problems that may not become
known until customer trials or after installation; and

- changes in gross margins depending on whether our software is sold
directly or through indirect sales channels.

In addition, a significant portion of our software license revenues in any
quarter is often derived from orders booked and shipped in the last weeks or
days of that quarter. A delay in an order, even from just one customer, could
negatively impact our quarterly revenues and operating results.

A substantial portion of our expenses, including most software development
and sales and marketing expenses, must be incurred in advance of generating
revenues. In addition, our operating expenses are largely based on anticipated
organizational growth and revenue trends and a high percentage of our expenses
are, and will continue to be, fixed. As a result, if our projected revenues do
not meet our expectations, for the reasons above or for any other reasons, then
we will still incur these fixed expenses and are likely to experience an even
larger shortfall in our quarterly operating results relative to expectations.

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<PAGE> 10

WE HAVE A HISTORY OF LOSSES, AND WE ANTICIPATE OUR EXPENSES WILL INCREASE IN THE
FORESEEABLE FUTURE AS A RESULT OF PLANNED EXPANSION OF OUR SALES AND MARKETING
CHANNELS AND RESEARCH AND DEVELOPMENT ACTIVITIES, WHICH MAY DELAY OR PREVENT US
FROM ATTAINING PROFITABILITY

We incurred net losses of approximately $4.2 million for the year ended
December 31, 1997, $4.0 million for the year ended December 31, 1998, $2.6
million for the year ended December 31, 1999 and $7.2 million for the nine
months ended September 30, 2000. As of September 30, 2000, we had an accumulated
deficit of approximately $23.6 million. We cannot predict the extent of our
future losses and when, or if, we may become profitable. We anticipate that our
expenses will increase substantially in the foreseeable future as we seek to
expand our distribution channels, to increase our sales and marketing
activities, and to continue to develop our technology and introduce new
software. These efforts may prove more costly than we currently anticipate and
we may not succeed in increasing our revenues sufficiently to offset these
higher expenses. If we fail to increase our revenues at a greater rate than our
expenses, we will not be able to achieve and maintain profitability.

OUR INABILITY TO DEDICATE APPROPRIATE FINANCIAL AND MANAGERIAL RESOURCES COULD
IMPAIR OUR ABILITY TO GROW OUR REVENUES AT THE SAME RATE IN THE FUTURE AS THEY
HAVE IN THE PAST AND, FOR THE SAME REASON, THEY COULD DECLINE

Although our revenues have grown at substantial rates in recent years, we
do not expect our revenues to grow as rapidly in the future, and our revenues
could decline. Our total revenues have grown from $2.8 million for the year
ended December 31, 1997 to $6.2 million for the year ended December 31, 1998 to
$11.6 million for the year ended December 31, 1999. Our total revenues for the
nine months ended September 30, 2000 were $17.9 million. As our business
develops and the market for our software products matures, it is unlikely that
our revenues will continue to grow at the same rapid pace. We may not be able to
dedicate the significant managerial time and effort required to develop
additional strategic relationships, and we may not be able to hire sufficient
numbers of sales personnel to expand our sales channels and increase penetration
of our existing markets. In addition, we may not have the financial liquidity
required to develop and introduce, on a timely basis, new products that achieve
broad market acceptance.

OUR FAILURE TO DEDICATE APPROPRIATE RESOURCES TO OUR BUSINESS COULD STRAIN OUR
EXISTING SYSTEMS OR MANAGEMENT CAPABILITIES, LIMIT OUR GROWTH AND HARM OUR
BUSINESS AND FINANCIAL PERFORMANCE

We currently have employees based in Israel, the United Kingdom and
throughout the United States. We increased our employee base significantly
during 1999 and 2000. In particular, we have recently increased, and expect to
continue to increase, the size of our sales force and have recently integrated
the operations of our U.K. distributor, Knight Fisk Software Ltd., which we
acquired in February 2000. Furthermore, we have recently established and expect
to continue to establish additional distribution channels through third-party
relationships. Our growth, coupled with rapid changes in our market, has placed,
and is likely to continue to place, significant strains on our administrative,
operational and financial resources and places significant demands on our
internal systems, procedures and controls. In order to manage growth
effectively, we must implement and improve our operational systems and controls.
The failure to invest in and establish systems with sufficient capacity to
handle expanded operations or failure to dedicate appropriate managerial
resources could restrain our potential future growth and may harm the efficiency
of our operations. Furthermore, if we fail to manage our growth effectively, the
quality of our products and services and our operating results could be
seriously harmed.

WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL TO
SUCCESSFULLY GROW OUR BUSINESS

Our future success will depend in large part on our ability to attract and
retain experienced sales, marketing, research and development, customer support
and management personnel. If we do not attract and retain such personnel, we may
not be able to expand our sales coverage or develop and introduce new or
enhanced products on the scale and schedule that we intend. Competition for
qualified personnel in the computer software industry is intense, especially for
technical personnel in Israel, where our research and development organization
is located. We have experienced difficulty in the past recruiting qualified

5
<PAGE> 11

personnel, especially technical and sales personnel. Moreover, we intend to
expand the scope of our international operations and these plans will require us
to hire experienced management, service, marketing, sales and customer support
personnel abroad. We expect competition for qualified personnel to remain
intense and we may not succeed in attracting or retaining these personnel.

In addition, new employees generally require substantial training in the
use of our products, which in turn requires significant resources and management
attention. There is a risk that even if we invest significant resources in
attempting to attract, train and retain qualified personnel, we will not be
successful in our efforts. Our costs of doing business would increase without
the expected increase in revenues. Our inability to recruit, hire, train and
retain qualified employees could cause our business to suffer.

ANY ACQUISITIONS OR ATTEMPTED ACQUISITIONS WILL DIVERT MANAGEMENT ATTENTION AND
FINANCIAL RESOURCES AND MAY HARM OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

As part of our growth strategy, we intend to consider acquiring
complementary technologies, products and businesses. Attempted acquisitions,
such as that of Savant Corporation, may divert management, operational and
financial resources from the conduct of our core business. For example, we do
not have specific personnel dedicated to the identification and integration of
potential acquisitions. As a result, if we pursue this growth strategy, the
efforts of management will be diverted from their other operational
responsibilities, and we may not complete any attempted acquisition. Moreover,
to pay for an acquisition, we might use capital stock, or cash, including the
proceeds from this offering, or a combination of both. We may alternatively
borrow money from a bank or other lender. If we use capital stock, our
shareholders will experience dilution. If we use cash or debt financing, our
financial liquidity will be reduced, the holders of our debt would have claims
on our assets ahead of holders of our ordinary shares and our business
operations may be restricted by the terms of our debt, including our ability to
pay dividends on our ordinary shares. In addition, an acquisition may involve
nonrecurring charges or amortization of significant amounts of goodwill and
other intangible assets, which would adversely affect our ability to achieve and
maintain profitability. In February 2000, we acquired all of the capital stock
of Knight Fisk Software Ltd., our U.K. distributor. As part of this transaction,
which was accounted for as a purchase, approximately $0.7 million of goodwill
was recorded as an asset on our balance sheet and will be amortized over the
next ten years. In October 2000, we agreed to acquire Savant Corporation in a
transaction to be accounted for as a purchase. We expect to pay the stockholders
of Savant $2.5 million in cash and 512,445 of our ordinary shares. If certain
performance targets are met, we would be obligated to issue additional ordinary
shares. If the acquisition is consummated, we expect to record goodwill and
other intangibles of approximately $14.9 million on our balance sheet and to
record a one-time charge to our statement of operations of approximately $2.2
million for acquired research and development. The goodwill and other
intangibles will be amortized over a five to seven year period.

FUTURE ACQUISITIONS MAY NOT PRODUCE THE REVENUES, EARNINGS OR BUSINESS SYNERGIES
THAT WE ANTICIPATED AND MAY CAUSE OUR REVENUES TO DECLINE

We have agreed to acquire Savant Corporation, however, the consummation of
the acquisition is subject to regulatory approval and certain other customary
closing conditions and may not occur. Even if consummated, the acquisition of
Savant and any other future acquisitions may not produce the revenues, earnings
or business synergies that we anticipated, and acquired businesses or
technologies may not perform as expected for a variety of reasons, including:

- difficulties in the integration of the operations, technologies, products
and personnel of the acquired company;

- risks of entering markets in which we have no or limited prior
experience;

- potential loss of key employees of the acquired entity; and

- expenses of any undisclosed or potential legal liabilities of the
acquired company.

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<PAGE> 12

In addition, management's attention and resources may be diverted during
any attempted integration. Any one or a combination of these factors may cause
our revenues or earnings to decline.

WE DEPEND UPON KEY PERSONNEL, THE LOSS OF WHOM WOULD HARM OUR OPERATIONS

Our success depends, to a significant extent, upon the continued
performance and services of our executive officers and other key sales,
marketing, engineering and support personnel. The loss of the services of any of
our executive officers or key personnel, including Shimon Alon, our President
and Chief Executive Officer, would be disruptive to our operations. It would be
difficult and time consuming to replace them. We do not maintain key person life
insurance policies on any of our officers. Any of these individuals may
voluntarily terminate his employment with Precise. Our inability to retain these
employees could harm the growth and success of our business.

WE COMPETE WITH ORACLE, A COMPANY WITH LONG-STANDING RELATIONSHIPS WITH OUR
CUSTOMERS; EFFORTS BY ORACLE TO IMPROVE THEIR COMPETITIVE POSITION COULD REDUCE
OUR REVENUES OR GROSS MARGINS

We face both current and potential competition from Oracle. Our Precise/SQL
software presently competes with a product sold by Oracle in the market for
Information Technology infrastructure performance management software. As part
of its competitive strategy, Oracle could attempt to increase its presence in
this market by focusing its efforts on selling its own performance management
software to our present and potential customers. In addition, Oracle could
bundle its own performance management software, or performance management
software offered by a third party, with its database software, which could
discourage potential customers from purchasing our software. Even if the
performance management software sold by Oracle or bundled with Oracle's database
software was more limited in functionality than our software, a significant
number of customers or potential customers might elect to accept more limited
functionality instead of purchasing additional software from us. Although to
date we have not experienced pressure to reduce prices or margins as a result of
Oracle bundling performance management software with their database software,
this bundling practice could lead to future price reductions for our software,
reducing our gross margins. Oracle has a longer operating history, a larger
installed base of customers and substantially greater financial, distribution,
marketing and technical resources than we do. If any of those events occurred,
our ability to compete effectively could be impaired, and we would lose market
share.

OUR RELATIONSHIP WITH ORACLE IS IMPORTANT TO OUR SOFTWARE DEVELOPMENT EFFORTS
AND ANY DETERIORATION IN THIS RELATIONSHIP COULD IMPAIR OUR ABILITY TO DEVELOP
OUR SOFTWARE

We rely on our participation in Oracle's testing and feedback programs to
develop our technology and enhance the features and functionality of our
software on a timely basis to coincide with the release of new software or
software enhancements from Oracle. Any deterioration of our relationship with
Oracle could delay development or introduction of our new or enhanced software.
This would adversely affect our competitive position. We do not have any
agreements to ensure that our existing relationship with Oracle will continue.
Traditionally, Oracle has not prohibited companies who develop software that
supports Oracle products from participating in these programs. However, if
Oracle were to prohibit us from participating in these programs in the future
for competitive or other reasons, our inability to respond to any changes in
Oracle products could result in shipment delays or lost revenues.

IF THE MARKETS FOR ORACLE DATABASES AND RELATED APPLICATIONS SOFTWARE DO NOT
CONTINUE TO EXPAND, OUR ABILITY TO GROW OUR BUSINESS WILL BE ADVERSELY AFFECTED

To date, substantially all of the Precise software has been designed to
support Oracle-based Information Technology infrastructures and we expect our
software to be dependent on the Oracle market for the foreseeable future. If the
market for Oracle databases and related applications software declines or
expands more slowly than we currently anticipate, our ability to grow our
business, sell our software and achieve and maintain profitability would be
impaired. Although the market for Oracle databases and related applications has
grown rapidly, this growth may not continue at the same rate, or at all.

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THE PERFORMANCE MANAGEMENT SOFTWARE MARKET IS EXPECTED TO RAPIDLY EVOLVE, AND IF
WE ARE NOT ABLE TO ACCURATELY PREDICT AND RESPOND TO MARKET DEVELOPMENTS OR
CUSTOMER NEEDS, OUR COMPETITIVE POSITION WILL BE IMPAIRED

The market for Information Technology infrastructure performance management
software is relatively new and is expected to evolve rapidly. However, estimates
of our market's expected growth are inherently uncertain and are subject to many
risks and assumptions. In formulating its estimate of the size of the
availability and performance software market discussed on pages 1 and 32,
Dataquest has assumed enterprise and service provider infrastructure buildouts,
the growth of electronic commerce, the need for management applications to
streamline complex business processes, the use of third-party management vendor
support, the stability of the global economy, the continued use of traditional
software models and limited public sector intervention in the software market.
Moreover, many of our customers operate in markets characterized by rapidly
changing technologies and business plans. These customers look to our software
products to monitor performance in this environment. Rapid changes in the needs
of these customers and changing technologies make it difficult for us to predict
their demands. We are particularly susceptible to those changes since our
software is used in a wide array of operating environments, which are constantly
evolving. As a result, we may not be able to develop, on a timely basis or at
all, software that meets our customers' needs or desires. In addition, various
sectors of our market are served by competitors who may respond more effectively
to market developments and customer needs. We cannot assure you that the market
for our software will grow or that we will be able to respond to changes in the
market, evolving customer needs or our competition. If the market for our
software does not develop as we expect or if we fail to respond to market and
competitive developments, our business prospects and competitive position will
be impaired.

THE FAILURE OF OUR NEW SOFTWARE TO ACHIEVE MARKET ACCEPTANCE OR DELAYS IN OUR
CURRENT OR FUTURE SOFTWARE DEVELOPMENT EFFORTS COULD ERODE OUR COMPETITIVE
POSITION

The failure to successfully develop, enhance or modify our software, or the
failure to do so on a timely basis, could limit our revenue growth and
competitive position. We recently introduced new software for performance
management in e-business environments. In addition, we are expanding our product
line to allow the monitoring of an organization's Information Technology
infrastructure performance and continuing to develop new releases of our core
products that incorporate additional features. We may need to rapidly develop
and introduce additional software and enhancements to our existing software to
satisfy our current customers and maintain our competitive position in the
marketplace. We may also need to modify our software so that it can operate with
new or enhanced software introduced by other software vendors. The failure to
introduce new, enhanced or modified software on a timely basis could prevent our
software from achieving market acceptance. We have in the past, and may in the
future, experience delays in the timing of new software introductions. To
support our software development, enhancement or modification, we may find it
necessary to license or acquire new technologies, which may not be available to
us on acceptable terms, if at all.

THE INABILITY OF OUR SOFTWARE TO OPERATE WITH THE SOFTWARE USED BY OUR CUSTOMERS
WOULD CAUSE OUR REVENUES TO DECLINE

Our software currently utilizes various protocols to interact with our
customers' existing software in order to monitor the performance of their
Information Technology infrastructure. If other software developers discontinued
the use of, or failed to maintain or enhance the protocols with which our
software operates, our software could become incompatible with theirs, our
customers or potential customers could decide not to purchase our software, and
our revenues would decline. In addition, our core software is designed to be
used with Oracle databases and related enterprise resource planning
applications. If Oracle promotes technologies and standards that are not
compatible with our technology or redesigns its database software to reduce or
eliminate the need for our software, our business would be seriously harmed.

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NEW COMPETITORS COULD EMERGE OR OUR CUSTOMERS COULD INTERNALLY DEVELOP
ALTERNATIVES TO OUR PRODUCTS, AND EITHER EVENT COULD IMPAIR OUR ABILITY TO SELL
OUR PRODUCTS

We may face competition from established companies who have not previously
entered the market for performance management software, as well as from emerging
companies. Established companies may not only develop their own Information
Technology infrastructure performance management software, but they may also
acquire or establish cooperative relationships with our current competitors.
Moreover, our large corporate customers and potential customers could develop
infrastructure performance management software internally. New competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Many of our existing and potential competitors have greater name
recognition, a larger installed customer base and significantly greater
financial, technical, marketing and other resources and experience than we do.
If these competitors are successful, we would lose market share and our revenues
would likely decline.

OUR FAILURE TO ESTABLISH AND EFFECTIVELY MANAGE INDIRECT DISTRIBUTION CHANNELS
COULD CAUSE OUR REVENUES TO DECLINE

Our ability to sell our software in new markets and to increase our share
of existing markets will be impaired if we fail to expand significantly our
indirect distribution channels. Our sales strategy involves the establishment of
multiple distribution channels domestically and internationally through
value-added resellers, systems integrators and original equipment manufacturers.
We have recently entered into agreements with EMC to bundle a version of our
software with their products, and with Amdocs to sell our software along with
their product. Although these relationships have been successful to date, we
cannot predict the extent to which these companies will continue to be
successful in marketing or selling our software. These agreements could be
terminated on short notice and they do not prevent either EMC or Amdocs from
selling the software of other companies, including our competitors. EMC, Amdocs
or any new OEM or reseller could give higher priority to other companies'
software or to their own software than they give to ours.

OUR INABILITY TO DEVELOP AND EXPAND OUR DIRECT SALES FORCE WOULD LIMIT OUR
REVENUE GROWTH

We intend to expand the size of our direct sales force domestically and
internationally. If we do not expand and retain our direct sales force, revenue
growth could be seriously harmed. Competition for qualified sales personnel is
intense and we may not be able to hire and retain as many qualified individuals
as we may require in the future. To the extent we hire personnel from
competitors, we may be subject to allegations that they have been improperly
solicited or divulged proprietary or other confidential information. In
addition, sale of our software requires sales personnel, experienced in our
market, who target and gain access to the senior management of our prospective
customers. Newly hired sales personnel require extensive training and may take
six months or longer to achieve full productivity. This training period, along
with the difficulty in attracting and retaining qualified individuals, makes it
difficult to grow the size of our sales force rapidly and utilize them
effectively.

A DECLINE IN THE PRICE OF OR DEMAND FOR OUR PRECISE/SQL SOFTWARE, WHICH ACCOUNTS
FOR A SUBSTANTIAL PORTION OF OUR SOFTWARE LICENSE REVENUES, WOULD CAUSE A
SIGNIFICANT DECLINE IN OUR REVENUES

Our success depends on continued market acceptance of our Precise/SQL
software. Revenues from licensing Precise/SQL accounted for approximately 86% of
our software license revenues for the year ended December 31, 1999 and 72% of
our software license revenues for the nine months ended September 30, 2000. We
expect software license revenues from Precise/SQL to continue to account for a
substantial portion of our future revenues. If Precise/SQL does not continue to
achieve market acceptance, or if our competitors release new products that have
more advanced features, offer better performance or are more price competitive
than Precise/SQL, our revenues may not grow and may even decline.

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IF EXISTING CUSTOMERS DO NOT MAKE SUBSEQUENT PURCHASES FROM US OR IF OUR
RELATIONSHIPS WITH OUR LARGEST CUSTOMERS ARE IMPAIRED, OUR REVENUE GROWTH COULD
DECLINE

In 1998, 1999 and the nine months ended September 30, 2000, customers that
purchased additional licenses for previously purchased Precise software, or
purchased licenses for new or enhanced products, generated 25%, 39% and 31%,
respectively, of our total software license revenues. Our revenue growth could
decline if our current customers do not purchase additional licenses from us.
Most of our current customers initially license only a single software product
from us or license a software product for a limited use. In addition, as we
deploy new versions of our existing software or introduce new software, our
current customers may not require the functionality of this new software and may
not license it.

We also depend on our installed customer base for future service revenue
from maintenance renewal fees. The terms of our standard license arrangements
provide for a one-time license fee and a prepayment of one year of software
maintenance. Our maintenance agreements are renewable annually at the option of
our customers but there are no obligations to renew. If customers choose not to
continue their maintenance service, our revenues may decline.

In addition, a substantial percentage of our revenues is derived from two
of our customers, Amdocs and EMC. In 1999, Amdocs accounted for 15.3% of our
total revenues and, in the nine months ended September 30, 2000, EMC accounted
for 26.2% of our total revenues. If our relationship with either of these
customers were impaired, our revenue growth would decline.

DEFECTS IN OUR SOFTWARE WOULD HARM OUR BUSINESS AND DIVERT RESOURCES

Because our software is complex, it may contain errors that can be detected
at any point in its life cycle. Any errors or defects in our software could
result in:

- delayed or lost revenue;

- failure to attract new customers or achieve market acceptance;

- claims against us;

- diversion of development resources;

- increased service, warranty and insurance costs; and

- negative publicity resulting in damage to our reputation.

While we continually test our software for errors and work with customers
to identify and correct them, errors in our software may be found in the future.
Testing for errors is complicated because it is difficult to simulate the
breadth of operating systems, user applications and computing environments that
our customers use and because our software is becoming increasingly complex
itself. The costs we may incur in addressing software errors could be
substantial.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US

Because our customers rely on our software to monitor and improve the
performance of their critical software applications, they are sensitive to
potential disruptions that may be caused by the use of, or any defects in, our
software. As a result, we may be subject to claims for damages related to
software errors in the future. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages.
Regardless of whether we prevail, diversion of key employees' time and attention
from the business, incurrence of substantial expenses and potential damage to
our reputation might result. Our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims. Limitation of liability provisions like those in our license agreements,
however, may not be effective under the laws of some jurisdictions. In addition,
although we maintain general liability insurance, we cannot assure you that this
coverage will be available in amounts sufficient to cover one or more large
claims, or that the insurer will not disclaim coverage as to any future claim.

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OUR FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR
COMPETITIVE MARKET POSITION

Our success and ability to compete are substantially dependent upon our
internally developed technology, consisting primarily of computer programs and
instructions stored on digital media that can be easily reproduced. If we are
unable to protect that technology, our market position will be harmed. Other
than our trademarks, most of our intellectual property consists of proprietary
or confidential information that is not subject to patent or similar protection.
Unauthorized third parties may attempt to copy or otherwise obtain and use the
technology protected by those rights. Furthermore, policing unauthorized use of
our software is difficult and costly, particularly in countries where the laws
may not protect our proprietary rights as fully as in the U.S. If competitors or
potential customers are able to use our technology, our ability to compete
effectively would be harmed.

We have placed, and in the future may place, source code for our software
in escrow. The source code may, under certain circumstances, be made available
to certain of our customers. This may increase the likelihood of
misappropriation or other misuse of our software.

CLAIMS THAT OUR SOFTWARE INFRINGES THE PROPRIETARY RIGHTS OF OTHERS COULD HARM
OUR BUSINESS AND CAUSE US TO INCUR SIGNIFICANT COSTS

Software products are increasingly subject to third-party infringement
claims as the functionality of products in different industry segments overlaps.
As a result, third parties may claim that our software infringes on their
proprietary rights. The application of patent law to the software industry is
particularly uncertain as the U.S. Patent and Trademark Office has only recently
begun to issue software patents in large numbers. Any potential intellectual
property claims against us, with or without merit, could:

- be expensive and time consuming to defend;

- cause us to cease making, licensing or using software that incorporates
the challenged intellectual property;

- cause software shipment and installation delays;

- require us to redesign our software, if feasible;

- divert management's attention and resources; or

- require us to enter into royalty or licensing agreements in order to
obtain the right to use a necessary product or component.

Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of software infringement against
us and our failure or inability to license the infringed or similar technology
could prevent us from distributing our software or cause us to incur great
expense and delay in developing non-infringing software.

WE RELY ON SOFTWARE LICENSED FROM THIRD PARTIES, THE LOSS OF WHICH COULD
INCREASE OUR COSTS AND DELAY SOFTWARE SHIPMENTS

We integrate various third-party software products as components of our
software. Our business would be disrupted if this software, or functional
equivalents of this software, were either no longer available to us or no longer
offered to us on commercially reasonable terms. In either case, we would be
required to either redesign our software to function with alternate third-party
software or develop these components ourselves, which would result in increased
costs and could result in delays in our software shipments. Furthermore, we
might be forced to limit the features available in our current or future
software offerings.

WE ARE SUBJECT TO RISKS OF OPERATING WORLDWIDE THAT COULD IMPAIR OUR ABILITY TO
GROW OUR REVENUES ABROAD

We market and sell our software in North America, South America, Europe and
Asia and we plan to establish additional facilities in these and other parts of
the world. Therefore, we are subject to risks associated with having worldwide
operations. Sales to customers located outside of North America

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<PAGE> 17

accounted for approximately 23% of our total revenues in the year ended December
31, 1998, approximately 30% of our total revenues in the year ended December 31,
1999 and approximately 29% of our total revenues during the nine months ended
September 30, 2000. In addition, our principal research and development
facilities and operations are located in Israel. The expansion of our existing
operations and entry into additional worldwide markets will require significant
management attention and financial resources. We are also subject to a number of
risks customary for worldwide operations, including:

- economic or political instability in worldwide markets;

- greater difficulty in accounts receivable collection and longer
collection periods;

- unexpected changes in regulatory requirements;

- difficulties and costs of staffing and managing foreign operations;

- import and export controls;

- the uncertainty of protection for intellectual property rights in some
countries;

- multiple and possibly overlapping tax structures; and

- foreign currency exchange rate fluctuations.

To date, a substantial portion of our sales have been denominated in U.S.
dollars, and we have not used risk management techniques or "hedged" the risks
associated with fluctuations in foreign currency exchange rates. In the future,
if we do not engage in hedging transactions, our results of operations will be
subject to losses from fluctuations in foreign currency exchange rates.

OUR SHARE PRICE HAS BEEN VOLATILE AND COULD DROP UNEXPECTEDLY

The price at which our ordinary shares trade has been and is likely to
continue to be volatile. The stock market from time to time experiences
significant price and volume fluctuations that affect the market prices of
securities, particularly securities of technology and computer software
companies. As a result, investors may experience a significant decline in the
market price of our ordinary shares, regardless of our operating performance.
Price declines in our stock could result from many factors outside of our
control, including:

- announcements by our competitors of financial results, acquisitions, new
products or technological innovations;

- disputes concerning patents or other proprietary rights;

- conditions in Israel; and

- general market conditions.

In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. We may become involved in this type of
litigation in the future. Litigation of this type, regardless of its merit, is
often extremely expensive and diverts management's attention and resources.

WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING SHAREHOLDERS, WHO MAY MAKE
DECISIONS WITH WHICH YOU MAY DISAGREE

We anticipate that our directors and officers, along with Jerusalem Venture
Partners and Gemini Israel Fund, will, in the aggregate, beneficially own
approximately 27.2% of our outstanding ordinary shares following the completion
of this offering. The interests of these shareholders may differ from your
interests. These shareholders, if acting together, will be able to significantly
influence all matters requiring approval by our shareholders, including the
election of directors and the approval of mergers or other business combination
transactions. In addition, this concentration of ownership may delay, prevent or
deter a

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<PAGE> 18

change in control and could deprive you of a possible premium for your ordinary
shares as part of a sale of Precise.

OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS
OFFERING, WHICH THEY MAY NOT USE EFFECTIVELY

Management will have significant flexibility in allocating the net proceeds
of this offering, including uses with which shareholders may disagree. The
failure of management to spend these funds effectively could harm our financial
condition and result in lost business opportunities. For more information on how
we intend to use the proceeds of this offering, please read the "Use of
Proceeds" section on page 17.

RISKS RELATED TO OUR OPERATIONS IN ISRAEL

For more detailed information on operating in Israel, please read the
section entitled "Conditions in Israel" beginning on page 70.

POTENTIAL POLITICAL, ECONOMIC AND MILITARY INSTABILITY IN ISRAEL MAY HARM OUR
RESULTS OF OPERATIONS

Our principal research and development facilities are located in Israel and
a small portion of our sales are currently being made to customers in Israel.
Accordingly, political, economic and military conditions in Israel may directly
affect our business. Since the establishment of the State of Israel in 1948, a
number of armed conflicts have taken place between Israel and its Arab neighbors
as well as many incidents of civil unrest. Any hostilities involving Israel or
the interruption or curtailment of trade between Israel and its present trading
partners could adversely affect our operations. Despite the efforts towards
peace between Israel and its Arab neighbors and the Palestinians, there can be
no assurance that ongoing or revived hostilities or other factors related to
Israel will not harm our business. Furthermore, several countries still restrict
business with Israel and Israeli companies. These restrictive laws and policies
may seriously limit our ability to operate in Israel or sell our software in
these countries and would harm our results of operations.

OUR OPERATIONS MAY BE NEGATIVELY AFFECTED BY THE OBLIGATIONS OF OUR PERSONNEL TO
PERFORM MILITARY SERVICE

Many of our employees in Israel are obligated to perform military reserve
duty. In addition, in the event of a war, military or other conflict,
individuals could be required to serve in the military for extended periods of
time. Our operations could be disrupted by the absence for a significant period
of time of one or more of our key employees or a significant number of our other
employees due to military service. Any such disruption in our operations could
harm our operations.

BECAUSE MOST OF OUR REVENUES ARE GENERATED IN NON-ISRAELI CURRENCIES, BUT A
PORTION OF OUR EXPENSES ARE INCURRED IN NEW ISRAELI SHEKELS, INFLATION AND
CURRENCY FLUCTUATIONS COULD SERIOUSLY HARM OUR RESULTS OF OPERATIONS

We generate most of our revenues in U.S. dollars but a portion of our costs
associated with our Israeli operations are in New Israeli Shekels, or NIS. We
also pay some of our international-based sales and support staff in local
currencies, such as the British pound sterling. As a result, we are exposed to
risks to the extent that the rate of inflation in Israel or in the U.K. exceeds
the rate of devaluation of the NIS or the British pound sterling in relation to
the U.S. dollar or if the timing of such devaluations lag behind inflation in
Israel or in the U.K. In that event, the cost of our operations in Israel and
the U.K. measured in terms of U.S. dollars will increase and our U.S.
dollar-measured results of operations will suffer. Historically, Israel has
experienced periods of high inflation. Our results of operations also could be
harmed if we are unable to guard against currency fluctuations in Israel, the
U.K. or other countries in which we may employ sales or support staff in the
future.

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YOU MAY HAVE DIFFICULTIES IN ENFORCING A U.S. JUDGMENT AGAINST US, OUR EXECUTIVE
OFFICERS AND DIRECTORS OR IN ASSERTING U.S. SECURITIES LAWS CLAIMS IN ISRAEL

Because a significant portion of our assets and the assets of our directors
and executive officers are located outside the United States, a judgment
obtained in the United States against us or any of them may not be collectible
in the United States and may not be enforced by an Israeli court. Further, if a
foreign judgment is enforced by an Israeli court, it will be payable in Israeli
currency. We have appointed Precise Software Solutions, Inc., our U.S.
subsidiary, as our agent to receive service of process in any action against us
arising out of this offering. However, we have not given our consent for our
agent to accept service of process in connection with any other claim. For more
information regarding the enforceability of civil liabilities against us, our
directors and executive officers, please read the "Enforceability of Civil
Liabilities" section on page 72.

WE INTEND TO RELY UPON TAX BENEFITS FROM THE STATE OF ISRAEL IF AND WHEN WE
BECOME PROFITABLE, BUT THOSE TAX BENEFITS MAY NOT BE AVAILABLE TO US AT THAT
TIME

We are eligible for certain tax benefits for the first several years in
which we generate taxable income pursuant to Israel's Law for the Encouragement
of Capital Investments, 1959. Although, we have not historically generated
taxable income for purposes of this law, we may utilize these tax benefits
beginning in 2000. Our financial condition could suffer if these tax benefits
were subsequently reduced or not available to us.

In May 2000, the Government of Israel approved in principle a tax reform
proposal that would reduce or eliminate some of these benefits in the future.
Legislation will be required to implement these changes, and the enactment of
that legislation is uncertain. The termination or reduction of these tax
benefits and programs could harm our business, financial condition and results
of operations.

In order to receive tax benefits, we must comply with two material
conditions. We must have a certain amount of investments in fixed assets and
must finance a portion of these investments with proceeds of equity capital
raised by Precise. We believe we have complied with these conditions, but we
have not received confirmation from the Investment Center with respect to our
compliance. If we fail to comply in whole or in part with these conditions, the
tax benefits that we expect to receive could be partially or fully canceled. In
that event, we could be forced to refund the amount of the benefits we have
received, adjusted for inflation and interest. From time to time, the Government
of Israel has discussed reducing or eliminating the benefits available under the
Approved Enterprise program. Thus, these tax benefits may not be continued in
the future at their current levels or at all. For further information regarding
the tax benefits available in the State of Israel, see "Israeli Taxation and
Investment Programs" on page 65.

Additionally, in the event that we increase our activities outside the
State of Israel due to, for example, future acquisitions, our increased
activities generally will not be eligible for inclusion in Israeli tax benefit
programs. Accordingly, our effective corporate tax rate could increase
significantly in the future as the revenues generated by the new activities will
not qualify for Approved Enterprise treatment.

THE TRANSFER AND USE OF PORTIONS OF OUR TECHNOLOGY ARE LIMITED BECAUSE OF
RESEARCH AND DEVELOPMENT GRANTS WE RECEIVED FROM THE ISRAELI GOVERNMENT

Our research and development efforts associated with the development of our
Precise/SQL software have been partially financed through grants from the Office
of the Chief Scientist of the Israeli Ministry of Industry and Commerce. We have
developed software through Chief Scientist grants that subject us to royalty
payments and restrictions, which could limit or prevent our growth and
profitability. The software developed with this funding may not be manufactured,
nor may this technology embodied in our software be transferred, outside of
Israel without appropriate governmental approvals. These restrictions do not
apply to the sale or export from Israel of our software developed with this
know-how. These restrictions will continue to apply to us after we pay the full
amount of royalties payable in respect of the grants. Further, if the Chief
Scientist consents to the manufacture of our software outside Israel, the
regulations

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<PAGE> 20

prescribe the payment of increased royalties, ranging from 120% to 300% of the
amount of the Chief Scientist grant, depending on the percentage of foreign
manufacture. For further information regarding the terms and conditions of
grants from the Office of the Chief Scientist, see "Israeli Taxation and
Investment Programs -- Law for the Encouragement of Industrial Research and
Development, 1984" on page 68.

PROVISIONS OF ISRAELI LAW MAY DELAY, PREVENT OR MAKE DIFFICULT AN ACQUISITION OF
PRECISE, WHICH COULD PREVENT A CHANGE OF CONTROL AND THEREFORE DEPRESS THE PRICE
OF OUR SHARES

Provisions of Israeli corporate and tax law may have the effect of
delaying, preventing or making more difficult a merger or other acquisition of
Precise. The new Israeli Companies Law generally requires that a merger must be
approved by the holders of a majority of the shares present and voting on the
proposed merger, excluding shares held by the potential acquiror, at a
shareholders meeting that has been called on at least 21 days' advance notice.
Any creditor of a merger party may seek a court order blocking the merger, if
there is a reasonable concern that the surviving company will not be able to
satisfy all of the obligations of the parties to the merger. Moreover, a merger
may not be consummated until at least 70 days have passed from the time that the
merger proposal has been filed with the Israeli Registrar of Companies. Other
potential means of acquiring a public Israeli company such as Precise might
involve significant obstacles, such as a requirement of court approval of the
acquisition or business combination under certain circumstances.

Israeli tax law treats some acquisitions, particularly stock-for-stock
exchanges between an Israeli company and a foreign company, less favorably than
United States tax law. Israeli tax law will, for instance, subject a shareholder
who exchanges his or her Precise shares for shares in another corporation to
immediate Israeli taxation.

U.S. INVESTORS IN OUR COMPANY COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE ARE
CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY

If, for any taxable year, our passive income or our assets that produce
passive income exceed levels provided by law, we may be characterized as a
passive foreign investment company, or PFIC, for U.S. federal income tax
purposes. This characterization could result in adverse U.S. tax consequences to
our shareholders. U.S. shareholders should consult with their own U.S. tax
advisors with respect to the U.S. tax consequences of investing in our ordinary
shares. For a discussion of how we might be characterized as a PFIC and related
tax consequences, please see the section of this prospectus beginning on page 63
entitled "United States Federal Income Tax Considerations -- Tax Consequences if
We Are a Passive Foreign Investment Company."

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<PAGE> 21

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We use words like
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify these forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about Precise, the market for our products and the
competition, including, among other things:

- our inability to achieve or maintain profitability since we expect to
incur significant expenses in the near future to grow our business,
particularly our direct sales force and indirect sales channels;

- the size, timing and recognition of revenue from major customers;

- market acceptance of new product offerings and our ability to predict and
respond to market developments;

- our ability to attract and retain key personnel;

- the development and expansion of our direct sales force;

- our ability to consummate acquisitions and to successfully integrate and
operate the acquired businesses;

- risks associated with management of growth;

- political, economic and business fluctuations in Israel and our
international markets; and

- risks of downturns in economic conditions generally, and in the
information technology and software industries specifically.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur.

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<PAGE> 22

USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of the
2,594,085 ordinary shares to be sold by us in this offering to be approximately
$65.0 million based on an estimated public offering price of $27.00 per share
and after deducting the estimated underwriting discount and offering expenses
payable by us. If the underwriters' over-allotment option is exercised in full,
we estimate that the net proceeds to us will be approximately $73.9 million. We
will not receive any of the proceeds from the sale of ordinary shares by the
selling shareholders.

We intend to use the net proceeds of this offering to expand our direct
sales and distribution channels, to invest in research and development
activities, and for working capital and general corporate purposes. In addition,
we may use a portion of the net proceeds to acquire complementary technologies,
products or businesses. We currently have no specific commitments or agreements
and are not involved in any negotiations concerning any such transactions, other
than our agreement to acquire Savant.

Pending their use, we intend to invest the net proceeds in interest-bearing
investments, or bank deposits with interest and principal linked to a
non-Israeli currency or consumer price index, or deposited in non-Israeli
currency or non-Israeli currency linked bank accounts in Israel or outside of
Israel.

DIVIDEND POLICY

We have never paid cash, stock or any other non-cash dividends to our
shareholders and we currently do not intend to pay dividends in the foreseeable
future. We currently intend to reinvest any future earnings in the development
and expansion of our business. We have decided to reinvest the amount of tax
exempt income derived from our "Approved Enterprise" status and not to
distribute that income as dividends.

Under our articles of association, dividends may be recommended by the
board of directors and declared by the shareholders at any general meeting, but
only in an amount equal to or less than the amount recommended by the board of
directors. The board of directors may also declare and pay interim dividends to
the extent that the board of directors decides that this distribution is
justified in light of our profits. We may only pay dividends in any fiscal year
out of "profits," as defined by the Israeli Companies Law and, provided that the
distribution is not reasonably expected to impair our ability to fulfill our
outstanding and expected obligations. In addition, we may pay dividends in the
form of bonus shares, debentures or other assets. Dividends paid by an Israeli
company are generally subject to withholding tax. In addition to being subject
to withholding tax, dividends in respect of earnings from our Approved
Enterprise status may subject us to additional corporate tax payable on the
amount of the dividend at a rate between 10% and 25%. This rate would be higher
under a recently proposed Israeli tax reform.

In the event dividends are declared by Precise in the future, dividends in
respect of ordinary shares could be paid in NIS or U.S. dollars. Under current
Israeli regulations, any dividends or other distributions paid in respect of
ordinary shares may be freely repatriated in non-Israeli currencies at the rate
of exchange prevailing at the time of conversion, provided that Israeli income
tax has been paid on (or withheld from) these payments. Since exchange rates
between NIS and the dollar fluctuate continuously, a U.S. shareholder will be
subject to the risk of currency fluctuation between the date when the dividends
are declared and the date the dividends are paid by Precise in NIS.

17
<PAGE> 23

PRICE RANGE OF OUR ORDINARY SHARES

Since our initial public offering commenced on June 29, 2000, our ordinary
shares have traded on the Nasdaq National Market under the symbol "PRSE." The
following table sets forth the range of high and low sales prices of our
ordinary shares for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
June 2000 (from June 29, 2000).............................. $28.69 $18.75
July 2000................................................... $32.88 $18.44
August 2000................................................. $29.00 $18.50
September 2000.............................................. $44.40 $23.63
October 2000................................................ $41.50 $22.88
November 2000 (through November 14)......................... $28.63 $25.63
</TABLE>

On November 14, 2000, the last reported sale price for our ordinary shares
on the Nasdaq National Market was $25.625 per share.

18
<PAGE> 24

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2000:

- on an actual basis; and

- on an as adjusted basis to give effect to the issuance and sale of the
2,594,085 ordinary shares offered by us in this offering, at an estimated
public offering price of $27.00 per share, after deducting the estimated
underwriting discount and offering expenses payable by us in connection
with this offering and our anticipated application of the net proceeds.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Shareholders' equity:
Ordinary shares, NIS 0.03 par value:
70,000,000 shares authorized -- actual and as adjusted;
21,926,378 shares issued and outstanding -- actual;
24,520,463 shares issued and outstanding -- as
adjusted.............................................. $ 177 $ 196
Additional paid-in capital............................. 109,877 174,896
Deferred compensation.................................. (3,915) (3,915)
Accumulated other comprehensive loss................... (41) (41)
Accumulated deficit.................................... (23,619) (23,619)
-------- --------
Total shareholders' equity........................ 82,479 147,517
-------- --------
Total capitalization.............................. $ 82,479 $147,517
======== ========
</TABLE>

This information excludes:

- 5,447,260 ordinary shares issuable upon exercise of options outstanding
as of September 30, 2000 with a weighted average exercise price of $5.29
per share;

- an additional 1,885,740 ordinary shares reserved for issuance pursuant to
options issuable under our share option and incentive plans;

- 667,000 ordinary shares that we reserved for issuance under our 2000
employee share purchase plan; and

19
<PAGE> 25

DILUTION

Our net tangible book value as of September 30, 2000 was approximately
$81.7 million, or $3.73 per ordinary share. Net tangible book value per share
represents the amount of our total consolidated tangible assets less our total
consolidated liabilities, divided by the number of ordinary shares outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of ordinary shares in this offering and
the net tangible book value per ordinary share immediately after the
consummation of this offering. After giving effect to the sale of the 2,594,085
ordinary shares offered by us in this offering, at an estimated public offering
price of $27.00 per share and after deducting the estimated underwriting
discount and offering expenses payable by us, our pro forma net tangible book
value at September 30, 2000 would have been $146.7 million, or approximately
$5.98 per ordinary share. This represents an immediate increase in net tangible
book value of $2.25 per ordinary share to existing shareholders and an immediate
dilution of $21.02 per ordinary share to new investors in this offering. The
following table illustrates this dilution on a per ordinary share basis:

<TABLE>
<S> <C> <C>
Estimated public offering price per ordinary share.......... $27.00
Net tangible book value per ordinary share as of September
30, 2000............................................... $3.73
Increase per ordinary share attributable to new
investors............................................. 2.25
-----
Pro forma net tangible book value per ordinary share after
the offering.............................................. 5.98
------
Dilution per ordinary share to new investors................ $21.02
======
</TABLE>

The following table summarizes, as of September 30, 2000, the number of
ordinary shares purchased from us, the total cash consideration paid to us and
the average price per ordinary share paid by the existing shareholders and by
the new investors purchasing ordinary shares in this offering, before deducting
the estimated underwriting discount and offering expenses payable by us:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 21,926,378 90.6% $107,948,000 60.6% $ 4.92
New investors..................... 2,594,085 9.4 70,040,000 39.4 27.00
---------- ----- ------------ -----
Total........................... 24,520,463 100.0% $177,988,000 100.0%
========== ===== ============ =====
</TABLE>

This information excludes:

- 5,447,260 ordinary shares issuable upon exercise of options outstanding
as of September 30, 2000, with a weighted average exercise price of $5.29
per share;

- an additional 1,885,740 ordinary shares reserved for issuance pursuant to
options issuable under our share option and incentive plans;

- 667,000 ordinary shares that we reserved for issuance under our 2000
employee share purchase plan; and

20
<PAGE> 26

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
included elsewhere in this prospectus.

The selected consolidated statement of operations data set forth below for
the years ended December 31, 1997, 1998 and 1999, and the selected consolidated
balance sheet data as of December 31, 1998 and 1999, are derived from our
audited consolidated financial statements that are included elsewhere in this
prospectus. These financial statements have been prepared in accordance with
U.S. generally accepted accounting principles. The selected consolidated
statement of operations data for the years ended December 31, 1995 and 1996 and
the selected consolidated balance sheet data as of December 31, 1995, 1996 and
1997 are derived from audited consolidated financial statements that are not
included in this prospectus. The selected consolidated financial data for the
nine months ended September 30, 1999 and 2000 and the selected consolidated
balance sheet data as of September 30, 1999 and 2000 are derived from the
unaudited consolidated financial statements, which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements, and contain all adjustments needed to present fairly the information
included in those statements, and that the adjustments made consist only of
normal recurring adjustments. The results for the nine months ended September
30, 2000 may not be indicative of the financial results which will be attained
for the year ending December 31, 2000 or any other period.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses......................................... $ 984 $ 954 $ 2,382 $ 5,331 $ 9,770 $ 6,598 $14,875
Services.................................................. 163 272 406 858 1,844 1,170 3,051
------- ------- ------- ------- ------- ------- -------
Total revenues...................................... 1,147 1,226 2,788 6,189 11,614 7,768 17,926
Cost of revenues:
Software licenses......................................... 61 130 349 522 741 525 484
Services.................................................. 33 54 86 198 906 422 1,174
------- ------- ------- ------- ------- ------- -------
Total cost of revenues.............................. 94 184 435 720 1,647 947 1,658
------- ------- ------- ------- ------- ------- -------
Gross profit................................................ 1,053 1,042 2,353 5,469 9,967 6,821 16,268
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development, net............................. 499 602 1,737 2,214 2,891 2,113 3,437
Sales and marketing, net.................................. 1,203 2,498 3,278 5,739 7,913 5,117 13,787
General and administrative................................ 978 1,264 1,341 1,272 1,598 1,129 2,640
Amortization of deferred stock compensation................. -- -- -- 300 234 95 4,953
------- ------- ------- ------- ------- ------- -------
Total operating expenses............................ 2,680 4,364 6,356 9,525 12,636 8,454 24,817
------- ------- ------- ------- ------- ------- -------
Operating loss.............................................. (1,627) (3,322) (4,003) (4,056) (2,669) (1,633) (8,549)
Other expenses.............................................. -- (75) -- -- -- --
Interest income (expenses), net............................. 14 135 (202) 34 71 (21) 1,372
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations............................. (1,613) (3,262) (4,205) (4,022) (2,598) (1,654) (7,177)
Income (loss) from discontinued operations.................. (337) 1,669 (192) -- -- -- --
Gain from disposal of business segment...................... -- -- 182 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss.................................................... $(1,950) $(1,593) $(4,215) $(4,022) $(2,598) $(1,654) $(7,177)
======= ======= ======= ======= ======= ======= =======
Net earnings (loss) per share:
Continuing operations..................................... $ (1.09) $ (1.83) $ (2.35) $ (1.31) $ (0.79) $ (0.50) $ (0.76)
Discontinued operations................................... (0.22) 0.94 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Basic and diluted net loss per share........................ $ (1.31) $ (0.89) $ (2.35) $ (1.31) $ (0.79) $ (0.50) $ (0.76)
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares used in computing basic
and diluted net loss per share............................ 1,486 1,783 1,785 3,077 3,299 3,299 9,451
======= ======= ======= ======= ======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.22) $ (0.41)
======= =======
Weighted average number of shares used in computing pro
forma basic and diluted net loss per share (unaudited).... 11,637 17,403
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 176 $ 1,561 $ 301 $ 844 $ 6,693 $ 2,631 $25,447
Working capital (deficit)................................... (296) 587 (3,656) 242 7,709 2,377 54,034
Total assets................................................ 2,076 4,301 2,673 4,333 12,986 7,144 90,554
Shareholders' equity (deficiency)........................... (157) (1,124) (3,079) 742 8,293 2,914 82,479
</TABLE>

21
<PAGE> 27

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

The following discussion should be read together with the consolidated
financial statements and the related notes included elsewhere in this
prospectus.

OVERVIEW

Precise is a provider of software that assists organizations in monitoring
and optimizing the performance of their complex Information Technology
infrastructure. We were incorporated in Israel in November 1990. Initially, we
focused on developing and marketing performance management software for
mainframe computer systems. In 1995, we shifted our focus from performance
management software for mainframe systems to Information Technology
infrastructure performance management software for Oracle database environments.
In 1996, we released the initial version of our Precise/SQL software for
database monitoring. In 1998, we released several new products, including our
Precise/Pulse! software for proactive monitoring, Precise/Presto for EMC
software for monitoring database along with EMC storage systems and
Precise/Interpoint software for monitoring ERP applications. In 1999, we
introduced our Precise/Swift-e software for IT infrastructure performance
management in e-business environments and in April 2000, we introduced
Precise/Insight.

In February 2000, we completed the acquisition of all of the capital stock
of Knight Fisk Software Ltd., or Knight Fisk, our U.K.-based distributor, for
cash and options to purchase our ordinary shares. The business combination has
been accounted for using the purchase method and, accordingly, the purchase
price has been allocated to the fair value of the tangible assets acquired and
the liabilities assumed. Of the total purchase price, approximately $0.7 million
was allocated to goodwill, representing the excess of the aggregate purchase
price over the fair value of the net liabilities assumed. Prior to the Knight
Fisk acquisition, we sold our products to Knight Fisk at discounts of up to 45%
off our list price and we recognized revenues based on our sales to Knight Fisk
at these discounted prices. Knight Fisk, in turn, would resell these products to
third party end users and recognize revenues based on these sales. Since Knight
Fisk is now our U.K. subsidiary, we recognize revenues on Knight Fisk sales to
third party end users based on the actual price of the products sold by Knight
Fisk rather than based on our sales to Knight Fisk at a discounted price. As a
result, our total revenues from the U.K. have increased. Our operating expenses
in the U.K. have increased due to the Knight Fisk acquisition.

In October 2000, we entered into an agreement to acquire Savant Corporation
for $20 million in a combination of cash and ordinary shares. We expect to issue
512,445 ordinary shares and pay $2.5 million in cash in the acquisition. In
addition, if revenue from Savant's products and services exceed certain
thresholds in the next year, we will pay up to an additional $27 million in our
ordinary shares. We intend to account for the transaction as a purchase. If the
acquisition is consummated, we expect to record in the quarter in which we close
the transaction goodwill and other intangibles of approximately $14.9 million on
our balance sheet and a one-time charge of approximately $2.2 million on our
statement of operations for acquired research and development. Completion of the
acquisition is subject to regulatory approval and customary closing conditions
and is expected to occur during the fourth quarter of 2000.

We derive our revenues from the sale of software licenses and from
services, consisting primarily of annual maintenance fees, and, to a lesser
extent, professional services. Our software is sold through a combination of our
direct sales force and indirect sales channels, including an original equipment
manufacturer or OEM, and resellers. Our service revenues consist primarily of
fees derived from annual maintenance agreements.

On January 1, 1998, we adopted American Institute of Certified Public
Accountants Statement of Position 97-2, or SOP 97-2, related to revenue
recognition for software products and on March 15, 1999 we adopted SOP 98-9,
related to software arrangements involving multiple elements. Revenues from our

22
<PAGE> 28

OEM, EMC Corporation, are recognized when we receive reports of royalties due
upon the sublicensing of our products by EMC. We recognize product license
revenues on sales to resellers and end users when:

- persuasive evidence of an agreement exists;

- the product has been delivered;

- all license payments are due within one year;

- vendor-specific objective evidence exists;

- the license fee is fixed or determinable; and

- collection of the fee is probable.

Maintenance-related service revenues are recognized ratably over the term of the
maintenance agreement, which is typically one year. In 1999, 242 of our 254
customers purchased maintenance services from us when licensing our software. In
addition, 162 of our 203 1998 customers renewed their annual maintenance
agreements. Consulting and training revenues are recognized at the time the
services are rendered.

Where software arrangements involve multiple elements, revenue is allocated
to each element based on vender specific objective evidence, or VSOE, of the
relative fair values of each element in the arrangement. Our VSOE used to
allocate the sales price to training and maintenance is based on the price
charged when these elements are sold separately. License revenues are recorded
based on the residual method. Under the residual method, revenue is recognized
for the delivered elements when (1) there is VSOE of the fair values of all the
undelivered elements other than those accounted for using long term contract
accounting and (2) all revenue recognition criteria of SOP 97-2, as amended, are
satisfied.

Our consolidated financial statements, which are included elsewhere in this
prospectus, are prepared in accordance with U.S. generally accepted accounting
principles. The functional currency of our operations is the U.S. dollar, which
is the primary currency in the economic environment in which we conduct our
business. The functional currency of our operation in the U.K. is the British
pound sterling. A portion of our costs are associated with our Israeli
operations, including personnel and facilities-related expenses, and are
incurred in NIS. Consequently, our results of operations are subject to
fluctuations in the dollar-New Israeli Shekel and dollar-British pound sterling
exchange rates, which is influenced by various global economic factors,
including inflation in Israel and the U.K. Currently, we do not engage in any
currency or exchange rate hedging activities to mitigate our exposure to these
fluctuations. We may, however, engage in these types of transactions in the
future.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Revenues

We derive our revenues from the sale of software licenses and from services
consisting primarily of maintenance fees, and, to a lesser extent, professional
services. Total revenues were $17.9 million for the nine months ended September
30, 2000 and $7.8 million for the nine months ended September 30, 1999,
representing an increase of $10.1 million, or 130%.

Revenues from sales of software licenses were $14.9 million for the nine
months ended September 30, 2000 and $6.6 million for the nine months ended
September 30, 1999, representing an increase of $8.3 million, or 125%. The
increase in software license revenues during this period is attributable to the
expansion of our direct sales force and indirect sales channels, and recurring
sales to our installed base.

Revenues from services were $3.0 million for the nine months ended
September 30, 2000 and $1.2 million for the nine months ended September 30,
1999, representing an increase of $1.8 million, or 150%. The increase in service
revenues during this period is attributable to sales from our recently
established professional services offering, additional maintenance agreements
resulting from new sales of software licenses and renewals of annual maintenance
agreements with existing customers.

23
<PAGE> 29

Cost of revenues

Cost of revenues consists of costs associated with generating software
license and service revenues. Cost of revenues was $1.7 million for the nine
months ended September 30, 2000 and $0.9 million for the nine months ended
September 30, 1999, representing an increase of $0.8 million, or 89%. Cost of
revenues as a percentage of total revenues was 10% for the nine months ended
September 30, 2000 and 12% for the nine months ended September 30, 1999.

Cost of software license revenues consists primarily of royalties to the
government of Israel as consideration for royalty-bearing marketing and research
and development grants received in previous years and, to a lesser extent,
production costs. Cost of software license revenues was $484,000 for the nine
months ended September 30, 2000 and $525,000 for the nine months ended September
30, 1999, representing a decrease of $41,000, or 8%. The decrease is due to a
decrease in royalties accrued in connection with royalty-bearing marketing
grants, as these royalties were fully expensed. We anticipate that royalty
expenses relating to research and development royalty bearing grants received
will decline commencing the first quarter of 2001. Cost of software license
revenues as a percentage of total software license revenues was 3% for the nine
months ended September 30, 2000 and 8% for the nine months ended September 30,
1999.

Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
was $1.2 million for the nine months ended September 30, 2000 and $0.4 million
for the nine months ended September 30, 1999, representing an increase of $0.8
million, or 200%. Cost of service revenues as a percentage of service revenues
was 40% in the nine months ended September 30, 2000 and 33% in the nine months
ended September 30, 1999. These increases are due to costs related to our
professional services personnel who were hired during the latter half of 1999.

Research and development

Research and development expenses consist primarily of costs related to
research and development personnel, including salaries and other
personnel-related expenses, sub-contracting fees, facilities and computer
equipment used in our product and technology development. Research and
development expenses were $3.4 million for the nine months ended September 30,
2000 and $2.1 million for the nine months ended September 30, 1999, representing
an increase of $1.3 million, or 62%. The increase was related to the increase in
the number of software developers and quality assurance personnel engaged in the
continuing enhancement of our software suite. Research and development expenses
as a percentage of total revenues were 19% in the nine months ended September
30, 2000 and 27% in the nine months ended September 30, 1999. We expect the
amount of research and development expenses to increase as we extend the
functionality and development of our software and as we hire additional
personnel.

Sales and marketing

Sales and marketing expenses consist primarily of salaries and other
personnel-related expenses, commission and other costs associated with our sales
and marketing efforts. Sales and marketing expenses were $13.8 million for the
nine months ended September 30, 2000 and $5.1 million for the nine months ended
September 30, 1999, representing an increase of $8.7 million, or 170%. This
increase is attributable to the additional commission expenses of $1.6 million
from the increase in software license revenues, increased travel expenditures of
$1.0 million, and an increase in payroll and related expenses of $3.4 million
attributable to the increase in the number of people comprising our direct sales
force. Sales and marketing expenses as a percentage of total revenues were 77%
for the nine months ended September 30, 2000 and 66% for the nine months ended
September 30, 1999. We expect the amount of sales and marketing expenses to
increase as we expand our geographic reach and hire additional personnel.

General and administrative

General and administrative expenses consist primarily of salaries and other
personnel-related expenses from our administrative and finance personnel,
facilities, computer equipment and professional services

24
<PAGE> 30

fees. General and administrative expenses were $2.6 million for the nine months
ended September 30, 2000 and $1.1 million for the nine months ended September
30, 1999, representing an increase of $1.5 million, or 136%. Approximately
$1,000,000 of this increase is attributable to increased personnel in our
finance department and approximately $300,000 is attributable to increased
professional fees. General and administrative expenses as a percentage of total
revenues were 15% for the nine months ended September 30, 2000 and 15% for the
nine months ended September 30, 1999. We expect the amount of general and
administrative expenses to increase for the foreseeable future as we expand our
administrative staff and continue to incur expenses associated with being a
public company, including the costs of annual and periodic reporting and
investor relations programs.

Amortization of stock-based compensation

Our stock-based compensation expenses increased from $95,000 for the nine
months ended September 30, 1999 to $5.0 million for the nine months ended
September 30, 2000 due to additional amortization of deferred compensation
recorded on stock options granted prior to the initial public offering during
the nine months ended September 30, 2000. The deferred compensation is amortized
over the vesting schedule of the underlying options, generally three to four
years. We had $3.9 million of deferred compensation at September 30, 2000.

YEARS ENDED DECEMBER 31, 1999 AND 1998

Revenues

Total revenues were $11.6 million in 1999 and $6.2 million in 1998,
representing an increase of $5.4 million, or 87%. One customer, Amdocs,
accounted for 15.3% of total revenues in 1999. No customer accounted for more
than 10% of total revenues in 1998.

Revenues from sales of software licenses were $9.8 million in 1999 and $5.3
million in 1998, representing an increase of $4.5 million, or 85%. The increase
in software license revenues during this period is attributable to the expansion
of our direct sales force and indirect sales channels, and recurring sales to
our installed base.

Revenues from services were $1.8 million in 1999 and $0.9 million in 1998,
representing an increase of $0.9 million, or 100%. The increase in service
revenues during this period is principally attributable to additional
maintenance agreements in the amount of approximately $0.8 million resulting
from new sales of software licenses and renewals of annual maintenance
agreements with existing customers.

Cost of revenues

Cost of revenues was $1.6 million in 1999 and $0.7 million in 1998,
representing an increase of $0.9 million, or 129%. Cost of revenues as a
percentage of total revenues was 14% in 1999 compared to 12% in 1998.

Cost of software license revenues was $0.7 million in 1999 and $0.5 million
in 1998, representing an increase of $0.2 million, or 40%. This increase is due
to the increase in royalties owed to the Government of Israel as a result of the
increase in sales of software licenses. Cost of software license revenues as a
percentage of total software license revenues was 8% in 1999 compared to 10% in
1998.

Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
was $0.9 million in 1999 and $0.2 million in 1998, representing an increase of
$0.7 million, or 350%. Cost of service revenues as a percentage of service
revenues was 49% in 1999 and 23% in 1998. These increases are due to the
increase in the number of customer support personnel hired to service our
growing customer base and to the hiring during the latter half of 1999 of
personnel to provide professional services. For more information on the
professional services we offer, see "Business -- Professional Services" on page
37.

25
<PAGE> 31

Research and development

Research and development expenses were $2.9 million in 1999 and $2.2
million in 1998, representing an increase of $0.7 million, or 32%. The increase
was primarily related to expenses of approximately $0.5 million related to the
increase in the number of software developers and quality assurance personnel
engaged in the continuing enhancement of our software suite. Research and
development expenses as a percentage of total revenues were 25% in 1999 and 36%
in 1998.

Sales and marketing

Sales and marketing expenses were $7.9 million in 1999 and $5.7 million in
1998, representing an increase of $2.2 million, or 38%. This increase is
primarily due to an increase in payroll and related expenses of $1.4 million
related to the increase in the number of people comprising our direct sales
force and an increase in commission expenses of approximately $0.7 million
attributable to the increase in software license revenues. Sales and marketing
expenses as a percentage of total revenues were 68% in 1999 and 92% in 1998. The
percentage decreased as sales personnel hired in 1998 became more productive.

General and administrative

General and administrative expenses were $1.6 million in 1999 and $1.3
million in 1998, representing an increase of $0.3 million, or 23%. This increase
is attributable to the increase in payroll and related expenses from additional
personnel hired during 1999. General and administrative expenses as a percentage
of total revenues decreased to 14% in 1999 from 21% in 1998 as we began to
realize operating leverage from our established infrastructure.

YEARS ENDED DECEMBER 31, 1998 AND 1997

Revenues

Total revenues were $6.2 million in 1998 and $2.8 million in 1997,
representing an increase of $3.4 million, or 121%. One customer, our distributor
in Japan, JGC Information Systems, accounted for 20.1% of total revenues in
1997.

Software license revenues were $5.3 million in 1998 and $2.4 million in
1997, representing an increase of $2.9 million, or 121%. The increase in
software license revenues during this period was primarily due to the increased
market penetration of our Precise/SQL software resulting from the expansion of
our direct sales force and indirect sales channels.

Services revenues were $0.9 million in 1998 and $0.4 million in 1997,
representing an increase of $0.5 million, or 125%. The increase in services
revenues during this period is primarily attributable to the increase in
maintenance revenues resulting from new software license sales.

Cost of revenues

Cost of revenues was $0.7 million in 1998 and $0.4 million in 1997,
representing an increase of $0.3 million, or 75%. Cost of revenues as a
percentage of total revenues was 12% in 1998 and 16% in 1997.

Cost of software license revenues was $0.5 million in 1998 and $0.3 million
in 1997, representing an increase of $0.2 million, or 66%. This increase is due
to the increase in royalties owed to the Government of Israel, resulting from
the increase in sales of software licenses. Cost of software license revenues as
a percentage of software license revenues was 10% in 1998 and 15% in 1997.

Cost of service revenues was $0.2 million in 1998 and $0.1 million in 1997,
representing an increase of $0.1 million, or 100%. This increase is due to the
increase in customer support personnel hired to service our growing customer
base. Cost of service revenues as a percentage of service revenues was 23% in
1998 and 21% in 1997.

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<PAGE> 32

Research and development

Research and development expenses were $2.2 million in 1998 and $1.7
million, net of grants of $0.1 million from the Office of the Chief Scientist,
in 1997, representing an increase of $0.5 million, or 29%. This increase is
related to the hiring of additional software developers and quality assurance
personnel for the development of our Precise/Presto for EMC, Precise/Interpoint
and Precise/Pulse! software.

Sales and marketing

Sales and marketing expenses were $5.7 million in 1998 and $3.3 million,
net of grants from the Israeli Government's Fund for the Encouragement of
Marketing Activities of $0.3 million, in 1997, representing an increase of $2.4
million, or 75%. This increase is primarily due to $1.0 million of payroll and
related costs from the hiring of additional personnel and $0.6 million
attributable to an increase in the rate of commissions paid on increased sales.

General and administrative

General and administrative expenses were $1.2 million in 1998 and $1.3
million in 1997, representing a decrease of $0.1 million, or 5%.

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain consolidated statement of operations
data for the first three quarters of 2000 and each quarter of 1999. We believe
this unaudited information has been prepared on the same basis as our annual
consolidated financial statements and includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
unaudited information for the quarters presented. This information should be
read together with the consolidated financial statements and the related notes
included elsewhere in this prospectus. The operating results for any quarter are
not necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1999 1999 1999 1999 2000 2000 2000
------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses.................. $1,941 $2,072 $2,585 $3,172 $ 3,588 $ 4,875 $ 6,412
Services........................... 290 396 484 674 954 870 1,227
------ ------ ------ ------ ------- ------- -------
Total revenues............. 2,231 2,468 3,069 3,846 4,542 5,745 7,639
Cost of revenues:
Software licenses.................. 156 167 202 216 116 181 187
Services........................... 87 139 196 484 356 411 407
------ ------ ------ ------ ------- ------- -------
Total cost of revenues..... 243 306 398 700 472 592 594
------ ------ ------ ------ ------- ------- -------
Gross profit......................... 1,988 2,162 2,671 3,146 4,070 5,153 7,045
Operating expenses:
Research and development, net...... 732 690 691 778 1,019 1,032 1,386
Sales and marketing, net........... 1,520 1,628 1,969 2,746 3,754 4,555 5,478
General and administrative......... 397 343 389 469 609 758 1,273
Amortization of deferred stock
compensation....................... 30 42 23 189 780 2,938 1,235
------ ------ ------ ------ ------- ------- -------
Total operating expenses... 2,679 2,703 3,072 4,182 6,162 9,283 9,372
------ ------ ------ ------ ------- ------- -------
Operating loss....................... (691) (541) (401) (1,036) (2,092) (4,130) (2,327)
Interest income (expenses)........... (3) (14) (4) 92 37 99 1,236
------ ------ ------ ------ ------- ------- -------
</TABLE>

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<PAGE> 33

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1999 1999 1999 1999 2000 2000 2000
------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net (loss)........................... $ (694) $ (555) $ (405) $ (944) $(2,055) $(4,031) $(1,091)
====== ====== ====== ====== ======= ======= =======
Percent of Total Revenues:
Revenues:
Software licenses............... 87.0% 84.0% 84.2% 82.5% 79.0% 84.9% 83.9%
Services........................ 13.0 16.0 15.8 17.5 21.0 15.1 16.1
------ ------ ------ ------ ------- ------- -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses............... 7.0 6.8 6.6 5.6 2.6 3.2 2.5
Services........................ 3.9 5.6 6.4 12.6 7.8 7.1 5.3
------ ------ ------ ------ ------- ------- -------
Total cost of revenues..... 10.9 12.4 13.0 18.2 10.4 10.3 7.8
------ ------ ------ ------ ------- ------- -------
Gross margin......................... 89.1 87.6 87.0 81.8 89.6 89.7 92.2
Operating expenses:
Research and development........... 32.8 28.0 22.5 20.2 22.4 18.0 18.1
Sales and marketing................ 68.1 66.0 64.2 72.7 82.7 79.3 71.7
General and administrative......... 17.8 13.9 12.7 12.2 13.4 13.2 16.7
Amortization of deferred stock
compensation....................... 1.4 1.7 -- -- 17.2 51.1 16.2
------ ------ ------ ------ ------- ------- -------
Total operating expenses... 120.1 109.6 100.1 108.7 135.7 161.6 122.7
------ ------ ------ ------ ------- ------- -------
Operating loss....................... (31.0) (22.0) (13.1) (26.9) (46.1) (71.9) (30.5)
Interest income (expenses)........... (0.1) (0.6) (0.7) 3.6 0.8 0.2 16.2
------ ------ ------ ------ ------- ------- -------
Net loss............................. (31.1)% (22.6)% (13.2)% (24.5)% (45.3)% (71.7)% (14.3)%
====== ====== ====== ====== ======= ======= =======
</TABLE>

Our total revenues have increased quarter-to-quarter for each of the three
month periods presented. These increases in our revenues are primarily due to
the increase in the number of customers resulting from greater market acceptance
of our software, expansion of our sales organization and increased service
revenues reflecting the growth in our installed customer base.

Cost of revenues has increased each quarter together with increases in our
total revenues. Cost of service revenues in the quarter ended December 31, 1999
increased primarily due to the establishment of our professional services
organization.

The amount and timing of our expenses generally will vary from quarter to
quarter depending on our level of actual and anticipated business activities.
For example, sales and marketing expenses in the fourth quarter typically
reflect higher commission payments as a result of higher commission rates after
achievement of yearly target sales levels and increased marketing expenses
related to a significant industry trade show held in the fourth quarter of each
year. Our revenues and operating results are difficult to forecast and will
fluctuate, and we believe that period-to-period comparisons of our operating
results will not necessarily be meaningful. Additionally, as a strategic
response to a changing competitive environment, we may elect from time to time
to make certain pricing, service, marketing or acquisition decisions that could
have a negative effect on our quarterly financial performance. Our past
operating history has shown that a significant percentage of our quarterly
revenues are realized toward the end of a quarter, often in the last weeks or
days of the quarter. A delay in the completion of a sale past the end of a
particular quarter could negatively impact results for that quarter. Our future
quarterly operating results may not meet the expectations of securities analysts
or investors in any given quarter, which would likely cause the price of our
ordinary shares to decline.

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<PAGE> 34

Geographic Distribution

The following table summarizes our revenues by region, stated as a
percentage of total revenues for the periods indicated.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------
REGION 1997 1998 1999 1999 2000
------ ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
North and South America................ 74.2% 78.1% 71.3% 68.0% 72.9%
Far East............................... 20.1 10.7 9.0 7.6 6.7
Europe and Others...................... 5.7 11.2 19.7 24.4 20.4
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have funded operations primarily through the sales
of our equity securities, the issuance of convertible notes to shareholders and,
to a lesser extent, borrowings from financial institutions. Through September
30, 2000, our sales of securities resulted in total net proceeds of
approximately $100 million. As of September 30, 2000, our principal source of
liquidity was $54.6 million of cash and cash equivalents and short-term
investments. As of September 30, 2000, we had no debt outstanding. As of
September 30, 2000, our accumulated net deficit was $23.6 million.

Net cash used in operating activities was $2.6 million, $3.2 million and
$4.4 million in 1999, 1998 and 1997, respectively. Net cash used in operating
activities in each of these periods was primarily the result of net losses and
increases in trade receivables, year-to-year. During 1998 and 1999, the decrease
in net cash used in operating activities was offset in part by increases in
accounts payable and amortization of deferred stock compensation. Net cash used
by operating activities in the nine months ended September 30, 2000 was $1
million.

Net cash used in investing activities was $1.4 million and $0.3 million in
1999 and 1998, respectively and $56.0 million in the nine months ended September
30, 2000. Investing activities consisted of capital expenditures, purchases of
short-term and long-term investments and, in the nine months ended September 30,
2000, the payments for the acquisition of Knight Fisk. In 1998, the increase was
partially offset by the sale of short-term deposits. The majority of our capital
investments were for computers, peripheral equipment and software. Net cash
provided by investing activities in 1997 was immaterial.

Net cash provided by financing activities was $9.8 million, $4.0 million
and $3.2 million in 1999, 1998 and 1997, respectively, resulting primarily from
net proceeds from the sale of our preferred shares in 1999 and 1998, and from
short-term bank credit and the issuance of a convertible note in 1997. Net cash
provided by financing activities in the nine months ended September 30, 2000 was
$76.0 million, primarily from the proceeds of our initial public offering in
July 2000.

We believe that the net proceeds to Precise from this offering, together
with our existing cash equivalents and short-term investments, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months, including our acquisition of
Savant. Thereafter, if we do not have available sufficient cash to finance our
operations, we may be required to obtain additional debt or equity financing. We
cannot be certain that we will be able to obtain, if required, additional
financing on acceptable terms, or at all.

EFFECTIVE CORPORATE TAX RATE

Although we have generated no taxable income since inception, our tax rate
will reflect a mix of the United States statutory tax rate on our United States
income, the United Kingdom statutory tax rate on our United Kingdom income and
the Israeli tax rate discussed below. If we generate taxable income, we expect
that most of it will be generated in Israel. Israeli companies are generally
subject to income tax at the rate of 36% of taxable income. The majority of our
revenues, however, are derived from activities

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<PAGE> 35

related to our capital investment programs with Approved Enterprise status under
Israel's Law for the Encouragement of Capital Investments and is eligible for
tax benefits. The benefits include a tax exemption on income derived during the
first two to four years commencing in the year in which a specific "approved
enterprise" program first generates taxable income. Following the tax exempt
period, income derived from these programs is subject to a reduced tax rate of
10-25% for the following three to eight years dependent upon the level of
foreign investment. These tax benefits are subject to various conditions,
approvals and restrictions. In the event that we operate under more than one
approval or that our capital investments are only partially approved, our
effective tax rate will be a weighted combination of the various applicable tax
rates. We may not be able to obtain approval for additional Approved Enterprise
programs and the provisions of the law may change before we realize the tax
benefits. Since we have incurred tax losses through September 30, 2000, we have
not yet used the tax benefits for which we are eligible.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

The majority of our domestic and international revenues are received in
U.S. dollars. Sales by our U.K. subsidiary are made in British pound sterling. A
portion of our costs, however, relates to our Israeli and British operations and
are incurred in NIS and British pound sterling, respectively. Accordingly,
inflation in Israel and dollar/New Israeli Shekel exchange rate fluctuations may
influence our revenues, expenses and operating results. Any increase in the rate
of inflation in Israel will increase the dollar cost of our operations in
Israel, unless the increase is offset on a timely basis by a devaluation of the
NIS in relation to the dollar.

We do not presently engage in any hedging or other transactions intended to
manage risks relating to foreign currency exchange rates or interest rate
fluctuations, nor do we own any market-risk sensitive instruments, whether held
for trading purposes or otherwise. However, we may in the future undertake
hedging or other similar transactions or invest in market risk sensitive
instruments if we determine that it is advisable to offset these risks.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

We own financial instruments that are sensitive to market risks as part of
our investment portfolio. The investment portfolio is used to preserve our
capital until it is required to fund operations, including research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. We do not own derivative financial instruments in our
investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.

Our investment portfolio includes debt instruments that are United States
government obligations. These investments are subject to interest rate risk, and
could decline in value if interest rates fluctuate. We do not engage in currency
hedging activities and hold no foreign currency related derivative instruments
that would subject our financial condition or results of operations to risks
associated with foreign currency exchange rate fluctuations. We do, however,
incur a portion of our expenditures in foreign currencies, such as NIS and
British pound sterling, that could cause our results of operations to fluctuate.

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<PAGE> 36

BUSINESS

Precise is a provider of software that assists organizations in monitoring
and optimizing the performance of their complex Information Technology
infrastructure. Our suite of software allows an organization to continuously
monitor its infrastructure performance and be alerted when performance
parameters exceed user-established thresholds. When our software detects a
performance problem, it also provides technology support personnel with a
thorough set of diagnostic data that pinpoints the specific cause of performance
degradation and offers suggested alternatives to alleviate the problem. Our
software serves businesses that rely on traditional enterprise applications to
cut costs and improve efficiencies, as well as those that have implemented
e-business applications to generate revenues. Whether seeking to cut costs or
increase revenues, businesses have become increasingly reliant on the proper
functioning of their Information Technology infrastructure and our software
assists them in achieving this goal.

INDUSTRY BACKGROUND

Global competitive pressures are driving businesses to continuously seek
new and better ways to develop, market and maintain their products and services,
as well as attract, serve and retain their customers. To enhance their
competitiveness, organizations are using Information Technology to achieve
competitive advantages and to serve business objectives. In particular, an
organization's Information Technology infrastructure, which consists of
networks, operating systems, servers, applications, databases and storage
devices, must proactively support emerging e-business initiatives. E-business
occurs when employees, customers, partners and vendors share information and
conduct business electronically. With the emergence of e-business, this
infrastructure is no longer just a cost center, but has become a means by which
an organization can increase operational and cost efficiencies and drive revenue
generation. The scope of e-business transactions is significant, ranging from
electronic bill presentment and payment transactions (a method of increasing
efficiencies) to connecting a best buyer to a seller in auction transactions (a
means for generating revenue).

E-business is impacting all layers of the Information Technology
infrastructure and all types of organizations. Enterprise Resource Planning, or
ERP, applications have been the means through which an organization controls,
manages and expands its business operations and achieves commonality of data and
process. Historically, organizations used ERP applications only for internal
transactions, such as retrieving records from a human resources database. With
the increasing adoption of e-business initiatives, however, organizations are
extending the use of ERP applications over the Internet to include external
users and to effect data exchange and e-commerce transactions. Not only are
traditional companies embracing these e-business activities by migrating their
businesses to the Web, but there are whole new categories of companies that are
emerging to take advantage of these opportunities, including application service
providers and management service providers.

To enable and support e-business activities, a complex and layered
Information Technology infrastructure of technologies and services has evolved.
The complexity is driven by a number of factors. First, this infrastructure
consists of a vast number of heterogeneous technologies, including both hardware
and software and is subject to rapidly changing standards and protocols. Second,
as the Internet has enabled traditional enterprises to extend their breadth
electronically to include customers, partners and vendors, more users are
accessing the infrastructure remotely as well as internally. In addition, the
proliferation of information appliances, such as personal digital assistants and
smart phones, as well as remotely accessed applications like e-mail and sales
force automation, create additional points of entry and foster remote access.
Third, e-business, by its distributed nature, has not only led to enormous
growth in the number of real-time, concurrent transactions, but also to the
rapid proliferation of transactions and other information across the extended
enterprise. In particular, information must now be shared not only internally
among an organization's enterprise and e-business applications, but also with
the enterprise and e-business applications of its customers, partners and
vendors. For example, an organization's e-commerce application must access and
integrate data from a 10-year-old custom application for organizing part
ordering information and must be readily available to both internal and external
users. As an organization deploys its ERP, e-business and other applications to
a wider audience, it will incur an unpredictable

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<PAGE> 37

number and type of additional transactions and data requests that, in turn, will
cause additional strain on its infrastructure.

As technical and operational complexities have increased, so have user
demands for efficiency and performance. An organization must provide hundreds,
thousands or even millions of users with uninterrupted access to all of its
systems, applications and information sources. For example, organizations that
are selling their products online are accountable to their customers who can
easily switch to a competitor's Web site if they find a site is unavailable or
performing poorly. These organizations incur an extremely high price due to
slowdowns or shutdowns of their key applications. According to:

- Zona Research, a Web site must respond within eight seconds or a user
will leave and go to a competitor's Web site;

- The MERIT (Maximizing the Efficiency of Resources in Information
Technology) Project, the average slowdown/shutdown time is approximately
2.8 hours per week for finance and manufacturing applications, costing
about $35,950 per hour, with an overall averaged annualized cost of more
than $5 million; and

- Zona Research, approximately $4.35 billion in sales in the U.S. is lost
each year due to unacceptable Web site response time and resulting user
reaction.

Each of these examples demonstrates the critical nature of a properly
functioning Web site. Moreover, a rapidly growing database makes it difficult
for decision makers throughout the extended enterprise to acquire critical
information that helps them to make both strategic and tactical business
decisions on a timely basis.

The management of this heterogeneous, distributed and rapidly-changing
Information Technology environment, which is supporting continuously increasing
transaction and data volumes, has become much more challenging. Efficient
management of the Information Technology infrastructure involves addressing the
needs and problems of all constituencies across the extended enterprise. Each
class of user has different performance requirements and defines, and refers to,
its own performance metrics and problems differently. As a result, technology
support personnel are faced with the ongoing challenge of reconciling these
disparate needs and problems before they can optimize performance across the
entire infrastructure. Equally challenging is the need to manage this
infrastructure without employing techniques or technologies that consume
additional resources and create further burdens on it. In addition,
infrastructure performance must align with business priorities so that, for
example, critical revenue-generating applications, such as completing an online
sale, are processed prior to non-revenue generating applications, such as
posting data to an organization's accounting system. Finally, management of the
infrastructure has become increasingly challenging for an organization due to
the increasing cost to hire and retain the necessary personnel to manage it and
the general shortage of qualified technology professionals. Consequently, in
order for organizations to confront these challenges, they are investing
significantly in software to manage and optimize the Information Technology
infrastructure. Dataquest estimates that organizations spent $2.4 billion in
1999 and are expected to spend $4.7 billion in 2003 on availability and
performance management software.

There are a number of ways that technology support personnel have tried to
tackle the myriad of management issues they face. First, technology support
personnel frequently use internally developed software to enhance the
performance of their Information Technology infrastructures. This customized
software is often costly, inflexible and limited in functionality. Second,
organizations have turned to third party vendors products to assist them in this
management effort. Although these products can assist in locating certain
problems, they often are costly and time consuming to deploy, unable to pinpoint
the specific cause of the problem and fail to show the impact of this problem on
other areas of the infrastructure. Importantly, many of these software products
consume additional database resources by employing technology that can monitor
only by connecting to the database, and in so doing, often exacerbating the
cause of a service problem. Therefore, because they consume resources through
the monitoring process, these software products frequently are limited in the
speed and number of transactions

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<PAGE> 38

they can capture and they contribute to greater resource consumption in
proportion to the number of users and technology support personnel involved.
Third, these software products often do not provide suggested solutions, or
suggest a wrong or incomplete solution. Finally, these products do not
proactively monitor the infrastructure in order to avoid problems before
performance is impacted.

We believe that there is a market opportunity for easily and rapidly
deployable software that proactively monitors the performance of an
organization's Information Technology infrastructure, identifies the root cause
of problems, recommends potential solutions and does all of this without placing
additional strain on the infrastructure. This software must permit the various
technology support personnel within an organization to interpret performance
data and the source of problems, easily share that information and anticipate
any performance problems. Finally, this software must be able to accommodate
rapidly changing and growing infrastructures.

THE PRECISE SOLUTION

We provide an integrated suite of software that continuously and
proactively monitors the performance of an organization's Information Technology
infrastructure on a real-time basis. Our software is easily and quickly deployed
to allow organizations to ensure optimal performance with minimal resource
consumption.

Key features and benefits of our software include:

Integrated, Comprehensive Solution. Our software provides a unified view
of the various components of an organization's infrastructure, identifies the
interrelationships among the components, namely networks, operating systems,
servers, applications, databases and storage devices, and monitors overall
performance. Our software allows technology support personnel to identify the
source of a problem and analyze the overall impact that problem may have on the
entire infrastructure. Our software translates the performance data and
information problems that are unique for each department into a common language
so that technology support personnel across an organization have a common
reference point from which to manage and optimize performance.

Monitors Information Technology Infrastructure Without Increasing Resource
Consumption. Our Precise/SQL software collects performance data by polling the
Oracle memory directly, without connecting to the database, and therefore,
minimizes the consumption of additional database resources without regard to the
number of users. Because of this "low overhead" sampling technique, this
software captures transaction information at a very granular level and gathers
performance information at a very high frequency, from one time to one hundred
times per second. Using our recently released Precise/ Insight, we can also
collect information at the packet level without disrupting or slowing the data
flow and while consuming minimal system resources. In addition, we can monitor
the transaction at any point within the infrastructure and present the collected
technical information in a business context. As a result, our software provides
an extremely detailed report on the status of the database or system so that
technology support personnel can more quickly and accurately diagnose problems.

Proactive Information Technology Administration. Our software collects
data and compares it against user defined threshold levels to monitor
performance and alert technology support personnel before users are impacted. In
addition to identifying performance problems, our software proactively and
automatically formulates alternative means to access and retrieve information
from the database so that performance goals are achieved in a manner that is
transparent to the user. Finally, our software allows technology support
personnel to simulate the effects of changes against an internal data warehouse
and then measure and compare the results of those changes before they are
implemented in the production environment.

Scalable and Flexible Architecture. Our software is designed for either
small or large enterprise-wide deployments. We developed our software to scale
effectively when implemented in large and rapidly expanding environments. Our
software can manage large quantities of information, support thousands of
concurrent users and capture the increased volume of transactions generated
through e-business activities. Our software is interoperable with an
organization's existing technology investments and our software

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<PAGE> 39

development efforts are focused on anticipating and accommodating an
organization's future technology investments.

Ease of Installation and Use. Our software is easy to install and use,
thereby minimizing implementation, training and support costs. We designed our
software to be installed quickly by the customer, typically within 40 minutes,
or up to a day for our more sophisticated Precise/Insight product, and without
on-site assistance or disruption to the customer's existing technology
investments or business. Our easy to use interface provides simple interaction
with our software and presents the user with a prioritized list of sources once
problems have occurred.

STRATEGY

Our objective is to become the leading provider of end-to-end performance
management software. Key elements of our strategy include:

Extend Technological Product Leadership. Our flexible and open
architecture allows for the integration of new products that enhance our current
software. We plan to augment our existing software with additional capabilities
to monitor and maintain the underlying Information Technology infrastructure of
e-business applications. Our goal is to provide the most comprehensive solution
by using our technology expertise to develop innovative new software through
internal research and development efforts, technology acquisitions and strategic
relationships.

Expand Our Selling Capabilities. We market and sell our products in the
U.S. primarily through a direct sales force and internationally through
distributors. We intend to expand both our direct sales force and indirect sales
channels. We have recently begun to establish a direct sales force
internationally through our February 2000 acquisition of Knight Fisk in the
United Kingdom and the hiring of direct sales personnel in Canada and Latin
America.

Correlate Infrastructure Performance with Business Processes. Our
objective is to correlate infrastructure performance data with business
processes and enable management to intelligently modify or enhance these
processes going forward. This mapping of infrastructure performance to business
processes enables proactive response by management and subsequently the
allocations of resources. General commercial availability of our
Precise/Foresight product in the fourth quarter of 2000 will further enhance
this capability.

Enter New Markets. To date, our revenues have been derived predominantly
from licensing our software to large enterprises and, to a lesser extent,
Internet-based companies. We believe, however, that our software is increasingly
well positioned to meet the needs of technologically advanced organizations,
such as emerging technology companies, application service providers and
management service providers, or MSPs. To this end, we have become an executive
member of the MSP Association, and are helping this organization to create
industry standards and define best practices as we explore partnering
opportunities with other members.

Increased Penetration of Our Existing Customer Base. We have licensed our
software to over 700 customers worldwide. This large customer base affords us an
opportunity for additional sales of current and future software, as well as new
consulting service offerings that we intend to provide. In 1998 and 1999, and in
the first nine months of 2000, customers that purchased additional licenses for
previously purchased Precise software, or licenses for new or enhanced software,
generated 25%, 39% and 31%, respectively, of our total software license
revenues. Since many of our customers have purchased only one or a few of our
software products or use our software in specific business units or locations,
we believe that we can continue to sell more deeply into our installed customer
base.

Expand Strategic Relationships. We believe that a significant market
opportunity exists to sell our software with the complementary products and
services provided by other organizations. We plan to extend our existing
strategic relationships and develop new alliances with leading global equipment
manufacturers, application service providers, systems integrators and
value-added resellers in an effort to extend the functionality of our software
and increase sales of our software. We currently have strategic relationships

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<PAGE> 40

with EMC, where our software is bundled into their product, and with Amdocs,
where our software is sold as an add-on product to their product line. We
believe we will be able to leverage the sales and marketing capabilities of our
alliances and facilitate the wider adoption of our software.

Pursue Strategic Acquisitions. In order to achieve our business
objectives, we may pursue the acquisition of technologies, products and
businesses that enable us to enhance and expand our existing software products
and our projected service offerings. Specifically, we intend to make
acquisitions of technologies that will enable us to extend our technology
leadership position and, to a lesser extent, acquisitions that help us expand
our customer base, build our sales force and augment our distribution channels.

RECENT DEVELOPMENT

In connection with the Savant transaction, we will exchange approximately
512,445 of our ordinary shares for all Savant's outstanding shares of capital
stock, vested stock options and warrants. We will also pay $2.5 million in cash.
If revenue from Savant's products and services exceeds certain thresholds in the
year ending December 31, 2001, we will pay additional consideration in an amount
equal to four and one-half times the amount by which such revenue exceeds $7
million (up to a maximum of $13 million in revenue). The additional
consideration will be payable in our ordinary shares. We intend to account for
the transaction as a purchase. Completion of the acquisition is subject to
regulatory approval and customary closing conditions and is expected to close in
the fourth quarter of 2000.

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<PAGE> 41

PRODUCTS

Our software provides continuous and comprehensive Information Technology
infrastructure performance management. Our suite of software consists of the
following:
PRODUCT FUNCTIONS

Precise/SQL Monitors, analyzes and helps tune Oracle-based
applications and databases to ensure that those
applications perform at peak efficiency. After being
alerted to a performance issue, the software assists
the user in identifying the specific causes of slow
performance. The product permits users to view the
access path that the database has chosen for a query
from an application, automatically generates
Structured Query Language, or SQL, statements that
will access the database in a different manner and
projects the performance improvement if the change is
made. In addition, the software can simulate the
result of a change in the way the database is
organized and provide a full cross-reference between
database objects and the statements that access them.
Through an internal data warehouse that we call the
Precise Performance Warehouse, Precise/SQL supports
long-term analysis and proactive management by
providing historical performance information.

Precise/Pulse! Monitors the performance of the Oracle database,
triggering alerts and/or tuning activity when
user-defined performance thresholds or baselines are
exceeded. Once an alert is triggered, the user can
use Precise/SQL and Precise/Interpoint to locate and
fix the specific problem. This product is compatible
with leading monitoring products provided by other
software vendors.

Precise/Interpoint Works as an add-on product to Precise/SQL to optimize
Oracle-based ERP application performance by
monitoring and helping tune the ERP application. By
tracing a query from the ERP application back to the
person or software that made the request,
Precise/Interpoint provides valuable information to
the ERP manager concerning the source of performance
issues. The ERP manager can then implement changes
suggested by Precise/SQL or other changes to the ERP
application to improve performance.

Precise/Swift-e Combines the functionalities of Precise/SQL and
Precise/Pulse! to deliver comprehensive performance
management of Oracle-based components in an
e-business environment. The ability of the software
to sample performance on a sub-second basis makes it
well suited for the high transaction volume
environments typical of Internet-based companies.

Precise/Presto
for EMC Extends functionality of Precise/SQL by showing the
performance of a storage device as it is affected by
the application software's request for data.
Precise/Presto for EMC provides a consistent view of
the data when viewed from either the database or the
storage.

Precise/Insight Monitors the time it takes for transactions to cross
a user's Information Technology infrastructure,
giving the user a view of the total time and
efficiency of a business transaction. Unlike our
other products, this software collects information,
regardless of the database, Oracle-based and
otherwise, and is compatible with our other products
that provide the user with detailed information on
performance problems within specific components of
the user's Information Technology environment.

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<PAGE> 42

Other than Precise/Insight, all of our products work exclusively with
Oracle databases and the applications that use them. By the first quarter of
2001, we expect to release a version of these products that will operate in IBM
DB-2/UDB database environments. In addition, we expect to release updated
versions of our Oracle-based software during 2000 that will include an HTML
interface to Precise/Pulse! to permit user access via a Web browser, a new
reporting module that will permit more expansive trend analysis based on data in
the performance warehouse and an updated version of Precise/SQL.
Precise/Interpoint currently supports Oracle and SAP ERP applications, and we
expect to introduce a new version to support PeopleSoft applications in 2001.
During the first quarter of 2001, we expect to release Precise/Foresight, a Web
based performance analysis and reporting module to help track and plan for
infrastructure changes. We cannot assure you that we will successfully introduce
these new versions on a timely basis, if at all, and our failure to do so would
negatively impact our revenue growth and operating results.

PROFESSIONAL SERVICES

Precise Professional Services supplement our customer support efforts by
delivering the technological expertise our customers need to optimize the
performance of their Information Technology infrastructures. We use both our
employees and third-party technology professionals to deliver professional
services that are tailored to our customers' unique performance management
needs. Our Professional Services offerings include the following:

Remote management. We provide outsourced monitoring that results in
detailed performance evaluations and recommendations for our customers'
Information Technology infrastructures. In certain cases, we offer
resources that will modify the company's Web site using our software.

Performance audit engagements. During performance audit engagements,
we conduct performance audits on site, collect relevant data, document
audit findings and provide customers with a comprehensive set of
performance recommendations.

Performance tuning engagements. During performance tuning
engagements, we typically assess customer-supplied data and the customer's
technical environment, execute performance tuning activities, document the
results of these tuning activities and provide the customer with the
engagement's results. If a performance auditing engagement has preceded the
performance tuning engagement, we implement the recommendations arising
from the auditing engagement.

Training. During 3- or 5-day training sessions at our Westwood,
Massachusetts offices, we use classroom sessions and technical labs to
teach our customers aspects of our product line, such as usage, data
presentation, data interpretation, data collection, data analysis,
establishing performance baselines and implementing tuning recommendations.

PRECISE TECHNOLOGY

Precise/SQL

Precise/SQL uses intelligent agent-based technology that allows it to
collect performance information directly from the memory of the Oracle database
without connecting to the database itself. This sampling technique enables our
software to perform low-overhead monitoring on a twenty-four hours per day,
seven days per week basis, regardless of the database load, the number of users
connected to the database or other demands on the database. Precise/SQL's
proprietary technology correlates the components of an operating system with the
objects retrieved from the database and the transactions executed by the
application. This information is collected and stored on flat files in such a
rapid manner that virtually no transaction occurs without information about it
being captured. The result is a complete picture of the problems and isolated
causes experienced across networks, operating systems, servers, applications,
databases and storage devices.

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<PAGE> 43

Precise/Pulse!

Precise/Pulse! uses agent technology that integrates with other performance
monitoring software. Precise/Pulse! can send messages to those frameworks via
the Simple Network Management Protocol, or SNMP (an industry standard for
exchange of information among systems management software), and also contains
its own console for companies not using frameworks.

Precise/Interpoint

The main tuning problem in an ERP environment is that there is no obvious
link between the user executing an ERP transaction and the SQL statements
executed by these transactions. Therefore, there is no simple way of tuning ERP
transactions. Precise/Interpoint monitors the ERP application at the server
level and provides information that links each SQL statement back to its origin
and displays application specific information on the user or report generating
the statement, allowing the organization's ERP manager and Oracle database
administrator to focus on the problematic areas and tune them.

Precise/Presto for EMC

Precise/Presto for EMC bridges the gap between the logical Oracle database
input/output (I/O) activity and the physical disk (I/O). It combines information
from the Oracle shared global area (SGA), the operating system (O/S) and the
storage system and presents data regarding integrated performance.

Precise/Insight

Precise/Insight uses packet-based technology to measure the time it takes
for information to pass through the user's Information Technology system and can
provide a breakdown of time spent in the various infrastructure components.
Precise/Insight contains an internal data warehouse, which contains long-term
performance information. The elements of Precise/Insight's core system include
agents that are installed on servers that collect performance data, a focal
point server, which communicates with the agent, and a client interface, which
communicates with the focal point server for visualizing performance
information.

CUSTOMERS

We have licensed our software products to over 700 customers on a worldwide
basis. A representative list of current customers who have purchased at least
$85,000 of software licenses from us since January 1999 includes:

<TABLE>
<S> <C>
Amazon.com Mannesmann AG
Ameritech McKesson/HBOC
Boeing One 2 One
Bradlees Pillsbury
Carnival Cruise Lines Princess Cruise Lines
CCPEDQ Qwest Communications
Cellcom Recruit Co. Ltd.
Chevron Rockwell
Convergys Rogers Cantel
Cox Communications Sony
Data Mobile Southwestern Bell
Deutsche Telekom Staff Leasing
E-Sat Staples
Excite@Home Steelcase
Ford Motor Company SUNY
General Electric Talkline GmbH
Giant Eagle Telewest
IMI Systems Telkom SA
Interpath Communications The Hartford
Key Corporation US Cellular
LGEDS VoiceStream Wireless
</TABLE>

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<PAGE> 44

Revenues from these customers accounted for 33.0% of our total revenues in 1999
and 25.1% of our total revenues for the nine months ended September 30, 2000.

The following case studies show how a representative group of our customers
have used our software.

The Boeing Company

The Boeing Company is a large aerospace corporation with headquarters in
Seattle. Boeing runs all forms of critical database applications on hundreds of
servers in locations all over the world. Boeing acquired Precise/SQL for its
database performance management attributes in the fall of 1999. Boeing
implemented Precise/SQL on a commercial "off-the-shelf" software program with a
run time of over 12 hours. Precise/SQL immediately identified two
resource-consuming statements in this off-the-shelf program that, when
addressed, improved throughput of the program by over 30 percent. Over the next
2 weeks, Precise/SQL identified additional performance problems achieving an
overall 16-fold improvement in program run time.

AutoTrader.com

Atlanta-based AutoTrader.com is the largest used vehicle vendor on the
Internet, with more than 1.5 million listings. For the year 2000, AutoTrader.com
projected a roughly 600 percent increase in its online traffic in response to an
advertising campaign that launched during Superbowl XXXIV. To be able to respond
quickly and reliably to customer requests for information and service,
AutoTrader.com planned to tune one server proactively, and monitor its
infrastructure, before site traffic was expected to increase. The company
planned to tune the server to render the server efficient enough to handle the
site's exponentially heavier load without slowdowns or downtimes.

In one approach to monitoring and tuning, AutoTrader.com used
Precise/Swift-e to optimize the performance of its server and thereby avoid
having to purchase additional hardware to meet its performance needs.

One 2 One

One 2 One is a U.K. mobile telephone provider with more capacity per
customer than any other U.K. network, handling more than 100 million calls per
week. One 2 One runs critical, Oracle-based applications on a combination of
Hewlett Packard, Sequent and Sun hardware linked to an EMC storage system.

When the various components of One 2 One's Information Technology system
interacted, overall system performance dropped. One 2 One was spending a great
deal of time trying to manually identify the root causes of its application
performance slowdowns. The company implemented our software to pinpoint its
performance slowdowns without consuming its Information Technology resources or
personnel. The company used our software to drill down through its application
performance data to locate the causes of performance problems in its Oracle
database, Unix server and EMC storage devices. In addition, the company used our
software to proactively monitor resource usage among its infrastructure
components and to simulate potential fixes for performance problems without
impacting production. Our software increased One 2 One's transaction volume
capacity and control of its critical business applications and reduced its
infrastructure slowdowns and downtimes.

SALES AND MARKETING

We sell our software through direct sales, indirect channels, international
resellers and strategic relationships. Our North American sales organization is
headquartered in Westwood, Massachusetts. We have additional sales offices in
the U.S. metropolitan areas of Atlanta, Chicago, Dallas, Detroit, Denver, Miami,
Minneapolis, New York, San Francisco and San Diego and in Toronto, Canada. Our
international sales organization is based in metropolitan Tel Aviv, Israel. We
are continuing to expand our sales organization and to establish additional
sales offices. As of September 30, 2000, we employed 100 persons in sales and
marketing.

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<PAGE> 45

Direct Sales. The sales team for each territory is comprised of a sales
manager, an in-house account manager and a systems engineer. The sales team for
each customer is responsible for qualifying leads, understanding the customer's
problem, providing the appropriate product information, and building and
maintaining relationships with personnel who have purchasing responsibility in
the customer's organization. Strategically, we use our direct sales force to
generate repeat sales from our installed customer base, negotiate site and
technology licenses, sell products that include our professional services, and
introduce and gain immediate feedback on our new products. Our sales cycle
varies substantially from customer to customer. When a prospect or an existing
customer evaluates one of our performance products for multiple departments or
servers, the sales cycle typically ranges from one to four months.

Indirect Sales. Our Precise Premier Partner Program is designed to attract
vendors that can establish new channels for our products in North and South
America. These vendors include application software vendors, system integrators,
and value-added resellers. The valued-added products and services of these
vendors combine with our products to deliver more complete products to our
customers. Outside of North and South America, we sell our products though
resellers that report to our metropolitan Tel Aviv office. Our resellers market
our products in Austria, Australia, Belgium, Czech Republic, Denmark, Finland,
France, Germany, Holland, Hong Kong, Hungary, Iceland, India, Ireland, Israel,
Italy, Japan, Norway, Poland, Singapore, South Korea, Spain, Sweden,
Switzerland, Taiwan and Turkey.

Strategic Relationships. We currently have a strategic relationship
established in March 1999 with one OEM, EMC Corporation, which began selling our
products in the fourth quarter of 1999. EMC markets an exclusive bundled version
of our Precise/SQL and Precise/Presto for EMC software, called Database (DB)
Tuner, to its customers for use solely with EMC's storage products. Under the
terms of our agreement with EMC, they pay us a royalty on the sales of these
products. The term of our agreement is five years and can be extended for
one-year periods but may be earlier terminated in the event of a breach by
either party. Our relationship with EMC affords us opportunities to sell our
products into the EMC operating environment. Our agreement with EMC does not
limit our ability to establish other marketing programs and license our other
products, including Precise/Interpoint, Precise/Insight and Precise/Pulse! We
intend to establish relationships with other OEMs to sell our products.

We currently have an agreement with Amdocs, a provider of information
systems solutions to telecommunications companies, to sell Precise/SQL along
with the Amdocs product offering. Under the terms of this agreement, Amdocs pays
us a royalty on the sale of these products. This agreement expires in June 2001,
but automatically renews for additional one year terms unless either Precise or
Amdocs notifies the other 30 days in advance of its desire to terminate the
agreement.

We undertake various marketing activities to generate leads for our sales
efforts and to enhance market awareness of our software and services. Our
marketing activities include company-sponsored seminars, and print and
electronic advertisements. We also seek to increase market awareness of our
software and services by working with industry analysts, Oracle user groups, and
the trade press to communicate our successful product implementations. We also
engage in targeted marketing through direct-mail lists and participation in
trade shows and speaking engagements. Our software trial program, which
generally runs for a seven day period, allows us to demonstrate our technology
to potential customers.

CUSTOMER SUPPORT

Our customer support group provides both pre- and post-sales technical
support to our customers and prospects. Our base level of e-mail, Web-, fax-,
and telephone-based support, which we provide during conventional business
hours, includes assistance with installation, configuration and initial product
setup, ongoing product support, and software maintenance and upgrade releases.
For additional fees, we provide support 24 hours per day, seven days per week,
throughout the year.

We provide customer support for North and South America through our
Westwood, Massachusetts office. We provide customer support in the rest of the
world through our office in Israel and our network

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<PAGE> 46

of international resellers. We intend to hire additional support staff and are
establishing additional support sites both domestically and internationally to
meet our customers' needs.

Our support agreements are generally 12 months in duration and are
renewable at the customer's option. Support agreements are generally priced at
approximately 15% of the list price of the license fee.

RESEARCH AND DEVELOPMENT

Our research and development organization is responsible for developing new
software products, enhancing core technologies, conducting product testing and
quality assurance, and ensuring the compatibility of our products with hardware
and software platforms. In addition, this group supports some pre-sale and
customer support activities. Our research and development staff is focused on
delivering products that will support our product development strategy. The
engineers are market oriented and maintain a close relationship with our sales
personnel as well as our customers to better understand their needs.

As of September 30, 2000, our research and development staff, based in
metropolitan Tel Aviv, Israel and Denver, Colorado, consisted of 52 employees.
Our total expenses for research and development were $3.4 million for the nine
months ended September 30, 2000, $2.9 million for the year ended December 31,
1999, $2.2 million for the year ended December 31, 1998 and $1.7 million for the
year ended December 31, 1997. We expect that research and development expenses
will increase in absolute dollars and may increase as a percentage of revenues
in future periods.

COMPETITION

The market for infrastructure performance management software is rapidly
evolving and intensely competitive. This market is characterized by rapid
technological change, evolving industry standards and changing customer
requirements. We expect competition to increase in the future. Our primary
competitors fall within the following three categories:

- providers of systems management suites and/or frameworks, including
Computer Associates, Hewlett-Packard, Tivoli and BMC Software;

- providers of point products, including Concord Communications, Oracle,
Visual Networks, Vital Suite and Quest; and

- our customers' Information Technology departments that attempt to develop
their own solutions to their performance management problems.

Many of our competitors and potential competitors have greater name
recognition, a larger installed customer base and significantly greater
financial, technical, marketing and other resources and experience than we do.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than we can. In addition,
because there are relatively low barriers to entry in the software market, we
may encounter additional competition as other established and emerging companies
enter our field and introduce new products and technologies.

In addition to the competition that we may face because of the internal
development efforts of our competitors, current and potential competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with third parties, in turn increasing their ability to address
the needs of our current or prospective customers. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain market share.

Many of our existing and potential customers evaluate on an on-going basis
whether to develop their own performance management software or purchase it from
outside suppliers. As a result, we must, on an

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<PAGE> 47

on-going basis, educate existing and potential customers on the advantages of
our software over internally developed performance software as well as our
competitors' products.

Our existing and potential customers have a pre-set budget for which we
compete along with our competitors. We currently compete primarily on the basis
of the following factors:

- breadth of functionality;

- product performance;

- scalability;

- ease of installation and use; and

- price.

We believe that we currently compete favorably with respect to each of
these factors. However, the performance management market is still rapidly
evolving, and we may not be able to compete successfully against present or
future competitors, which could harm our operating results.

PROPRIETARY RIGHTS AND LICENSING

Our success and ability to compete are dependent on our ability to develop,
maintain and protect the proprietary aspects of our technology. We rely on a
combination of trademark, trade secret and copyright laws and contractual
restrictions to protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright law. We license our software to
end-users under signed license agreements and under electronic agreements.
Finally, we seek to avoid disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to execute
confidentiality and assignment of invention agreements with us and by
restricting access to our source code.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our technology or products or to obtain and use
information that we regard as proprietary. In addition, we sell our products
throughout the world. The laws of many countries do not protect our proprietary
rights to the same extent as the laws of Israel or the United States. Litigation
may be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets and to determine the validity and scope of the
proprietary rights of others. Any resulting litigation, even if we ultimately
prevail, could result in substantial costs and diversion of resources and could
adversely effect our business and operating results.

Precise has developed its Precise/SQL software with grants made by the
Office of Chief Scientist of the Israel Ministry of Industry and Commerce, which
provides that this software may not be manufactured, nor may the technology
embodied in this software be transferred, outside of Israel without appropriate
governmental approvals. We currently manufacture all of our products in Israel,
and we currently have no intention to manufacture outside of Israel. These
restrictions do not apply to the sale or export from Israel of these products.
Under the terms of the grants, we owe royalties to the Israeli government on
sales of these products until we have repaid the full amount of the grants we
have received. These restrictions continue to apply to us even after we have
paid the full amount of royalties. If the Office of Chief Scientist consents to
the manufacture of the products outside Israel, the regulations prescribe the
payment of increased royalties, ranging from 120% to 300% of the amount of the
grant, depending on the percentage of foreign manufacture.

Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability to
license the infringed technology on acceptable terms, our business and operating
results would be significantly harmed.

Precise/SQL, Precise/Pulse!, Precise/Interpoint, Precise/Presto for EMC,
Precise/Swift-e and the Precise Software Solutions logo are trademarks or
service marks of Precise Software Solutions Ltd. or its

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<PAGE> 48

U.S. based subsidiary, Precise Software Solutions, Inc. This prospectus also
contains trademarks, trade names and service marks of other companies that are
the property of their respective owners. The information cited on page 32 from
Zona Research is copyright, 1999, by Zona Research.

EMPLOYEES

At September 30, 2000, we had a total of 105 employees in the United
States, 63 in Israel and 18 in the United Kingdom. Of the total, 100 were
engaged in sales and marketing, 52 were in research and development, 28 were in
general and administration and 6 were engaged in providing professional
services. None of our employees is subject to a collective bargaining agreement
and we believe that our relations with our employees are good. We had the
following number of employees at December 31, of each of our three prior fiscal
years:

<TABLE>
<CAPTION>
RESEARCH AND GENERAL AND PROFESSIONAL
SALES AND MARKETING DEVELOPMENT ADMINISTRATION SERVICES
------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
1999 46 33 12 4
1998 28 26 9 0
1997 13 25 8 0
</TABLE>

Certain provisions of the collective bargaining agreement between the
Histadrut (the General Federation of Labor in Israel) and the Coordination
Bureau of Economic Organizations (including the Industrialists' Association of
Israel) apply to our Israeli employees by virtue of expansion orders of the
Israeli Ministry of Labor and Welfare. These provisions principally concern the
length of the work day and the work week, minimum wages for workers,
contributions to pension funds, insurance for work-related accidents, procedures
for dismissing employees, determination of severance pay and other conditions of
employment. Furthermore, these provisions provide that the wages of most of our
employees are automatically adjusted based on changes in the Israeli Consumer
Price Index. The amount and frequency of these adjustments are modified from
time to time.

Israeli law generally requires the payment of severance pay by employers
upon the retirement or death of an employee or termination of employment without
due cause. Precise currently funds its ongoing severance obligations by making
monthly payments to approved severance funds or insurance policies. In addition,
according to the National Insurance Law, Israeli employees and employers are
required to pay specified sums to the National Insurance Institute, which is
similar to the U.S. Social Security Administration. Since January 1, 1995, these
amounts also include payments for national health insurance. The payments to the
National Insurance Institute are approximately 14.5% of wages (up to a specified
amount), of which the employee contributes approximately 66% and the employer
contributes approximately 34%.

FACILITIES

The headquarters of our U.S. subsidiary, located in Westwood,
Massachusetts, is occupied under a lease which expires in July 2004. We occupy
our Israeli offices, located in metropolitan Tel Aviv, Israel, under a lease
which expires in August 2001. We believe that our existing facilities are
adequate for our current needs and that suitable additional or alternative space
should be available in the future on commercially reasonable terms as needed.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table summarizes certain information concerning our directors
and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Shimon Alon(1)................ 50 President, Chief Executive Officer and Director
Stephen J. Campbell........... 43 Vice President of Business Operations and General Manager of
Precise Software Solutions, Inc.
J. Benjamin H. Nye............ 35 Vice President of Finance and Chief Financial Officer
Itzhak "Aki" Ratner........... 44 General Manager of International Operations
Yuval Cohen................... 38 Director
Robert J. Dolan(2)............ 52 Director
Erel Margalit(1).............. 39 Director
Mary A. Palermo(1)(2)......... 43 Director
Yoseph Sela(1)(2)............. 48 Director
Anton Simunovic............... 35 Director
Ron Zuckerman(1).............. 43 Director and Chairman of the Board of Directors
</TABLE>

---------------
(1) Member of the compensation committee

(2) Member of the audit committee

OTHER KEY EMPLOYEES

The following table summarizes certain information concerning our other key
employees:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel Germain................ 44 Vice President of Customer Service of Precise Software Solutions,
Inc.
Michael Killoran.............. 43 Vice President of North American Sales of Precise Software
Solutions, Inc.
Andrew B. Knight.............. 37 Director for Knight Fisk Software, Ltd.
Haim Kopans................... 36 Vice President of Product Management
Russell Luke.................. 32 Director of Sales for Knight Fisk Software, Ltd.
John McHugh................... 51 Vice President of Marketing of Precise Software Solutions, Inc.
Rami Schwartz................. 42 Vice President of Research and Development
</TABLE>

DIRECTORS AND EXECUTIVE OFFICERS

Shimon Alon has served as our President and Chief Executive Officer since
September 1997 and as one of our directors since December 1998. Mr. Alon served
at Scitex Corporation, a supplier of digital imaging solutions for graphic
communication image processing equipment, and its affiliates in varying
executive management, sales, marketing, and customer support capacities from
October 1982 to September 1996. From November 1995 to September 1996, Mr. Alon
was Scitex Corporation's Senior Executive Vice President of the Graphic Art
Division. From May 1995 to September 1996, Mr. Alon was Scitex America
Corporation's President and Chief Executive Officer. From January 1993 to May
1995, Mr. Alon served Scitex Europe Ltd. as Managing Director. Mr. Alon serves
as a director of ORBIT/FR, Inc.

Stephen J. Campbell has been the Vice President of Business Operations of
our U.S. subsidiary since December 1997 and General Manager since December 1999.
From November 1995 to December 1997, Mr. Campbell was Vice President of Business
Operations at Scitex America Corporation, a division of

44
<PAGE> 50

Scitex Corporation. Mr. Campbell was employed by Hewlett Packard Company in
various capacities from April 1991 to November 1995. Mr. Campbell was Hewlett
Packard's Solution Deployment and Support Manager from January 1995 to November
1995, its Order Fulfillment Manager from October 1993 to January 1995, and its
Information Technology Manager from April 1991 to October 1993.

J. Benjamin H. Nye has served as our Vice President of Finance and Chief
Financial Officer since February 2000. Prior to joining Precise, Mr. Nye was a
principal of Allied Capital Corporation, a publicly-traded investment fund,
where he structured and oversaw private debt and equity investments in a
portfolio of operating companies. From February 1993 to June 1997, Mr. Nye was a
senior advisor to U.S. Treasury Secretaries Lloyd Bentsen and Robert Rubin in
the U.S. Department of the Treasury.

Itzhak "Aki" Ratner has served as the General Manager of our Israeli office
since May 1997 and served as our Vice President of Research and Development from
May 1997 to September 2000. Before joining Precise, Mr. Ratner served in the
Israeli Air Force from August 1981 to June 1996 in various software development
management positions. From February 1993 to June 1996, Mr. Ratner served in the
Israeli Air Force as a lieutenant colonel in charge of client/server project
development.

Yuval Cohen has been one of our directors since December 1998. Mr. Cohen is
a general partner at Jerusalem Venture Partners, an international venture
capital fund investing in early-stage communications and Internet companies in
Israel, Europe, and the United States. From May 1996 to June 1997, Mr. Cohen was
Vice President of Marketing at VDOnet Corporation. From February 1995 to May
1996, he served as Vice President of Business Development of DSP Group. From
December 1991 to February 1995, he served as assistant to the Senior Vice
President of Corporate Business Development at Intel Corporation. Mr. Cohen is a
director of the following privately held companies: Celltick Inc., Guidelet
Technologies Inc., NuVisio Inc., Powerdesine Ltd., Sphera Corporation,
Teleknowledge Group Ltd., Tsqware Inc. and UC More Inc.

Robert J. Dolan has been one of our directors since July 2000. Mr. Dolan
has been a Professor of Business Administration at Harvard University Graduate
School of Business Administration since 1980. From 1976 to 1980, Mr. Dolan was a
professor at University of Chicago Graduate School of Business.

Erel Margalit has been one of our directors since July 1996. Mr. Margalit
has been Managing General Partner of Jerusalem Venture Partners since August
1997. He was a general partner of Jerusalem Pacific Ventures from December 1993
to August 1997. From 1990 to 1993, Mr. Margalit was Director of Business
Development of the City of Jerusalem. Mr. Margalit is a director of Paradigm
Geophysical Ltd.

Mary A. Palermo has been one of our directors since July 2000. Ms. Palermo
has served as an Executive Vice President of Aspen Technology, Inc. since
September 1998. From December 1995 to August 1998, she served as their Executive
Vice President, Finance and Chief Financial Officer and from May 1989 to
December 1995, she served as their Vice President and Chief Financial Officer.
Ms. Palermo is a C.P.A.

Yoseph Sela has been one of our directors since December 1998. Mr. Sela
joined Gemini Israel Funds upon its formation in January 1993 and currently
serves as the funds' Managing Partner. Mr. Sela has served as Executive Vice
President of Gemini Funds since June 1995. Mr. Sela serves as a director of
Commtouch, Ltd.

Anton Simunovic has served as one of our directors since October 1999. Mr.
Simunovic has been a Managing Partner, Venture Capital for Divine interVentures,
inc. since February 2000. From August 1996 to January 2000, Mr. Simunovic was
Senior Vice President Venture Capital for GE Equity. From June 1993 to August
1996, Mr. Simunovic was a Manager of Strategy Consulting for the Barents Group
LLC.

Ron Zuckerman is one of our founders and has served as our Chairman of the
Board of Directors since June 1991, which was shortly after our inception. Mr.
Zuckerman is a co-founder of Sapiens International Corporation N.V., a
large-scale, business-critical information technology solutions company, and has
served as its Chairman of the Board of Directors since January 1998. He also
served as their

45
<PAGE> 51

Chief Executive Officer from January 1995 to March 2000 and their Chief
Operating Officer from their incorporation until April 1994. Mr. Zuckerman
serves as a director of the following privately-held companies: Cognitens Ltd.,
EC-Gate, Ilit Ltd. and NEARTEK. He is also a managing partner of Limon Holdings
Ltd., a sub-advisor company to Magnum Technology Fund.

All of our executive officers serve at the discretion of our board of
directors or until their earlier death or resignation.

Messrs. Zuckerman, Margalit, Cohen and Sela were each elected as directors
by the holders of our series A preferred shares under provisions in our articles
of association that are no longer in effect. Mr. Simunovic was elected by the
holders of our series B preferred shares under similar provisions that are no
longer in effect.

OTHER KEY EMPLOYEES

Daniel Germain has been Vice President and Director of Customer Service of
our U.S. subsidiary since November 1995. From September 1994 to November 1995,
Mr. Germain served Open Data Inc., a data access software company, as Product
Manager and Senior Systems Engineer. From August 1991 to September 1994, Mr.
Germain served as Senior Systems Engineer for Information Builders, Inc., an
information systems software developer.

Michael Killoran has served as Vice President of North American Sales of
our U.S. subsidiary since October 1999. From June 1996 to October 1999, Mr.
Killoran served our U.S. subsidiary in various regional sales capacities. From
October 1992 to June 1996, Mr. Killoran was a Regional Sales Manager with BMC
Software (formerly Boole & Babbage Company), a developer of systems management
software.

Andrew B. Knight has served as the Director for Knight Fisk Software, Ltd.,
or Knight Fisk, the U.K.-based distributor of our software that we acquired in
February 2000, since July 1998. From April 1995 to June 1998, Mr. Knight was the
Director for Knight Fisk. From October 1983 to March 1995, Mr. Knight was
self-employed as a professional consultant.

Haim Kopans has served as our Vice President of Product Management since
March 1997 and is one of our founders. From August 1990 to March 1997, Mr.
Kopans served as our Development Manager. Mr. Kopans was a database consultant
and Product Division Manager with SCP Systems, a software distributor and
provider of consulting services, from February 1989 to August 1990 and a DB2
systems analyst for the Israeli Defense Forces prior to that. Mr. Kopans is a
Certified Systems Analyst.

Russell Luke has served as Director of Sales for Knight Fisk since February
1998. From March 1997 to January 1998, Mr. Luke was the Business Development
Manager with Remedy Corporation, a software developer. From March 1996 to March
1997, Mr. Luke served as Business Development Manager with BRIO. From January
1994 to February 1996, Mr. Luke served as a sales manager with Business Objects.

John McHugh has served as Vice President of Marketing of our U.S.
subsidiary since October 1998. Prior to October 1998, Mr. McHugh served
Sterling/Cayenne Software, Inc., a development and data modeling software
vendor, as Director of Product Marketing for Information Technology Solutions
and as Director of Commercial Markets from June 1996 to October 1998. Cayenne
was formed from the merger of Bachman and Cadre. From January 1994 to June 1996,
Mr. McHugh served as Senior Marketing Manager for Object Design, Inc., an object
database vendor.

Rami Schwartz has served as our Vice President of Research and Development
since September 2000. From October 1999 to September 2000, Mr. Schwartz was the
Vice President of Development of Amdocs. From June 1985 to June 1999, Mr.
Schwartz served with the Israeli Air Force Software Development Division most
recently as its Division Commander.

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<PAGE> 52

CLASSIFIED BOARD OF DIRECTORS

Our articles of association provide for a board of directors of not less
than five and not more than eleven directors. In accordance with the terms of
these articles of association, the board of directors is divided into three
classes with each class serving as follows:

<TABLE>
<CAPTION>
TERM EXPIRING AT
THE ANNUAL MEETING
CLASS FOR THE YEAR DIRECTORS
----- ------------------ ---------
<S> <C> <C>
Class I 2001 Shimon Alon, Yuval Cohen
Class II 2002 Erel Margalit, Yoseph Sela
Class III 2003 Anton Simunovic, Ron Zuckerman
</TABLE>

At each subsequent annual meeting of shareholders, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following the
election. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of our board of directors may have the effect of delaying or
preventing changes in control or management of our company.

The above classification does not apply to Mr. Dolan and Ms. Palermo, who
serve as the external directors that we are required to appoint under the
Companies Law. The term of office of Mr. Dolan and Ms. Palermo and any future
external directors will be three years, as required by law.

COMMITTEES

Our board of directors has formed an audit committee and compensation
committee. The audit committee, which consists of Messrs. Dolan and Sela and Ms.
Palermo, exercises the powers of the board of directors with respect to our
accounting, reporting and financial control practices. Our compensation
committee, which consists of Messrs. Alon, Margalit, Sela and Zuckerman and Ms.
Palermo, administers our share option plans.

EXTERNAL DIRECTORS; AUDIT COMMITTEE; INTERNAL AUDITOR

We are subject to the provisions of the new Israeli Companies Law, which
became effective on February 1, 2000. The Companies Law requires that at least
two external directors be appointed at a shareholders general meeting to serve
on the board of directors of a public company. The Companies Law provides the
following with respect to external directors:

- the external directors, or their relatives, partners, employers or
entities within their control, may not be or have been affiliated with
the company or its principals at any time during the previous two years;

- external directors must be elected by shareholders, including a vote of
at least one-third of the shares entitled to vote and voting of
non-controlling shareholders and their affiliates voting on the matter
only if the total shares of non-controlling shareholders voting against
the election represent more than one percent of the voting rights in the
company;

- the term of an external director is three years and may be extended for
one additional three-year term;

- if all directors are of the same gender, the next new external director
must be of the other gender;

- each committee of the board of directors, which is entitled to exercise
any powers of the board, is required to include at least one external
director;

47
<PAGE> 53

- external directors may only be compensated in amounts dictated by
guidelines published by the Minister of Justice; and

- for the two years following the end of an external director's term, the
company may not employ that director or retain his professional services
for payment, whether directly or indirectly.

Under the Companies Law, every director has the right to examine and
receive copies of certain documents and to examine the company's assets only in
so far as required to fulfill his or her statutory obligations. The Companies
Law also provides that a court may extend this right of examination to the
external directors of a company to review the documents of an associated company
to the extent necessary for that external director to fulfill his or her
statutory obligations.

Under the Companies Law, the board of directors of any company required to
nominate external directors must also appoint an audit committee, as well as
approve an internal auditor nominated by the audit committee. The audit
committee must be comprised of at least three directors, including all of the
external directors. The audit committee may not include the chairman of the
board, any director employed by the company or providing services to the company
on an on-going basis, a controlling shareholder or their relatives. The role of
the internal auditor is to examine whether the company's acts comply with the
law and proper business procedure. The internal auditor may be an employee of
the company but may not be an interested party or officer holder, or a relative
of any interested party or officer holder, and may not be a member of the
company's independent accounting firm.

APPROVAL OF RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW

Office Holders

The Companies Law codifies the fiduciary duties that office holders owe to
a company. An "office holder" is defined as any director, general manager, any
other manager directly subordinate to the general manager or any other person
with similar responsibilities. An office holder's fiduciary duties consist of a
duty of loyalty and a duty of care. The duty of loyalty includes avoiding any
conflict of interest between the office holder's position in the company and his
personal affairs, avoiding any competition with the company, avoiding exploiting
any business opportunity of the company in order to receive personal advantage
for himself or others, and a duty to reveal to the company any information or
documents relating to the company's affairs that the office holder has received
due to his position. The duty of care requires an office holder to act at a
level of care that a reasonable office holder in the same position would employ
under the same circumstances. This includes the duty to utilize reasonable means
to obtain (1) information regarding the appropriateness of a given action
brought for his approval or performed by him by virtue of his position and (2)
all other information of importance pertaining to the foregoing actions. Each
person listed in the table under "Management -- Directors and Executive
Officers", except Mr. Campbell, is an office holder.

Under the Companies Law, all arrangements as to compensation of office
holders who are not directors require approval of the board of directors.
Arrangements regarding the compensation of directors require audit committee,
board and shareholder approval.

The Companies Law requires that an office holder of a company promptly
disclose to the company's board of directors any personal interest that he or
she may have and all related material information known to him or her, in
connection with any existing or proposed transaction by the company. This
disclosure must be made by the office holder, whether orally or in writing, no
later than the first meeting of the company's board of directors which discusses
the particular transaction. An office holder is deemed to have a "personal
interest" if he, certain members of his family or a corporation in which he, or
any one of those family members, is a 5% or greater shareholder or exercises or
has the right to exercise control (as defined in the Companies Law), has an
interest in a transaction with the company. An "extraordinary transaction" is
defined as a transaction other than in the ordinary course of business, not on
market terms, or that is likely to have a material impact on the company's
profitability, assets or liabilities.

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<PAGE> 54

In the case of a transaction that is not an extraordinary transaction,
after the office holder complies with the above disclosure requirements, only
board approval is required. The transaction must not be adverse to the company's
interest. Furthermore, if the transaction is an extraordinary transaction, then,
in addition to any approval stipulated by the articles of association, the
company's audit committee and the board of directors, and, under certain
circumstances, the shareholders of the company must approve the transaction. An
office holder who has a personal interest in a matter that is considered at a
meeting of the board of directors or the audit committee may not be present at
this meeting or vote on this matter.

Shareholders

The Companies Law applies the same disclosure requirements to a controlling
shareholder of a public company, including a shareholder that holds 25% or more
of the voting rights if no other shareholder owns more than 50% of the voting
rights in the company. Extraordinary transactions with a controlling shareholder
or in which a controlling shareholder has a personal interest, and the terms of
compensation of a controlling shareholder who is an office holder, require the
approval of the audit committee, the board of directors and the shareholders of
the company. The shareholder approval must include at least one-third of the
voting shareholders who have no personal interest in the transaction.
Alternatively, the total shareholdings of those who have no personal interest in
the transaction and who vote against the transaction, must not represent more
than one percent of the voting rights in the company.

In addition, a private placement of securities that will increase the
relative holdings of a shareholder who holds five percent or more of the
company's outstanding share capital (assuming the exercise or conversion of all
securities held by such person that are exercisable for or convertible into
shares) or that will cause any person to become, as a result of the issuance, a
holder of more than five percent of the company's outstanding share capital,
requires approval by the board of directors and the shareholders of the company.

Under the Companies Law, a shareholder has a duty to act in good faith
towards the company and other shareholders and to refrain from abusing his power
in the company including, among other things, when voting in a general meeting
of shareholders or in a class meeting on the following matters:

- any amendment to the articles of association;

- an increase of the company's authorized share capital;

- merger; or

- approval of interested party transactions that require shareholder
approval.

In addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder who has the power to appoint or prevent the appointment of an office
holder in the company is under a duty to act with fairness towards the company.
The Companies Law does not describe the substance of this duty of loyalty.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the Companies Law, a company may not exempt an office holder from
liability arising from a breach of fiduciary duty towards the company. However,
a company may exempt an office holder from liability arising from a breach of
the duty of care toward the company and may insure or indemnify office holders,
in each case subject to the provisions of the Companies Law and the company's
articles of association. To the extent permitted by the Companies Law, our
articles of association permit us to provide partial or full insurance coverage
for, and to indemnify, our office holders against such liability. We have
obtained directors' and officers' liability insurance covering our officers and
directors.

Our U.S. subsidiary has entered into indemnification agreements with
certain of our key employees. These agreements provide, independent of the
indemnification these individuals are entitled to by law and

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<PAGE> 55

under the provisions of our subsidiary's charter, indemnification for certain
acts while employed by the subsidiary. These indemnification agreements contain
exclusions, such as limiting indemnification that would be unlawful or that is
covered by other liability insurance. Moreover, employees are not indemnified
against liability to the extent that the employee gained a personal profit to
which he or she is not legally entitled, including proceeds obtained from the
illegal trading of our equity securities. These agreements are guaranteed by
Precise Software Solutions Ltd. as parent of the U.S. subsidiary, to the extent
permitted by Israeli law.

COMPENSATION OF DIRECTORS AND OFFICERS

The aggregate amount of compensation paid to all of our directors and
officers as a group (12 persons) for the year ended December 31, 1999 was $1.37
million, including an aggregate of $380,000 paid for commissions and bonuses
paid to our officers in connection with achieving performance-related
objectives. Options to purchase 712,004 ordinary shares were granted to our
directors and officers as a group during the year ended December 31, 1999. All
of these options were granted at an exercise price of $1.50 per share. The term
of all options granted was ten years.

Our directors do not receive cash compensation for their service on the
board or any board committee. However, all of our directors are reimbursed for
their expenses for each board meeting attended and our directors are eligible to
receive options under our 1998 share option and incentive plan.

The Company has no agreements with the directors to provide them benefits
upon termination of their service.

SHARE PLANS

We currently maintain two option plans, our 1995 and 1998 share option and
incentive plans. In addition, we recently adopted our 2000 employee share
purchase plan.

The purpose of our option plans is to provide an incentive to officers,
directors, employees and consultants of Precise, or any of our subsidiaries, to
continue their service to the company and to promote the success of our
business. In 1995, we adopted our 1995 share option and incentive plan. As of
September 30, 2000, we had issued 539,832 options to purchase ordinary shares to
employees, officers, directors and consultants under that plan and may not issue
any more options. The exercise price of options granted under the 1995 share
option and incentive plan range from $0.38 to $1.04.

In 1998, we adopted our 1998 share option and incentive plan. We have
reserved 6,793,168 ordinary shares for issuance to employees, officers,
directors and consultants under our 1998 share option and incentive plan. As of
September 30, 2000, options to purchase 5,447,265 ordinary shares were
outstanding under the plan and 1,885,735 additional ordinary shares were
available for grants of additional options. The exercise price of the options
granted under this plan ranges from $0.38 to $19.63.

Our option plans are administered by the compensation committee of our
board of directors. Under the option plans, options may be granted to officers,
directors, employees or consultants of Precise or its subsidiaries. The exercise
price of options is determined by the committee. The vesting schedule of the
options is also determined by the committee but generally the options vest over
a three to four-year period. Each option granted under the option plans is
exercisable until the earlier of ten years from the date of the grant of the
option or the expiration dates of the respective option plans. The 1995 and 1998
share option and incentive plans will expire in 2005 and 2008, respectively.

In addition to the option plans described above, we have adopted a 2000
employee share purchase plan, or ESPP. The ESPP provides employees with an
opportunity to purchase our ordinary shares through accumulated payroll
deductions. We have reserved 667,000 ordinary shares for issuance under the
ESPP, none of which have been issued. The ESPP is intended to qualify for
favorable tax treatment under Section 423 of the Internal Revenue Code and under
the Israeli Income Tax laws and regulations.

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<PAGE> 56

PRINCIPAL AND SELLING SHAREHOLDERS

The following table summarizes certain information regarding the beneficial
ownership of our ordinary shares as of September 30, 2000 for:

- each person or group that we know beneficially owns more than 5% of our
ordinary shares;

- all of our directors and officers; and

- each shareholder who is selling shares in this offering.

Applicable percentage ownership in the following table is based on
21,926,378 ordinary shares outstanding as of September 30, 2000 and 24,520,463
ordinary shares outstanding immediately following the consummation of this
offering. Beneficial ownership of shares is determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended, and generally
includes any ordinary shares over which a person exercises sole or shared voting
or investment power, or of which a person has the right to acquire ownership at
any time within 60 days of September 30, 2000.

As of September 30, 2000, 8,656,020 of our ordinary shares, or 39.5%, were
held of record in the United States.

<TABLE>
<CAPTION>
ORDINARY SHARES NUMBER OF ORDINARY SHARES
BENEFICIALLY OWNED ORDINARY SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING TO BE SOLD AFTER OFFERING
------------------- IN THIS -------------------
NAME NUMBER PERCENT OFFERING(1) NUMBER PERCENT
---- --------- ------- --------------- --------- -------
<S> <C> <C> <C> <C> <C>
Jerusalem Venture Partners L.P.(2).............. 3,170,886 14.5% -- 3,170,886 12.9%
SVM Star Ventures Management GmbH No. 3(3)...... 2,949,082 13.4 444,861 2,504,221 10.2
Gemini Israel Fund L.P.(4)...................... 2,408,822 11.0 363,363 2,045,459 8.3
Advent International Group(5)................... 1,779,456 8.1 268,426 1,511,030 6.2
Shimon Alon(6).................................. 1,307,130 5.7 131,713 1,174,417 4.8
Ron Zuckerman(7)................................ 1,240,731 5.7 -- 1,240,731 5.1
GE Capital Equity Holdings, Inc.(8) ............ 1,218,950 5.6 183,875 1,035,075 4.2
ABS GE Capital Giza Funds(9).................... 1,218,947 5.6 183,875 1,035,073 4.2
Mofet Israel Technology Fund Ltd.(10)........... 919,590 4.2 137,939 781,651 3.2
Itzhak Ratner(11)............................... 264,169 1.2 26,417 237,752 1.0
Stephen J. Campbell(12)......................... 156,667 0.7 15,446 141,000 0.6
J. Benjamin H. Nye(13).......................... 54,500 0.2 -- 54,500 0.2
Yoseph Sela(14)................................. 5,322 0.0 -- 5,322 0.0
Mary A. Palermo................................. 5,000 0.0 -- 5,000 0.0
Anton Simunovic................................. 5,000 0.0 -- 5,000 0.0
Robert J. Dolan................................. 2,000 0.0 -- 2,000 0.0
Yuval Cohen(15)................................. 0 -- -- 0 --
Erel Margalit(16)............................... 0 -- -- 0 --
Daniel Germain.................................. * * -- * *
Michael Killoran................................ * * -- * *
Andrew B. Knight................................ * * -- * *
Haim Kopans..................................... * * -- * *
Russell Luke.................................... * * -- * *
John McHugh..................................... * * -- * *
Rami Schwartz................................... * * -- * *
</TABLE>

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

(1)If the underwriters exercise the over-allotment option in full, the
following beneficial owners will sell additional ordinary shares: SVM Star
Ventures Management GmbH No. 3, 85,748 ordinary shares; Gemini Israel Fund
L.P., 70,039 ordinary shares; Advent International Group, 51,741 ordinary
shares; GE

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<PAGE> 57

Capital Equity Holdings, Inc., 35,442 ordinary shares; ABS GE Capital Giza
Funds, 35,442 ordinary shares; and Mofet Israel Technology Fund Ltd., 26,588
ordinary shares.

(2) Represents: (a) 1,944,504 ordinary shares held by Jerusalem Venture
Partners L.P.; (b) 988,268 ordinary shares held by Jerusalem Pacific
Ventures LP and (c) 238,114 ordinary shares held by Jerusalem Venture
Partners (Israel) L.P. Jerusalem Partners LP is the general partner of
Jerusalem Venture Partners L.P.; Jerusalem Venture Partners Corporation is
the general partner of Jerusalem Partners LP; Newbury Ventures, Inc. is the
general partner of the general partner of Jerusalem Pacific Ventures LP;
and Jerusalem Venture Partners (Israel) Management Ltd. is the general
partner of Jerusalem Venture Partners (Israel) L.P. Mr. Cohen, one of our
directors, has been authorized to vote the ordinary shares owned by the
entities listed above, and, as such, may be deemed to beneficially own such
ordinary shares. Mr. Margalit, one of our directors, is the President of
Jerusalem Venture Partners Corporation and the President and sole
shareholder of Jerusalem Venture Partners (Israel) Management Ltd. and, as
such, may be deemed to beneficially own such ordinary shares. Mr. Jay
Morrison and Mr. Bruce Bauer control Newbury Ventures, Inc. and, as such,
may be deemed to beneficially own such ordinary shares. Messrs. Cohen,
Margalit, Bauer and Morrison disclaim beneficial ownership of all of the
ordinary shares owned by Jerusalem Venture Partners L.P., Jerusalem Pacific
Ventures LP and Jerusalem Venture Partners (Israel) L.P. except to the
extent of their pecuniary interests therein, if any.

(3) Represents: (a) 813,648 ordinary shares held by SVE Star Ventures
Enterprises No. V, a German civil law partnership (with limitation of
liability); (b) 247,752 ordinary shares held by SVM Star Ventures
Management GmbH No. 3; (c) 638,640 ordinary shares held by SVE Star
Ventures Enterprises No. III, a German civil law partnership (with
limitation of liability); (d) 383,106 ordinary shares held by Star
Management of Investments (1993) Limited Partnership; (e) 266,662 ordinary
shares held by SVM Star Ventures Managementgesellschaft GmbH Nr. 3 & Co.
Beteiligungs KG; (f) 53,360 ordinary shares held by SVE Star Ventures
Enterprises No. IIIa, a German civil law partnership (with limitation of
liability); and (g) 545,914 ordinary shares held by Star Growth
Enterprises, a German civil law partnership (with limitation of liability).
SVM Star Ventures Management GmbH No. 3, a German company, manages the
investments of the entities listed above except for Star Management of
Investments (1993) Limited Partnership. Dr. Meir Barel is the sole director
and primary owner of SVM Star Ventures Management GmbH No. 3. STAR Venture
Capital Management Ltd. manages the investments of Star Management of
Investments (1993) Limited Partnership. Dr. Meir Barel is the sole director
and primary owner of STAR Venture Capital Management Ltd. Dr. Meir Barel
disclaims beneficial ownership of all of the ordinary shares held by the
entities listed above, except to the extent of his pecuniary interest
therein, if any. The address of each of the above listed entities and
persons is: c/o Star Ventures Management, Possartrasse 9, Munich Germany,
D-81679.

(4) Represents: (a) 1,185,984 ordinary shares held by Gemini Israel Fund L.P.;
(b) 969,604 ordinary shares held by Gemini Israel II Parallel Fund L.P.;
(c) 220,438 ordinary shares held by Gemini Israel II L.P.; (d) 28,102
ordinary shares held by Advent PGGM Gemini L.P.; and (e) 4,694 ordinary
shares held by Gemini Partner Investors L.P. Gemini Capital Fund Management
Ltd. is the general partner of, or the general partner of the general
partner of, each of the entities listed above except for Gemini Partner
Investors L.P. The Board of Directors of Gemini Capital Fund Management
Ltd. controls the investment decisions of such entities other than Gemini
Partners Investors L.P. and consists of Mr. Sela, one of our directors, and
Abraham Isaac Mlavsky, Steve Kahn and Amram Rasiel. In addition, Mr. Sela
is the Managing Partner of Gemini Capital Fund Management Ltd. and a
general partner of Gemini Partner Investors L.P. Mr. Sela and each of the
other directors of Gemini Capital Fund Management Ltd. may be deemed to
beneficially own such ordinary shares. Each of them disclaims beneficial
ownership of all of the ordinary shares held by the entities listed above
except to the extent of his pecuniary interests therein, if any. The
address of each of the above listed entities and persons is: c/o Gemini
Israel Funds, 11 Galgelei Haplada Street, Herliza, Israel, 46733.

(5) Represents ownership by the following venture capital funds managed by
Advent International Corporation: (a) 595,934 ordinary shares held by
Golden Gate Development and Investment L.P.; (b) 430,174 ordinary shares
held by Adtel Limited Partnership; (c) 372,484 ordinary shares held by
Adventact Limited Partnership; (d) 331,490 ordinary shares held by Advent
Israel Limited Partnership; (e) 40,958 ordinary shares held by Advent
Israel (Bermuda) Limited Partnership; and (f) 8,416 ordinary shares held by
Advent International Investors II Limited Partnership. In its capacity as
manager of these funds, Advent International Corporation exercises sole
voting and investment power with respect to all shares held by these funds.
Advent International Corporation exercises its voting and investment power
through a group of four persons: Douglas R. Brown, President and Chief
Executive Officer, Andrew J. Fillat, Senior Vice President responsible for
venture investments in North America, Gwendolyn Phillips, Vice President,
and Janet L. Hennessy, Vice President responsible for monitoring public
securities, none of

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<PAGE> 58

whom may act independently and a majority of whom must act in concert to
exercise voting or investment power of the beneficial holdings of such
entity. Therefore, no individual in this group other than Advent
International Corporation is deemed to have sole voting or investment
authority. The address of each of the above listed entities and persons is:
c/o Advent International Corporation, 2180 Sand Hill Road, Suite 420, Menlo
Park, California, 94025.

(6) Includes 286,314 ordinary shares held in trust for the benefit of various
family members and 1,020,816 ordinary shares issuable upon exercise of
options exercisable within 60 days of September 30, 2000. Mr. Alon
disclaims beneficial ownership of the shares held in trust, except to the
extent of his pecuniary interest therein. Mr. Alon's address is c/o Precise
Software Solutions, 1 Hashikma Street, Savyon, Israel, 56518.

(7)Includes 1,100,731 ordinary shares held by Iverly Ltd. Iverly Ltd. is a
subsidiary of Magnum Technology Fund. Limon Holdings is a sub-advisor to
Magnum Technology Fund. Mr. Zuckerman is a managing partner in Limon
Holdings and, as such, may be deemed to beneficially own such shares. Mr.
Zuckerman disclaims beneficial ownership of all of the ordinary shares held
by Iverly Ltd., except to the extent of his pecuniary interest therein, if
any.

(8) The address of GE Capital Equity Holdings, Inc. is c/o GE Equity, 120 Long
Ridge Road, Stamford, Connecticut, 06927.

(9) Represents: (a) 563,954 ordinary shares held by ABS GE Capital Giza Fund
L.P.; (b) 411,946 ordinary shares held by BTIP Israel LLC; (c) 208,034
ordinary shares held by ABS Giza Alpinvest Fund L.P.; and (d) 35,016
ordinary shares held by The Giza Equity Fund L.P. Giza Private Investments
(1997) Ltd is the general partner of each of the entities listed above for
BTIP Israel LLC. Giza Private Investments (1997) Ltd advises BTIP Israel
LLC on its investments. The board of directors of Giza Private Investments
(1997) Ltd controls the investment decisions of such entities and consists
of Zeev Holtzman, Giora Bitan and Zvika Shecheter. Each of the directors
may be deemed to beneficially own such ordinary shares. Each of them
disclaims beneficial ownership of all of the ordinary shares held by the
entities listed above except to the extent of his pecuniary interests
therein, if any. The address of each of the above listed entities is: c/o
Giza Group, Ramat Aviv Tower, 40 Einstein Street, Tel Aviv, Israel.

(10) The address of Mofet Israel Technology Fund Ltd. is 11 Galgelei Haplada
Street, Herliza, Israel 46733.

(11) Includes, prior to the offering, 247,993 ordinary shares issuable upon
exercise of options exercisable within 60 days of September 30, 2000, and,
after the offering, 237,752 ordinary shares issuable upon exercise of
options exercisable within 60 days of September 30, 2000. Mr. Ratner's
address is c/o Precise Software Solutions, 1 Hashikma Street, Savyon,
Israel, 56518.

(12) Represents ordinary shares issuable upon exercise of options exercisable
within 60 days of September 30, 2000. Mr. Campbell's address is c/o Precise
Software Solutions, 690 Canton Street, Westwood, Massachusetts, 02090.

(13) Includes 50,000 ordinary shares issuable upon exercise of options
exercisable within 60 days of September 30, 2000.

(14) Does not include holdings of Gemini Israel Fund L.P., as to which shares
Mr. Sela disclaims beneficial ownership, except to the extent of his
pecuniary interest therein, if any.

(15) Does not include holdings of Jerusalem Venture Partners L.P., as to which
shares Mr. Cohen disclaims beneficial ownership, except to the extent of
his pecuniary interest therein, if any.

(16) Does not include holdings of Jerusalem Venture Partners L.P., as to which
shares Mr. Margalit disclaims beneficial ownership, except to the extent of
his pecuniary interest therein, if any.

(*) Beneficial ownership is less than 1% of the number of Precise's ordinary
shares outstanding prior to or after the offering, as the case may be, and
has not otherwise been disclosed to the public.

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<PAGE> 59

CHANGES IN PERCENTAGE HOLDINGS OF PRINCIPAL SHAREHOLDERS

The following table shows the percentage ownership of our ordinary shares
by our primary shareholders before and after significant changes in our equity
capitalization. The information presented gives effect to the conversion of our
series A preferred shares and series B preferred shares upon the closing of our
initial public offering in July 2000. For more information on our equity
financings, please see "Related Party Transactions."

<TABLE>
<CAPTION>
FEBRUARY 1998(1) AUGUST 1999(2) JULY 2000(3)
BEFORE AFTER BEFORE AFTER BEFORE AFTER
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Jerusalem Venture Partners................. 7.6% 23.3% 23.3% 20.0% 20.0% 15.0%
SVM Star Ventures Management GmbH No. 3.... 7.6 21.7 21.7 18.6 18.6 13.9
Gemini Israel Fund L.P..................... 9.4 14.8 14.8 14.5 14.5 11.4
Advent International Group................. 14.2 14.3 14.3 9.7 9.7 8.4
GE Capital Equity Holdings, Inc............ 0.0 0.0 0.0 8.0 8.0 5.8
The Giza Equity Capital Fund L.P........... 0.0 0.0 0.0 8.0 8.0 5.8
</TABLE>

---------------
(1) The date of our most recent series A preferred share financing.

(2) The date of our series B preferred share financing.

(3) The date of our initial public offering.

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<PAGE> 60

DESCRIPTION OF SHARE CAPITAL

We are subject to the provisions of the Israeli Companies Law-1999, which
replaced the greater part of the Companies Ordinance (New Version) 1983. The new
law became effective on February 1, 2000.

DESCRIPTION OF SHARES

Set forth below is a summary of the material provisions of our share
capital. This summary is not complete and should be read together with our
memorandum of association and articles of association, a copy of each of which
has been filed as an exhibit to the registration statement of which this
prospectus forms a part.

Our authorized share capital consists of 70,000,000 ordinary shares, NIS
0.03 par value, of which 24,520,463 ordinary shares will be issued and
outstanding at the conclusion of this offering (25,172,963 ordinary shares if
the underwriters' over-allotment option is exercised in full). 3,298,766
ordinary shares, 7,118,922 series A preferred shares, and 4,875,800 series B
preferred shares were outstanding on January 1, 2000. All of our preferred
shares converted into 11,994,722 ordinary shares upon the consummation of our
initial public offering in July 2000. 4,887,500 ordinary shares were issued in
our initial public offering and 312,500 ordinary shares were issued in a
concurrent private placement. 1,432,890 ordinary shares were issued upon
exercise of warrants and options during 2000. All such issuances were approved
by the board of directors and shareholders of Precise as required by Israeli
law. In addition to these share issuances, for more information on the history
of our share capital, please see "Related Party Transactions."

DESCRIPTION OF ORDINARY SHARES

All of our issued and outstanding ordinary shares are, and the ordinary
shares to be sold in this offering will be, duly authorized and validly issued,
fully paid and non-assessable. Our ordinary shares do not have preemptive
rights. Neither our memorandum of association or articles of association, nor
the laws of the State of Israel restrict the ownership or voting of ordinary
shares by non-residents of Israel, except with respect to citizens of countries
that are in a state of war with Israel.

DIVIDEND AND LIQUIDATION RIGHTS

The holders of the ordinary shares to be sold in this offering will be
entitled to their proportionate share of any cash dividend, share dividend or
dividend in kind declared with respect to our ordinary shares on or after the
date of this prospectus.

Subject to the rights of the holders of any shares with preferential or
other special rights that may be authorized in the future, holders of our
ordinary shares are entitled to receive dividends pro rata out of our profits as
defined by the Companies Law. In the event of the winding up of Precise, holders
of our ordinary shares have the right to share ratably in all assets remaining
after payment of liabilities, in proportion to the paid-up par value of their
respective holdings. The board of directors may declare dividends at such times
and in such amounts as it may determine subject to certain limitations. For more
information on our ability to grant dividends, see "Dividend Policy" on page 17.

VOTING, SHAREHOLDER MEETINGS AND RESOLUTIONS

Holders of ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders. That right may be affected if
shares with special voting rights are authorized in the future. No shareholders
currently have different voting rights than any other shareholders.

An annual general meeting of our shareholders should be held once in every
calendar year, but no later than 15 months from the date of the previous annual
general meeting. The quorum required for a general meeting of shareholders
consists of any number of shareholders holding at least one third of the voting
shares, present in person or by proxy. The board of directors may, in its
discretion, convene additional meetings as "extraordinary general meetings." In
addition, the board must convene extraordinary general meetings upon the demand
of (a) two directors or one quarter of the directors in office or (b) the

55
<PAGE> 61

holder or holders of 5% of our share capital plus 1% of the voting power in
Precise or the holder or holders of 5% of the voting power in Precise. The
chairman of the board of directors presides at each of our general meetings. The
chairman of the board of directors is not entitled to a vote at a general
meeting in his capacity as chairman.

Most shareholders' resolutions, including resolutions to:

- amend our memorandum or articles of association;

- make changes in our capital structure such as a reduction of capital,
increase of capital or share split, merger or consolidation, voluntary
winding up;

- authorize a new class of shares or change special rights of a class of
shares, elect directors, declare dividends; and

- appoint auditors or approve transactions with office holders

will be deemed adopted if approved by the holders of a majority of the voting
power represented at the meeting, in person or by proxy, and voting thereon.

TRANSFER OF SHARES AND NOTICES

Our fully paid ordinary shares are issued in registered form and may be
transferred freely under Israeli law and our articles of association. Each
shareholder of record is entitled to receive at least 7 days' prior notice of
shareholders meetings. For purposes of determining the shareholders entitled to
notice and to vote at a meeting, the board of directors may fix a record date
not more than 60 days nor less than 10 days prior to the date of the meeting.

MODIFICATION OF CLASS RIGHTS

The Companies Law provides that the rights of a particular class of shares
may not be modified without the vote of a majority of the class affected.

ELECTION OF DIRECTORS

Our ordinary shares do not have cumulative voting rights in the election of
directors. Therefore, the holders of ordinary shares representing more than 50%
of the voting power represented at the general meeting of the shareholders, in
person or by proxy, have the power to elect all of the directors, to the
exclusion of the remaining shareholders.

REGISTRATION RIGHTS

We have granted registration rights to some of our shareholders. Holders of
14,523,304 of our ordinary shares have the right under certain circumstances to
register their ordinary shares for sale if, and when, we propose to register any
of our securities for sale to the public. Holders of these ordinary shares will
have, following this offering, the right under certain circumstances to require
us to register their ordinary shares for resale to the public. We have agreed to
indemnify these shareholders under certain circumstances in connection with
sales of our ordinary shares these holders may make pursuant to a registration
statement. All holders with rights to have their ordinary shares registered in
this offering have waived those rights. In addition, we will grant registration
rights to the stockholders of Savant, contingent upon our issuance of ordinary
shares to them.

ANTI-TAKEOVER PROVISIONS; MERGERS AND ACQUISITIONS UNDER ISRAELI LAW

The Companies Law requires that a merger must be approved by the holders of
a majority of the shares present and voting on the proposed merger, excluding
shares held by the potential acquiror and related parties, at a shareholders
meeting. Any creditor of a merger party may seek a court order blocking the
merger, if there is a reasonable concern that the surviving company will not be
able to satisfy all of the

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<PAGE> 62

obligations of the parties to the merger. Moreover, a merger may not be
completed until at least 70 days have passed from the time that a merger
proposal has been filed with the Israeli Registrar of Companies. Other potential
means of acquiring a public Israeli company, such as Precise, involve
significant obstacles, such as a requirement of court approval.

Because regulations promulgated under the new Companies Law are ambiguous,
we may be exempt from provisions regarding tender offers. The Companies Law
prohibits acquisitions of public companies, except through a tender offer to
acquire all outstanding shares, if as a result of the acquisition (a) a person
would own a controlling block of shares of a public company in which no
shareholder had previously held a controlling block or (b) the acquirer's
shareholdings represent more than 45% of the voting rights of a public company
in which no other shareholder holds more than half the voting rights.

MEMORANDUM AND ARTICLES OF ASSOCIATION

We were incorporated in Israel in 1990. Our registration number is 51-151
683-3. The object of the Company as set forth in our Memorandum of Association
is to develop, produce and market software products and any other object the
board of directors shall deem beneficial to the Company. For more information
see Section 2 of the Memorandum of Association, a copy of which has been filed
as an exhibit to the registration statement of which this prospectus forms a
part.

TRANSFER AGENT AND REGISTRAR

We have appointed American Stock Transfer & Trust Company as the transfer
agent and registrar for our ordinary shares.

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<PAGE> 63

RELATED PARTY TRANSACTIONS
BRIDGE FINANCINGS

In May 1997, we issued to certain of our existing shareholders an aggregate
of $1,288,923 in face value of notes convertible into our series A preferred
shares at a conversion price equal to the price of equity securities issued in
any subsequent round of equity financing provided at least $2.5 million was
raised. Each shareholder to whom a note was issued also received a warrant to
purchase 0.29 series A preferred shares for each $1.00 in face amount of notes,
subject to adjustment, at $0.01 per share. Notes in the aggregate face amount of
$192,672, $192,672, $413,183 and $275,305 and warrants to purchase 56,495,
56,495, 121,186 and 80,726 series A preferred shares were issued to various
entities affiliated with Jerusalem Venture Partners L.P., SVM Star Ventures
Management GmbH No. 3, the Advent International Group and the Gemini Israel Fund
L.P., respectively, in this financing. Yoseph Sela, one of our directors, is the
Executive Vice President of the general partner of Gemini Israel Fund L.P. Erel
Margalit and Yuval Cohen, each of whom serve on our board of directors, are
associated with Jerusalem Venture Partners L.P.

In November 1997, Precise issued to certain of its existing shareholders an
aggregate of $617,700 in face amount of notes convertible into our series A
preferred shares at a conversion price equal to the price per share of a
subsequent rights issue of equity securities provided at least $2.0 million in
cash was raised. Notes in the aggregate face amount of $81,757, $81,756,
$152,544 and $101,615 were issued to Jerusalem Venture Partners L.P., SVM Star
Ventures Management GmbH No. 3, and members of the Advent International Group
and the Gemini Israel Fund L.P., respectively, in this financing.

PREFERRED SHARE FINANCINGS

Series A Preferred Shares

In February 1998, we issued and sold series A preferred shares convertible
into an aggregate of 5,219,989 ordinary shares to various investors for a
purchase price of $1.42 per share paid in cash or conversion of notes issued by
Precise and held by some of the investors. The following entities that
beneficially owned 10% of our shares at the time of the financing, along with
other entities with which they were affiliated, purchased shares in this
financing: Advent International Group, Jerusalem Venture Partners L.P., SVM Star
Ventures Management GmbH No. 3 and the Gemini Israel Fund L.P.

Prior to the issuance of the series A preferred shares in this financing,
there were 2,066,133 series A preferred shares outstanding. Upon the
consummation of our initial public offering, all of our outstanding series A
preferred shares converted into 7,118,922 ordinary shares.

Series B Preferred Shares

In August 1999, we issued and sold to various investors series B preferred
shares convertible into 4,875,800 ordinary shares at a purchase price of $2.05
per share to various investors. The following entities that beneficially owned
10% of our shares at the time of the financing, along with other entities with
which they were affiliated, purchased shares in this financing: Jerusalem
Venture Partners L.P., SVM Star Ventures Management GmbH No. 3 and the Gemini
Israel Fund L.P.

Prior to the issuance of the series B preferred shares in this financing,
there were no series B preferred shares outstanding. Upon the consummation of
our initial public offering, all of our outstanding series B preferred shares
converted into 4,875,800 ordinary shares.

In connection with each of the preferred share financings, our investors
were granted certain rights related to their investment, such as the right to
approve future amendments of our articles of association and any acquisition of
Precise, as well as the right to receive our financial statements. All of these
rights terminated upon the consummation of our initial public offering, other
than the registration rights described below.

REGISTRATION RIGHTS

We have granted certain registration rights to some of our shareholders.
For more information, see "Description of Share Capital -- Registration Rights."

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<PAGE> 64

SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of this offering, we will have 24,520,463 ordinary
shares outstanding, assuming the issuance by us of 2,594,085 ordinary shares in
this offering, and no exercise of options or warrants after September 30, 2000.
Of these ordinary shares, the 4,887,500 ordinary shares sold by us in our
initial public offering are freely tradable and the 4,350,000 ordinary shares
sold by us and the selling shareholders in this offering will be freely tradable
beginning on the date of this prospectus without restriction or further
registration under the Securities Act; provided, however, that if those shares
are purchased by "affiliates," as that term is defined in Rule 144 under the
Securities Act, the sale of those ordinary shares would be subject to certain
volume limitations and other restrictions that are described below.

Our executive officers, directors and the selling shareholders have agreed
not to sell or otherwise dispose of any of their ordinary shares for a period of
90 days after the date of this prospectus. In addition, substantially all of our
other shareholders previously agreed, in connection with our initial public
offering, not to sell or otherwise dispose of their ordinary shares until
December 28, 2000. Merrill Lynch & Co., however, may, in its sole discretion, at
any time and, without notice, release all or any portion of the shares subject
to these lock-up agreements.

Other than the ordinary shares sold by us in our initial public offering,
the ordinary shares held by existing shareholders as of September 30, 2000 were
issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act or in transactions outside of the United
States and not subject to the Securities Act. In addition, we have filed a
registration statement on Form S-8 under the Securities Act for issuances of our
ordinary shares upon exercise of options. Holders of options could exercise
their options and sell the shares issued upon exercise subject to the lock-up
described above.

<TABLE>
<CAPTION>
ORDINARY
SHARES ELIGIBLE
DATE FOR SALE COMMENT
---- --------------- -------
<S> <C> <C>
Date of this prospectus................ 23,680 Ordinary shares saleable under Rule 144
that are not subject to the lock-up
December 28, 2000...................... 5,191,940 IPO lock-up released; shares saleable
under Rules 144 and 701
90 days from the date of this
prospectus........................... 9,050,519 Lock-up released; shares saleable under
Rules 144 and 701
After 90 days from the date of this
prospectus........................... 1,000,648 Shares will become saleable at various
times after 90 days from the date of
this prospectus
</TABLE>

As of September 30, 2000, there were a total of 5,447,260 ordinary shares
subject to outstanding options under our option plans. Ordinary shares purchased
upon exercise of options granted pursuant to our option plans and employee share
purchase plan generally are available for resale in the public market subject to
the lock-up agreements described above.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned ordinary shares
for at least one year, would be entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:

- 1% of the total number of ordinary shares then outstanding, which will
equal approximately shares immediately after the date of this prospectus;
or

- the average weekly trading volume of the ordinary shares on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about Precise. Under Rule 144(k) as currently in effect,
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<PAGE> 65

beginning 90 days after the date of this prospectus, a person who has
beneficially owned our ordinary shares for at least two years, other than an
affiliate of Precise, would be entitled to sell those shares without restriction
as to volume.

RULE 701

In general, under Rule 701, any Precise employee, director, officer,
consultant or advisor who purchased ordinary shares from Precise in connection
with a compensatory option plan or other written agreement before the date of
this prospectus is entitled to resell these ordinary shares 90 days after the
date of this prospectus in reliance on Rule 144, without having to comply with
certain restrictions, including the one-year holding period, contained in Rule
144.

The SEC has indicated that Rule 701 will apply to typical options granted
by an issuer before it becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, along with the ordinary shares acquired upon
exercise of these options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates, subject
only to the manner of sale provisions of Rule 144, and by affiliates, under Rule
144, without compliance with its one-year minimum holding period requirement.

REGISTRATION RIGHTS

In addition, following this offering, the holders of 14,523,304 of our
ordinary shares will, under certain circumstances, have rights to require us to
register their shares for future sale. This number may increase if we issue
ordinary shares in connection with our proposed acquisition of Savant. For more
information on the registration rights of these holders, see "Description of
Share Capital -- Registration Rights" on page 56.

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<PAGE> 66

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

Subject to the limitations described below, the following discussion
describes the material U.S. federal income tax consequences to a purchaser of
our ordinary shares in this offering that is a:

- citizen or resident of the U.S.,

- corporation created or organized in the U.S. or under the laws of the
U.S. or of any state,

- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source, or

- a trust, if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.

Such purchaser is referred to for purposes of this discussion as a "U.S.
holder." Several aspects of U.S. federal income tax generally relevant to a
holder other than a U.S. holder, or a "Non-U.S. holder," are also discussed
below.

This discussion is based on current provisions of the Internal Revenue
Code, current and proposed Treasury regulations promulgated thereunder, and
administrative rulings and judicial decisions as of the date hereof, all of
which are subject to change, possibly on a retroactive basis.

This summary is not a comprehensive description of all of the tax
considerations that may be relevant to each person's decision to purchase
ordinary shares. This discussion does not address all aspects of U.S. federal
income taxation that may be relevant to any particular U.S. holder based on such
holder's individual circumstances. In particular, this discussion considers only
U.S. holders that will own ordinary shares as capital assets and does not
address the potential application of the alternative minimum tax. In addition,
this discussion does not address the U.S. federal income tax consequences to
U.S. holders that are subject to special treatment under U.S. federal income tax
laws, including, but not limited to:

- broker-dealers;

- banks or insurance companies;

- taxpayers who have elected mark-to-market accounting;

- tax-exempt organizations;

- financial institutions;

- taxpayers who hold ordinary shares as part of a "straddle," "hedge" or
"conversion transaction" with other investments;

- individual retirement and other tax-deferred accounts;

- holders owning directly, indirectly or by attribution at least 10% of our
voting power; and

- taxpayers whose functional currency is not the U.S. dollar.

This discussion does not address any aspect of U.S. federal gift or estate
tax, or of state, local or non-U.S. tax laws. Additionally, the discussion does
not consider the tax treatment of partnerships or persons who hold ordinary
shares through a partnership or other pass-through entity.

Each prospective investor is advised to consult such person's own tax
advisor with respect to the specific tax consequences to such person of
purchasing, holding or disposing of our ordinary shares.

TAXATION OF DIVIDENDS PAID ON ORDINARY SHARES

We have never paid dividends, and we currently do not intend to pay
dividends in the foreseeable future. In the event that we do pay a dividend, and
subject to the discussion of the PFIC rules below, a U.S. holder will be
required to include in gross income as ordinary income the amount of any
distribution

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<PAGE> 67

paid on ordinary shares, including any Israeli taxes withheld from the amount
paid, on the date the distribution is received (or treated as received) to the
extent the distribution is paid out of our current or accumulated earnings and
profits as determined for U.S. federal income tax purposes. Distributions in
excess of such earnings and profits will be applied against and will reduce the
U.S. holder's basis in the ordinary shares and, to the extent in excess of such
basis, will be treated as capital gain. Dividends paid on our ordinary shares
generally will not be eligible for the "dividends received deduction."

Distributions of current or accumulated earnings and profits paid in
foreign currency to a U.S. holder will be includible in the income of a U.S.
holder in a U.S. dollar amount calculated by reference to the exchange rate on
the date the distribution is received (or treated as received). A U.S. holder
that receives a foreign currency distribution and converts the foreign currency
into U.S. dollars subsequent to receipt will have foreign exchange gain or loss
based on any appreciation or depreciation in the value of the foreign currency
against the U.S. dollar, which will generally be U.S. source ordinary income or
loss.

U.S. holders may have the option of claiming the amount of any Israeli
income taxes withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their U.S. federal income tax liability.
Individuals who do not claim itemized deductions, but instead utilize the
standard deduction, may not claim a deduction for the amount of the Israeli
income taxes withheld, but such individuals may still claim a credit against
their U.S. federal income tax liability if the requirements for claiming a
credit are met. The amount of foreign income taxes that may be claimed as a
credit in any year is subject to complex limitations and restrictions, which
must be determined on an individual basis by each shareholder. In general, the
total amount of allowable foreign tax credits in any year cannot exceed the
pre-credit U.S. tax liability for the year attributable to foreign source
taxable income. Dividends received by a U.S. holder with respect to stock of a
foreign corporation, such as our ordinary shares, are generally treated as
foreign source income for this purpose, but are subject to being reclassified as
U.S. source income in specific circumstances. Because distributions in excess of
our current and accumulated earnings and profits generally will not give rise to
foreign source income, you may be unable to claim a foreign tax credit in
respect of Israeli withholding tax imposed on the excess amount unless, subject
to applicable limitations, you have other foreign source income. Special rules
apply, however, to an electing individual U.S. holder whose creditable foreign
taxes during a tax year do not exceed $300 ($600 for joint filers) if such
individual's gross income for the tax year from non-U.S. sources consists solely
of certain items of "passive income" reported on a "payee statement" furnished
to the U.S. holder. In addition, a U.S. holder will be denied a foreign tax
credit with respect to Israeli income tax withheld from dividends received on
the ordinary shares to the extent such U.S. holder has not held the ordinary
shares for at least 16 days of the 30-day period beginning on the date which is
15 days before the ex-dividend date or to the extent such U.S. holder is under
an obligation to make related payments with respect to substantially similar or
related property. Any days during which a U.S. holder has substantially
diminished its risk of loss on the ordinary shares are not counted toward
meeting the 16-day holding period required by the statute. In addition, the
determination of the available foreign tax credits depends on the "basket" in
which a U.S. holder's foreign income is categorized, and distributions of our
current or accumulated earnings and profits generally will be in the passive
income "basket" for this purpose.

TAXATION OF THE DISPOSITION OF ORDINARY SHARES

Subject to the discussion of the PFIC rules below, upon the sale, exchange
or other disposition of our ordinary shares, a U.S. holder generally will
recognize capital gain or loss in an amount equal to the difference between such
U.S. holder's basis in the ordinary shares, which is usually the cost of such
shares (subject to certain adjustments), and the amount realized on the
disposition. If, as anticipated, the ordinary shares are publicly traded, a
disposition of shares will be considered to occur on the "trade date,"
regardless of the holder's method of accounting. Capital gain from the sale,
exchange or other disposition of ordinary shares held more than one year is
long-term capital gain and is eligible for a maximum 20% rate of taxation for
individuals. Gain or loss recognized by a U.S. holder on a sale, exchange or
other disposition of ordinary shares generally will be treated as U.S. source
income or loss for U.S. foreign tax

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<PAGE> 68

credit purposes. The deductibility of a capital loss recognized on the sale,
exchange or other disposition of ordinary shares is subject to limitations.

TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY

We will be a PFIC if 75% or more of our gross income in a taxable year,
including the pro rata share of the gross income of any company, U.S. or
foreign, in which we are considered to own 25% or more of the shares by value,
falls within specific categories of passive income. Alternatively, we will be
considered to be a PFIC if 50% or more of our assets in a taxable year, averaged
over the year and ordinarily determined based on fair market value and including
the pro rata share of the assets of any company in which we are considered to
own 25% or more of the shares by value, are held for the production of, or
produce, such passive income. Passive income includes amounts derived by reason
of the temporary investment of funds raised in this offering. If we were a PFIC,
and a U.S. holder did not make a qualifying election either to treat us as a
"qualified electing fund" or to mark our shares to market:

- Excess distributions by us to a U.S. holder would be taxed in a special
way. "Excess distributions" are amounts received by a U.S. holder with
respect to our stock in any taxable year that exceed 125% of the average
distributions received by such U.S. holder from us in the shorter of
either the three previous years or such U.S. holder's holding period for
ordinary shares before the current taxable year. Excess distributions
must be allocated ratably to each day that a U.S. holder has held our
stock. A U.S. holder must include amounts allocated to the current
taxable year and to pre-PFIC years in its gross income as ordinary income
for the current taxable year. A U.S. holder must pay tax on amounts
allocated to each prior taxable year for which we were a PFIC at the
highest rate in effect for that year on ordinary income and the tax is
subject to an interest charge at the rate applicable to deficiencies for
income tax.

- The entire amount of gain that is recognized by a U.S. holder upon the
sale or other disposition of ordinary shares will also be considered an
excess distribution and will be subject to tax as described above.

- The tax basis in shares of our stock that were acquired from a decedent
who was a U.S. holder would not receive a "step-up" to fair market value
as of the date of the decedent's death but would instead be equal to the
decedent's basis, if lower.

The special PFIC rules described above will not apply to a U.S. holder if
the U.S. holder makes an election to treat us as a qualified electing fund, or
QEF election, in such U.S. holder's first taxable year in which we became a PFIC
with respect to such U.S. holder and if we comply with specified reporting
requirements. If we were determined to be a PFIC with respect to a year in which
we had not thought we would be so treated, we would not have provided the
information needed to enable U.S. holders to receive qualified electing fund
treatment. A shareholder of a qualified electing fund is required for each
taxable year to include in income a pro rata share of the ordinary earnings of
the qualified electing fund as ordinary income and a pro rata share of the net
capital gain of the qualified electing fund as long-term capital gain, subject
to a separate election to defer payment of taxes, which deferral is subject to
an interest charge. The QEF election is made on a shareholder-by-shareholder
basis and can be revoked only with the consent of the Internal Revenue Service,
or IRS. A shareholder makes a QEF election by attaching a completed IRS Form
8621, including the PFIC annual information statement, to a timely filed U.S.
federal income tax return. Whether or not a QEF election is made, a shareholder
in a PFIC who is a U.S. person must file a completed IRS Form 8621 every year.

A U.S. holder of PFIC stock which is publicly traded could elect to mark
the stock to market annually, recognizing as ordinary income or loss each year
an amount equal to the difference as of the close of the taxable year between
the fair market value of the PFIC stock and the U.S. holder's adjusted tax basis
in the PFIC stock. Losses would be allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election
for prior taxable years. If the mark-to-market election were made, then the
rules set forth above would not apply for periods covered by the election. A

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market-to-market election, however, will not provide for an increase in the tax
basis of our ordinary shares to fair market value on the date of a U.S. holder's
death.

If we are or become a PFIC, you will be subject to special rules which may
limit your ability to exchange our ordinary shares for shares of an acquiring
corporation on a tax-deferred basis under the reorganization rules of the
Internal Revenue Code, and many other non-recognition provisions of the Internal
Revenue Code may not apply to transfers of our ordinary shares.

Based upon our current business plan, we believe that we will not be a PFIC
for 2000. Nevertheless, the tests for determining PFIC status are applied
annually, and it is difficult to make accurate predictions of future income and
assets relevant to this determination. Accordingly, there can be no assurance
that we will not be a PFIC in 2000 or a subsequent year. U.S. holders who hold
ordinary shares during a period when we are a PFIC will be subject to the
foregoing rules, even if we cease to be a PFIC. U.S. holders are strongly urged
to consult their tax advisors about the PFIC rules, including the availability
of, and consequences to them of, making a mark-to-market or QEF election with
respect to our ordinary shares in the event that we are treated as a PFIC.

TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF ORDINARY SHARES

Except as described in "-- United States Federal Income Tax Considerations
-- Information Reporting and Back-up Withholding" below, a non-U.S. holder of
ordinary shares will not be subject to U.S. federal income or withholding tax on
the payment of dividends on, and the proceeds from the disposition of, ordinary
shares, unless:

- such item is effectively connected with the conduct by the non-U.S.
holder of a trade or business in the U.S. and, in the case of a resident
of a country which has an income tax treaty with the U.S., such item is
attributable to a permanent establishment or, in the case of an
individual, a fixed place of business, in the U.S.;

- The non-U.S. holder is an individual who holds the ordinary shares as a
capital asset and is present in the U.S. for 183 days or more in the
taxable year of the disposition and does not qualify for an exemption; or

- the non-U.S. holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to U.S. expatriates.

INFORMATION REPORTING AND BACKUP WITHHOLDING

U.S. holders generally are subject to information reporting requirements
with respect to dividends paid in the U.S. on ordinary shares. Under existing
regulations, such dividends are not subject to backup withholding. U.S. holders
are generally subject to information reporting and backup withholding at a rate
of 31% on proceeds paid from the disposition of ordinary shares unless the U.S.
holder provides an IRS Form W-9 or otherwise establishes an exemption.

Non-U.S. holders generally are not subject to information reporting or
backup withholding with respect to dividends paid on, or upon the disposition
of, ordinary shares, provided that such non-U.S. holder provides a taxpayer
identification number, certifies to its foreign status, or otherwise establishes
an exemption.

Treasury regulations effective January 1, 2001 may alter the rules
regarding information reporting and back-up withholding. In particular, those
regulations would impose backup withholding on dividends paid in the U.S. on
ordinary shares unless the U.S. holder provides an IRS Form W-9 or otherwise
establishes an exemption. Prospective investors should consult their tax
advisors concerning the effect, if any, of these Treasury regulations on an
investment in ordinary shares.

The amount of any backup withholding will be allowed as a credit against a
U.S. or non-U.S. holder's U.S. federal income tax liability and may entitle such
holder to a refund, provided that certain information is furnished to the IRS.

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ISRAELI TAXATION AND INVESTMENT PROGRAMS

The following is a summary of the principal tax laws applicable to
companies in Israel, with special reference to its effect on us, and certain
Israeli Government programs benefiting us. This section also contains a
discussion of certain Israeli tax consequences to persons acquiring ordinary
shares in the offering. This summary does not discuss all the aspects of Israeli
tax law that may be relevant to a particular investor in light of his personal
investment circumstances or to certain types of investors subject to special
treatment under Israeli law (for example, traders in securities or persons that
own, directly or indirectly, 10% or more of our outstanding voting share
capital). To the extent that the discussion is based on new tax legislation
which has not been subject to judicial or administrative interpretation, there
can be no assurance that the views expressed in this discussion will be accepted
by the tax authorities. On May 4, 2000, a committee chaired by the Director
General of the Israeli Ministry of Finance, Avi Ben-Bassat, issued a report
recommending a significant reform in the Israeli system of taxation. The
proposed reform would significantly alter the taxation of individuals, and would
also affect corporate taxation. In particular, the proposed reform would reduce,
but not eliminate, the tax benefits available to approved enterprises such as
ours. The Israeli cabinet has approved the recommendations in principle, but
implementation of the reform requires legislation by Israel's Knesset. We cannot
be certain whether the proposed reform will be adopted, when it will be adopted
or what form any reform will ultimately take. The discussion should not be
construed as legal or professional tax advice and is not exhaustive of all
possible tax considerations.

POTENTIAL INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
OUR ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE
OR LOCAL TAXES.

GENERAL CORPORATE TAX STRUCTURE

The general corporate tax rate in Israel is currently 36%. However, the
effective tax rate payable by a company which derives income from an "Approved
Enterprise" may be considerably less. For more information on the taxation of an
Approved Enterprise, see "-- Law for the Encouragement of Capital Investments,
1959."

LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

Under the Law for the Encouragement of Industry (Taxes), 1969, which is
referred to below as the Industry Encouragement Law, a company qualifies as an
"Industrial Company" if it is resident in Israel and at least 90% of its income
in a given tax year, determined in NIS (exclusive of income from certain loans,
marketable securities, capital gains, interest and dividends) is derived from
Industrial Enterprises owned by it. An "Industrial Enterprise" is defined as an
enterprise whose major activity in a given tax year is industrial manufacturing.
We currently qualify as an Industrial Company.

Pursuant to the Industry Encouragement Law, an Industrial Company is
entitled to deduct the purchase price of know how, patents or rights over a
period of eight years beginning with the year in which such rights were first
used.

In addition, the tax laws and regulations dealing with the adjustment of
taxable income for inflation in Israel provide that Industrial Enterprises, such
as those of Precise, are eligible for special rates of depreciation deductions.
These rates vary in the case of plant and machinery according to the number of
shifts in which the equipment is operated and range from 20% to 40% on a
straight-line basis, or from 30% to 50% on a declining balance basis for
equipment first put into operation on or after June 1, 1989, (instead of the
regular rates, which are applied on a straight-line basis).

Qualification as an Industrial Company under the Industrial Encouragement
Law is not conditioned upon the receipt of prior approval from any Israeli
Government authority. No assurance can be given that Precise will continue to
qualify as an Industrial Company or will in the future be able to avail itself
of any benefits available to companies so qualifying.

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LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

The Law for Encouragement of Capital Investments, 1959, which is referred
to below as the Capital Investments Law, provides that capital investments in a
production facility (or other eligible assets) may, upon application to the
Israeli Investment Center of the Ministry of Industry and Commerce, be
designated as an "Approved Enterprise." Each certificate of approval for an
Approved Enterprise relates to a specific investment program in the Approved
Enterprise, delineated both by the financial scope of the investment and by the
physical characteristics of the facility or the asset. An Approved Enterprise is
entitled to certain benefits, including Israeli Government cash grants,
state-guaranteed loans and tax benefits.

TAX BENEFITS

Taxable income derived from an Approved Enterprise is subject to a reduced
corporate tax rate of 25%. That income is eligible for further reductions in tax
rates depending on the percentage of the foreign investment in our share capital
(conferring rights to profits, voting and appointment of directors) and the
percentage of its combined share and loan capital owned by non-Israeli
residents. The corporate tax rate is 20% if the foreign investment is 49% or
more but less than 74%, 15% if the foreign investment is 74% or more but less
than 90% and 10% if the foreign investment is 90% or more. The lowest level of
foreign investment during the year will be used to determine the relevant tax
rate for that year. These tax benefits are granted for a limited period not
exceeding seven years from the first year in which the Approved Enterprise has
taxable income. In case of a company whose foreign investment level exceeds 25%
such tax benefits granted shall not exceed a period of 10 years. The period of
benefits may in no event, however, exceed the lesser of 12 years from the year
in which the production commenced or 14 years from the year of receipt of
Approved Enterprise status.

An Approved Enterprise approved after April 1, 1986 may elect to forego any
entitlement to the grants otherwise available under the Capital Investments Law
and, in lieu of the foregoing, may elect to receive an expanded package of tax
benefits ("Alternative Benefits program(s)") under which the undistributed
income from the Approved Enterprise is fully exempt from corporate tax for a
defined period of time. The period of tax exemption ranges between two and ten
years, depending upon the location within Israel of the Approved Enterprise and
the type of the Approved Enterprise. On expiration of the exemption period, the
Approved Enterprise would be eligible for the otherwise applicable beneficial
tax rates under the Capital Investments Law (10% to 25%) for the remainder, if
any, of the otherwise applicable benefits period. There can be no assurance that
the current benefit programs will continue to be available or that Precise will
continue to qualify for benefits under the current programs.

If (i) only a part of a company's taxable income is derived from an
Approved Enterprise and/or (ii) a company owns more than one Approved
Enterprise, then the resulting effective corporate tax rate of the company
represents the weighted combination of the various applicable rates. A company
owning a "mixed Enterprise" may not distribute a dividend which is attributable
only to the Approved Enterprise.

Precise currently has three Approved Enterprise programs under the Capital
Investments Law, which entitle it to certain tax benefits. Precise has elected
to enjoy the Alternative Benefit Programs in respect of each one of its Approved
Enterprise programs. The tax benefit period for these programs has not yet
commenced. The first and third Approved Enterprise programs, grant the company a
2 years' tax exemption and an additional period, ranging from 5 to 8 years, of
reduced corporate tax liability in rates ranging between 10% -- 25%. The second
Approved Enterprise program, grants the company 4 years' of tax exemption and an
additional period, ranging from 3 to 6 years, of reduced corporate tax liability
in rates ranging between 10% -- 25%. Income derived from our Alternative Benefit
Programs is exempt from tax as stated above, commencing on the first year in
which Precise generates taxable income from the Approved Enterprise. See note 9
of the notes to our Consolidated Financial Statements.

A company that has elected to participate in the Alternative Benefits
Program and that subsequently pays a dividend out of the income derived from the
Approved Enterprise during the tax exemption period will be subject to corporate
tax in respect of gross-up equivalent of the amount distributed applying at the

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corporate tax rate that would have been applicable had the company not elected
the Alternative Benefits Program (10% to 25%). The dividend recipient is taxed
at the reduced rate of 15%, applicable to dividends from Approved Enterprises if
the dividend is distributed within 12 years after the benefits period. The
withholding tax rate will be 25% after such period. In the case of a company
with over 25% foreign investment level (as defined by law), the 12-year
limitation on reduced withholding tax on dividends does not apply. This tax
should be withheld by the company at source, regardless of whether the dividend
is converted into foreign currency. For more information on Israeli tax
withholding, see "-- Withholding and Capital Gains Taxes Applicable to
Non-Israeli Shareholders."

The tax benefits available to an Approved Enterprise relate only to taxable
income attributable to that specific enterprise and are contingent upon the
fulfillment of the conditions stipulated by the Capital Investment Law, the
regulations published thereunder and under the Letter of Authorization. The
Company believes that its Approved Enterprises have substantially complied with
all such conditions; however, there can be no assurance that each of the
Company's Approved Enterprises will continue to comply with all such conditions.
In the event of a failure by the Company to comply with such conditions, the tax
and other benefits could be canceled, in whole or in part, and the Company might
be required to refund the amount of the canceled benefits, with the addition of
CPI linkage differences and interest.

From time to time, the Israeli Government has discussed reducing the
benefits available to companies under the Capital Investments Law. The
termination or substantial reduction of any of the benefits available under the
Capital Investments Law could materially impact the cost of future investments
by Precise.

Each application to the Investment Center is reviewed separately, and a
decision as to whether or not to approve such application is based, among other
things, on the then prevailing criteria set forth in the Capital Investments
Law, on the specific objectives of the applicant company set forth in such
application and on certain financial criteria of the applicant company.
Accordingly, there can be no assurance that any such application will be
approved.

OTHER BENEFITS

An Approved Enterprise is also entitled to use accelerated depreciation on
property and equipment, generally ranging from 200% (with respect to equipment)
to 400% (with respect to buildings) of the ordinary depreciation rates during
the first five tax years of the operation of these assets, subject to a ceiling
of 20% per year with respect to depreciation on buildings. This benefit is an
incentive granted by the Israeli Government regardless of whether the
Alternative Benefits Program is elected.

TAXATION UNDER INFLATIONARY CONDITIONS

The Income Tax (Inflationary Adjustment) Law, 1985, which is referred to
below as the Inflationary Adjustment Laws, attempts to overcome some of the
problems presented to a traditional tax system by an economy experiencing rapid
inflation, which was the case in Israel at the time the law was enacted.
Generally, the Inflationary Adjustments Law provides adjustments to taxable
income and to depreciation methods and tax loss carry forwards to compensate for
change of value resulting from an inflationary economy. Our taxable income is
subject to the provisions of this law.

The Israeli Income Tax Ordinance and the Inflationary Adjustments Law allow
"Foreign-Invested Companies," which maintain their accounts in dollars in
compliance with regulations published by the Israeli Minister of Finance, to
base their tax returns on their operating results as reflected in the dollar
financial statements or to adjust their tax returns based on exchange rate
changes rather than changes in the Israeli CPI (in lieu of the principles set
forth by the Inflationary Adjustments Law). For these purposes, a
"Foreign-Invested Company" is a company, more than 25% of whose share capital
(in terms of rights to profits, voting and appointment of directors) and of
whose combined share and loan capital is held by persons who are not residents
of Israel. A company that elects to measure its results for tax purposes based
on the dollar exchange rate cannot change that election for a period of three
years following the election. Precise believes that it qualifies as a Foreign
Investment Company within the

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meaning of the Inflationary Adjustment Law. Precise has not yet elected to
measure its results for tax purposes based on the dollar exchange rate, but may
do so in the future.

LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND DEVELOPMENT, 1984

Under the Law for the Encouragement of Industrial Research and Development,
1984 (the "Research Law") and the instructions of the Director General of the
Ministry of Industry and Trade No. 4.4 of January 2, 1994, research and
development programs and the plans for the intermediate stage between research
and development, and manufacturing and sales approved by a governmental
committee of the Office of Chief Scientist are eligible for grants of up to 50%
of the research and development project's expenditures if they meet certain
criteria. These grants are issued in return for the payment of royalties at the
rate of 3% -- 5% of the sale of products developed with funds provided by the
Office of Chief Scientist. Total royalties will not exceed 100% (or, in some
cases, 150%) of the grants received.

The technology developed pursuant to the terms of these grants may not be
transferred to third parties without the prior approval of a governmental
committee under the Research Law. Such approval is not required for the export
of any product resulting from such research or development. Approval of the
transfer of technology may be granted only if the recipient abided by all the
provisions of the Research Law and regulation promulgated thereunder, including
the restriction on the transfer of know-how and the obligation to pay royalties
in an increased amount, of up to 300% of the grants received.

Precise participated in programs sponsored by the Office of Chief Scientist
for the support of research and development activities through 1996. Through
September 30, 2000, Precise had recorded grants from the Office of Chief
Scientist aggregating $1.2 million for certain of the company's research and
development projects. Precise is obligated to pay royalties to the Office of
Chief Scientist at the rate of 3% of the sales of the products and other related
revenues developed from such projects, up to an amount equal to 100% -- 150% of
the grants received. Through September 30, 2000, Precise has accrued or paid
royalties to the Office of Chief Scientist in the aggregate amount of $1.0
million. As of September 30, 2000, the aggregate Office of Chief Scientist
contingent liability was approximately $0.3 million.

TAX BENEFITS OF RESEARCH AND DEVELOPMENT

Israeli tax law has allowed, under certain conditions, a tax deduction in
the year incurred for expenditures (including capital expenditures) in
scientific research and development projects, if (i) the expenditures are
approved or funded by the government ministry relevant to the field of research
and (ii) the research and development is for the promotion of the enterprise and
is carried out by, or on behalf of, the company seeking such deduction.
Expenditures not meeting such criteria are deductible over a three-year period.

To date, certain of our research and development programs have been
approved by the Office of Chief Scientist at the Ministry of Industry and Trade,
and Precise has been able to deduct, for tax purposes, a portion of its research
and development expenses net of the grants received.

WITHHOLDING AND CAPITAL GAINS TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS

Nonresidents of Israel are subject to income tax on income accrued or
derived from sources in Israel or received in Israel. These sources of income
include passive income such as dividends, royalties and interest, as well as
non-passive income from services rendered in Israel. Precise is generally
required to withhold income tax at the rate of 25% (15% for dividends generated
by an Approved Enterprise) on all distributions of dividends.

Israeli law imposes a capital gains tax on the sale of securities and other
capital assets. The basic rate applicable to corporations is 36% and the maximum
rate applicable to individuals is 50%. Under current law, however, sales of the
ordinary shares of Precise offered by this prospectus are exempt from Israeli
capital gains tax for so long as (a) the shares are quoted on Nasdaq or listed
on another designated stock

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exchange and (b) Precise qualifies as an Industrial Company or Industrial
Holding Company. For more information on these tax benefits, see "-- Law for
Encouragement of Industry (Taxes), 1969."

A nonresident of Israel who receives interest, dividend or royalty income
derived from or accrued in Israel, from which tax was withheld at the source, is
generally exempt from the duty to file tax returns in Israel with respect to
such income, provided such income was not derived from a business conducted in
Israel by the taxpayer, and the taxpayer has no other sources of income in
Israel.

The Convention between the Government of the United States of America and
the Government of the State of Israel With Respect to Taxes on Income, which
shall be referred to as the Treaty, is generally effective as of January 1,
1995. Under the Treaty, the maximum tax on dividends paid to a holder of
ordinary shares who is a Treaty U.S. Resident (as defined below) is 25%.
However, dividends generally paid to a U.S. corporation by an Israeli company
that does not enjoy the benefits of an Approved Enterprise will be subject to a
12.5% dividend withholding tax if (a) the recipient corporation owns at least
10% of the outstanding voting shares of the Israeli company during the portion
of the current and previous taxable years of the Israeli company preceding the
date of the dividend and (b) not more than 25% of the gross income of the
Israeli company during such prior taxable year consists of interest or
dividends. If the Israeli company is entitled to the Israeli tax benefits
applicable to an Approved Enterprise and the requirements of clauses (a) and (b)
of the preceding sentence are met, the withholding tax rate on dividends is 15%.
The tax is the only tax on non-residents who do not conduct business in Israel.

Under the Treaty, persons who qualify as "residents of the United States"
as defined in the Treaty (and which are referred to as Treaty U.S. Residents)
and who own, directly or indirectly, less than 10% of Precise's outstanding
voting shares throughout the twelve month period preceding the sale, exchange or
disposition of their ordinary shares are exempt from Israeli capital gains tax
in connection with such sale, exchange or disposition. Treaty U.S. Residents who
own 10% or more of Precise's outstanding voting shares are subject to Israeli
tax on any gain realized on the sale, exchange or disposition of those shares
but would generally be permitted under the Treaty to claim a credit for such
taxes against the U.S. income tax imposed on any gain from such sale, exchange
or disposition, subject to the limitations applicable to foreign tax credits.

Israel presently has no estate or gift tax.

FUND FOR THE ENCOURAGEMENT OF MARKETING ACTIVITIES

Pursuant to Managing Director's Instruction No. 5.9, as amended from time
to time, exporters whose marketing programs have been approved by the Fund for
the Encouragement of Marketing Activities (the "Marketing Fund") are eligible to
receive grants up to a ceiling determined according to the category in which the
exporter is classified ("small exporter", "medium exporter", etc.). Exporters
(other than "small exporters") receiving such grants are obligated to repay such
funds to the marketing Fund, up to a cumulative, dollar-linked sum equivalent to
the amount of the grant and bearing interest at LIBOR. Repayment is effected by
means of royalties (at rates determined from time to time in Managing Director's
Instructions) levied on the amount, if any, by which (x) revenues generated by
exports in years subsequent to the year in which the approved marketing plan was
submitted exceed (y) such revenues for the year in which the plan was submitted.

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CONDITIONS IN ISRAEL

We are incorporated under the laws of the State of Israel, and
substantially all of our research and development and significant executive
facilities are located in Israel. Accordingly, Precise is directly affected by
political, economic and military conditions in Israel. Our operations would be
substantially impaired if major hostilities involving Israel occur or if trade
between Israel and its present trading partners is curtailed.

POLITICAL CONDITIONS

Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying in degree and intensity, between Israel and the
Arab countries. In 1979, however, a peace treaty between Israel and Egypt was
signed under which full diplomatic relations were established; nevertheless,
economic relations have been very limited.

Since 1993, a joint Israeli-Palestinian Declaration of Principles and
several agreements were signed by Israel and the Palestine Liberation
Organization, outlining interim Palestinian self-government arrangements. Since
then, Israel has transferred the civil administration of the Gaza Strip, the
major towns and villages of the West Bank and certain other territories in the
West Bank to the Palestinian Self-Rule Authority, the Israeli army has withdrawn
from these areas and certain powers and governmental responsibilities have been
transferred to the Palestinian Authority.

In addition, Israel and several other Arab states have announced their
intention to establish trade and other relations and are discussing certain
projects. There can be no assurance as to how the "peace process" will develop
or what effects it may have upon us.

In October 1994, Israel and Jordan signed a peace treaty, which provides,
among other things, for the commencement of full diplomatic relations between
the two countries, including the exchange of ambassadors and consuls. In
addition, this treaty expresses the mutual desire of the parties for economic
cooperation and calls for both parties to lift economic barriers and
discrimination against the other and to act jointly towards the removal of any
economic boycotts by third parties.

To date, there are no peace treaties between Israel and Syria or Lebanon
and material progress has not been achieved in peace talks between Israel and
Syria or between Israel and Lebanon.

Despite the progress towards peace between Israel, its Arab neighbors and
the Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. Precise does not believe that the
boycott has had a material adverse effect on its business, but restrictive laws,
policies or practices directed towards Israel or Israeli businesses may have an
adverse impact on the expansion of our business.

ARMY SERVICE

Generally, all male adult citizens and permanent residents of Israel under
the age of 51, unless exempt, are obligated to perform up to 30 days of military
reserve duty annually. Additionally, all such residents may be called to active
duty at any time under emergency circumstances. Currently, a majority of our
officers and employees located in Israel are obligated to perform annual reserve
duty. While we have operated effectively under these requirements since we began
operations, no assessment can be made as to the full impact of such requirements
on our workforce or business if conditions should change, and no prediction can
be made as to the effect on us of any expansion or reduction of such
obligations.

ECONOMIC CONDITIONS

Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980's, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has, for these and other reasons,
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties,

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foreign currency restrictions and controls of wages, prices and foreign currency
exchange rates. The Israeli government elected in 1996 expressed its intention
to reduce government involvement in the economy by various means, including
relaxation of foreign currency controls and certain budgetary restraints, and
privatization of certain government-owned companies. In 1998, the Israeli
currency control regulations were liberalized significantly, as a result of
which Israeli residents generally may freely deal in foreign currency and
non-residents of Israel generally may freely purchase and sell Israeli currency
and assets. The Israeli government has periodically changed its policies in all
these areas. There are currently no Israeli currency control restrictions on
remittances of dividends on the ordinary shares or the proceeds from the sale of
the shares; however, legislation remains in effect pursuant to which currency
controls can be imposed by administrative action at any time.

TRADE AGREEMENTS

Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from Japan. These preferences allow Israel to
export the products covered by such programs either duty-free or at reduced
tariffs.

Israel and the U.S. entered into a Free Trade Agreement (FTA) in 1985.
Under the FTA, most products receive immediate duty-free status. The FTA
eliminated all tariff and certain non-tariff barriers on most trade between the
two countries in 1995. Israel became associated with the European Economic
Community (now known as the European Union) in a 1975 Free Trade Agreement which
confers certain advantages with respect to Israeli exports to most European
countries and obligates Israel to lower its tariffs with respect to imports from
those countries over a number of years. In November 1995 Israel entered into a
new agreement with the European Union, which includes redefinement of rules of
origin and other improvements, like providing for Israel to become a member of
the Research and Technology programs of the European Union. In September 1992,
Israel signed a free trade agreement with the European Free Trade Association
("EFTA"), whose members include Switzerland, Norway, Iceland and Liechtenstein.
The agreement became effective on January 1, 1993, and entitles the exporting
countries of the EFTA trading with Israel to conditions similar to those that
Israel enjoys trading with the U.S.

In recent years, Israel has established commercial and trade relations with
a number of the other nations, including Russia, China, India and other nations
in Asia and Eastern Europe, with which Israel had not previously had such
relations.

LABOR RELATIONS

Although Precise is not party to any collective bargaining agreements, it
is subject to certain labor related statutes and to certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists' Association of Israel) which are applicable to
our Israeli employees by virtue of expansion orders of the Israeli Ministry of
Labor and Welfare. For more information on our employees, see "Business --
Employees" beginning on page 43.

Israeli law generally requires the payment of severance pay by employers
upon the retirement or death of an employee or termination of employment. We
currently fund our ongoing severance obligations by making monthly payments to
approved severance funds or insurance policies. In addition, according to the
National Insurance Law, Israeli employees and employers are required to pay
specified sums to the National Insurance Institute, which is similar to the U.S.
Social Security Administration. Since January 1, 1995, these amounts also
include payments for national health insurance. The payments to the National
Insurance Institute are approximately 14.5% of wages (up to a specified amount),
of which the employee contributes approximately 66% and the employer contributes
approximately 34%. The majority of our permanent employees are covered by life
and pension insurance policies providing customary benefits to employees,
including retirement and severance benefits.

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ENFORCEABILITY OF CIVIL LIABILITIES

Service of process upon some of our directors and officers, and upon the
Israeli experts named herein, all of whom reside in Israel, may be difficult to
effect within a non-Israeli jurisdiction. Furthermore, since a significant
portion of our assets are located in Israel, any judgment obtained in any other
jurisdiction against us may not be enforceable within such jurisdiction.

Although no assurance can be given as to the enforceability of civil
liabilities under the securities laws of other jurisdictions in original actions
instituted in Israel, subject to certain time limitations, Israeli courts may
enforce foreign final executory judgments for liquidated amounts in civil
matters, obtained after completion of trial before a court of competent
jurisdiction (according to the rules of private international law currently
prevailing in Israel) which enforces similar Israeli judgments, provided that:

- due service of process has been effected and the defendant has a
reasonable opportunity to be heard;

- such judgments or the enforcement thereof are not contrary to the law,
public policy, security or sovereignty of Israel;

- such judgments were not obtained by fraud and do not conflict with any
other valid judgment in the same matter between the same parties; and

- an action between the same parties in the same matter is not pending in
any Israeli court at the time the lawsuit is instituted in the foreign
court.

Foreign judgments enforced by Israeli courts generally will be payable in
Israeli currency. The usual practice in an action to recover an amount in a
non-Israeli currency is for the Israeli court to render judgment for the
equivalent amount in Israeli currency at the rate of exchange in force on the
date thereof. Under existing Israeli law, a foreign judgment payable in foreign
currency may be paid in Israeli currency at the rate of exchange on the date of
payment, but the judgment debtor also may make payment in foreign currency if
the Israeli exchange control regulations then in effect permit such foreign
currency payment (Israel does not currently impose restrictions on payments in
foreign currency). Pending collection, the amount of the judgment of an Israeli
court stated in Israeli currency ordinarily will be linked to the Israeli
consumer precise index plus interest at the annual rate (set by Israeli law)
prevailing at such time. Judgment creditors must bear the risk that they will be
unable to convert their award into foreign currency that can be transferred out
of Israel and the risk of unfavorable exchange rates.

72
<PAGE> 78

UNDERWRITING

GENERAL

Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC World Markets
Corp., Dain Rauscher Incorporated, Wit SoundView Corporation, and FAC/Equities,
a division of First Albany Corporation, are acting as representatives of each of
the underwriters named below. Subject to the terms and conditions set forth in a
purchase agreement, we and the selling shareholders have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase the number of our ordinary shares set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
CIBC World Markets Corp. ...................................
Dain Rauscher Incorporated..................................
Wit SoundView Corporation...................................
First Albany Corporation....................................
---------
Total.......................................... 4,350,000
=========
</TABLE>

Subject to the terms and conditions set forth in the purchase agreement,
each of the underwriters is committed to purchase all of the ordinary shares
being sold pursuant to the purchase agreement if any of the ordinary shares are
purchased. Under certain circumstances, under the terms of the purchase
agreement, the commitments of the non-defaulting underwriters may be increased
or the purchase agreement may be terminated. We and the selling shareholders
have agreed to indemnify the underwriters against some liabilities, including
some liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.

The ordinary shares are being offered by the several underwriters, subject
to prior sale, when, as and if issued or sold to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us and the selling shareholders that the
underwriters propose initially to offer our ordinary shares to the public at the
public offering price set forth on the cover page of this prospectus and to
dealers at such price less a concession not in excess of $ per ordinary
share. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per ordinary share on sales to other dealers. After the
initial offering, the public offering price, concession and discount may be
changed.

The following table shows the per share and total public offering price,
the underwriting discount to be paid by us and the selling shareholders to the
underwriters and the proceeds before expenses to us and the selling
shareholders. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.............................. $ $ $
Underwriting discount.............................. $ $ $
Proceeds, before expenses, to Precise.............. $ $ $
Proceeds to the selling shareholders............... $ $ $
</TABLE>

73
<PAGE> 79

EXPENSES

The following table sets forth all expenses, other than the underwriting
discount, payable by us in connection with this offering. All amounts shown are
estimates except for the SEC registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 33,387
NASD filing fee............................................. 13,147
Blue Sky qualification fees and expenses.................... 6,000
Israel stamp duty........................................... 700,000
Printing and engraving expenses............................. 150,000
Accountant's fees and expenses.............................. 200,000
Legal fees and expenses..................................... 250,000
Miscellaneous............................................... 147,466
----------
Total............................................. $1,500,000
==========
</TABLE>

OVER-ALLOTMENT OPTION

We and certain of the selling shareholders have granted an option to the
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of an additional 652,500 of our ordinary shares at
the public offering price set forth on the cover of this prospectus, less the
underwriting discount. The underwriters may exercise this option solely to cover
over-allotments, if any, made in the sale of our ordinary shares in this
offering. To the extent that the underwriters exercise this option, each
underwriter will be obligated, subject to customary conditions, to purchase a
number of additional ordinary shares proportionate to each underwriter's initial
amount reflected in the table above.

NO SALE OF SIMILAR SECURITIES

We, our executive officers and directors, and the selling shareholders have
agreed, for a period of 90 days after the date of this prospectus, not to
directly or indirectly:

- offer to sell, 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 for the sale of, or otherwise dispose of or
transfer any of our ordinary shares or any securities convertible into or
exchangeable or exercisable for our ordinary shares, whether now owned or
later acquired by the person executing the agreement or with respect to
which the person executing the agreement later acquires the power of
disposition, or file, or require us to file, any registration statement
under the Securities Act relating to any of our ordinary shares; or

- enter into any swap or any other agreement or any other transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of our ordinary shares, whether any such swap or
transaction is to be settled by delivery of our ordinary shares or other
securities, in cash or otherwise;

without the prior written consent of Merrill Lynch, other than transfers as bona
fide gifts or by will or the laws of intestacy, in each case so long as any
transferee agrees in writing with Merrill Lynch to be bound by the restrictions
above. For more information on the resale of our shares, see "Shares Eligible
for Future Sale" beginning on page 59.

74
<PAGE> 80

PRICE STABILIZATION AND SHORT POSITIONS

Until the distribution of our ordinary shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase our ordinary shares. As an
exception to these rules, the underwriters are permitted to engage in
transactions that stabilize the price of our ordinary shares. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our ordinary shares.

If the underwriters create a short position in our ordinary shares in
connection with the offering, that is, if they sell more of our ordinary shares
than are set forth on the cover of this prospectus, the underwriters may reduce
that short position by purchasing our ordinary shares in the open market. The
underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.

PENALTY BIDS

The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase our ordinary
shares in the open market to reduce their short position or to stabilize the
price of our ordinary shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those shares
as part of the offering.

The imposition of a penalty bid might also have an effect on the price of
our ordinary shares to the extent that it discourages resales of our ordinary
shares.

OTHER

Neither we nor any of the underwriters or selling shareholders makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of our ordinary shares.
In addition, neither we nor any of the underwriters or selling shareholders
makes any representation that the representatives will engage in such
transactions or that such transactions, if commenced, will not be discontinued
without notice.

A prospectus in electronic format is being made available on an Internet
web site maintained by Wit SoundView Corporation's strategic partner, E*Trade
Securities, Inc. acting as a selected dealer. Other than the prospectus in
electronic format, the information on E*Trade's Web site and any information
contained on any other Web site maintained by E*Trade is not part of this
prospectus or the registration statement of which this prospectus forms a part,
has not been approved and/or endorsed by us or any underwriter in its capacity
as underwriter and should not be relied upon by investors.

LEGAL MATTERS

The validity of the ordinary shares offered hereby and certain other legal
matters in connection with this offering with respect to Israeli law will be
passed upon for Precise by Volovelsky, Dinstein, Sneh & Co., Herzliya Pituach,
Israel. Certain other legal matters in connection with this offering with
respect to U.S. law will be passed upon for Precise by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Morrison & Foerster
LLP, New York, New York, with respect to U.S. law, and by Kleinhendler & Halevy,
Tel Aviv, Israel, with respect to Israeli law.

EXPERTS

Kost, Forer & Gabbay, a member of Ernst & Young International, independent
auditors, have been Precise's auditors for each of the last three fiscal years
and have audited our consolidated financial

75
<PAGE> 81

statements at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements elsewhere in this prospectus and in the registration
statement in reliance on Kost, Forer & Gabbay's report, given on the authority
of such firm as experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the financial
statements of Savant Corporation at June 30, 1999 and 2000 and for the years
then ended, as set forth in their report. We have included the financial
statements of Savant Corporation elsewhere in this prospectus and in the
registration statement in reliance on Ernst & Young LLP's report, given on the
authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form F-1 under the Securities Act
with respect to this offering of ordinary shares. This prospectus, which is a
part of the registration statement, does not contain all of the information set
forth in the registration statement and its exhibits, certain parts of which are
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. For further information about us and the ordinary shares
offered, you should refer to the registration statement and to its exhibits.
Statements contained in this prospectus about the contents of any contract,
agreement or other document referred to are not necessarily complete and are
qualified in their entirety by reference to each referenced contract, agreement
or other document that is filed as an exhibit to the registration statement. The
registration statement, including the exhibits and schedules, and the reports
and other information filed by us with the Commission in accordance with the
Exchange Act can be inspected without charge at the Public Reference Room
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains
an Internet site that contains our registration statement, reports and other
information. The address of the Commission's Internet site is
"http://www.sec.gov."

Upon completion of this offering, we expect to be subject to the
informational requirements of the Exchange Act and, will file periodic reports
and other information with the Commission. Although we currently are considered
a "foreign private issuer" and qualify to register the shares offered hereby on
Form F-1, following the consummation of this offering, we will no longer be
considered a "foreign private issuer" and we will not be exempt from the rules
under the Exchange Act prescribing certain disclosure and procedural
requirements for proxy solicitations, and our officers, directors and principal
shareholders will not be exempt from the reporting and "short swing" profit
recovery provisions contained in Section 16 of the Exchange Act and the rules
thereunder, with respect to their purchases and sales of ordinary shares.
Precise will be required under the Exchange Act to file periodic reports and
financial statements with the Securities and Exchange Commission as frequently
or as promptly as U.S. companies whose securities are registered under the
Exchange Act.

76
<PAGE> 82

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRECISE SOFTWARE SOLUTIONS LTD.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-5
Statements of Changes in Shareholders' Equity
(Deficiency).............................................. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-9
SAVANT CORPORATION
Report of Independent Auditors.............................. F-24
Balance Sheets.............................................. F-25
Statements of Operations.................................... F-26
Statements of Shareholders' Deficit......................... F-27
Statements of Cash Flows.................................... F-28
Notes to Financial Statements............................... F-29
PRECISE SOFTWARE SOLUTIONS AND SAVANT CORPORATION
Introduction to Unaudited Pro Forma Condensed Combined
Financial Statements...................................... F-37
Unaudited Pro Forma Condensed Combined Balance Sheets as of
September 30, 2000........................................ F-38
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Nine Months Ended September 30, 2000... F-39
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Year Ended December 31, 1999........... F-40
Notes to Pro Forma Condensed Combined Financial
Statements................................................ F-41
</TABLE>

F-1
<PAGE> 83

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Precise Software Solutions Ltd.

We have audited the accompanying consolidated balance sheets of Precise
Software Solutions Ltd. and its subsidiary (collectively, "the Company") as of
December 31, 1998 and 1999 and the related consolidated statements of
operations, changes in shareholders' equity (deficiency) and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1998 and 1999, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles
in the United States.

/s/ KOST, FORER & GABBAY
A Member of Ernst & Young
International

Tel-Aviv, Israel
March 7, 2000

F-2
<PAGE> 84

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1998 1999 2000
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 844 $ 6,693 $25,447
Short-term deposits......................................... -- 888 --
Marketable securities....................................... -- -- 29,149
Trade receivables, net of allowance for doubtful accounts
(1998--$30, 1999--$55, 2000--$0).......................... 2,191 3,767 3,507
Other accounts receivable and prepaid expenses.............. 278 358 3,253
------ ------- -------
Total current assets.............................. 3,313 11,706 61,356
------ ------- -------
LONG-TERM INVESTMENT........................................ -- -- 25,981
------ ------- -------
SEVERANCE PAY FUND.......................................... 187 308 445
------ ------- -------
PROPERTY AND EQUIPMENT, NET................................. 833 972 1,994
------ ------- -------
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION (2000--$55)... -- -- 778
------ ------- -------
$4,333 $12,986 $90,554
====== ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 85

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1998 1999 2000
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ 12 $ -- $ --
Trade payables.............................................. 546 628 1,894
Deferred revenues........................................... 871 1,535 2,154
Employees and payroll accruals.............................. 714 921 1,128
Accrued expenses............................................ 849 835 1,807
Other accounts payable...................................... 79 78 339
-------- -------- --------
Total current liabilities......................... 3,071 3,997 7,322
-------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt.............................................. 197 199 --
Accrued severance pay....................................... 323 497 753
-------- -------- --------
Total long-term liabilities....................... 520 696 753
-------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred A shares:
NIS 0.03, par value: 9,410,257 shares authorized at
December 31, 1998 and 1999; 7,118,922 shares issued and
outstanding at December 31, 1998 and 1999; no shares
authorized, issued or outstanding at September 30,
2000; aggregate liquidation preference of $16,640 at
December 31, 1999...................................... 62 62 --
Preferred B shares:
NIS 0.03, par value: 0 and 6,666,667 shares authorized at
December 31, 1998 and 1999 respectively; 0 and
4,875,800 shares issued and outstanding at December 31,
1998 and 1999, respectively; no shares authorized,
issued or outstanding at September 30, 2000; aggregate
liquidation preference of $20,000 at December 31,
1999................................................... -- 35 --
Ordinary shares:
NIS 0.03, par value: 6,589,743, 49,523,898 and 70,000,000
shares authorized at December 31, 1998 and 1999 and at
September 30, 2000, respectively; 3,298,766 shares
issued and outstanding at December 31, 1998 and 1999;
21,926,378 shares issued and outstanding at September
30, 2000............................................... 31 31 177
Additional paid-in capital.................................. 14,680 25,272 109,877
Deferred stock compensation................................. (187) (665) (3,915)
Accumulated other comprehensive loss........................ -- -- (41)
Accumulated deficit......................................... (13,844) (16,442) (23,619)
-------- -------- --------
Total shareholders' equity........................ $ 742 $ 8,293 $ 82,479
-------- -------- --------
$ 4,333 $ 12,986 $ 90,554
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 86

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, 1999
------------------------------------- ------------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.......................... $ 2,382 $ 5,331 $ 9,770 $ 6,598 $ 14,875
Services................................... 406 858 1,844 1,170 3,051
---------- ---------- ----------- ---------- -----------
2,788 6,189 11,614 7,768 17,926
---------- ---------- ----------- ---------- -----------
Cost of revenues:
Software licenses.......................... 349 522 741 525 484
Services(1)................................ 86 198 906 422 1,174
---------- ---------- ----------- ---------- -----------
435 720 1,647 947 1,658
---------- ---------- ----------- ---------- -----------
Gross profit................................. 2,353 5,469 9,967 6,821 16,268
---------- ---------- ----------- ---------- -----------
Operating expenses:
Research and development, net(2)........... 1,737 2,214 2,891 2,113 3,437
Selling and marketing, net(3).............. 3,278 5,739 7,913 5,117 13,787
General and administrative(4).............. 1,341 1,272 1,598 1,129 2,640
Amortization of deferred stock
compensation............................... -- 300 234 95 4,953
---------- ---------- ----------- ---------- -----------
Total operating expenses..................... 6,356 9,525 12,636 8,454 24,817
---------- ---------- ----------- ---------- -----------
Operating loss............................... (4,003) (4,056) (2,669) (1,633) (8,549)
Financial income (expenses), net............. (202) 34 71 (21) 1,372
---------- ---------- ----------- ---------- -----------
Loss from continuing operations.............. (4,205) (4,022) (2,598) (1,654) (7,177)
Loss from discontinued operations............ (192) -- -- -- --
Gain from disposal of a business segment..... 182 -- -- -- --
---------- ---------- ----------- ---------- -----------
Net loss..................................... $ (4,215) $ (4,022) $ (2,598) $ (1,654) $ (7,177)
========== ========== =========== ========== ===========
Net loss per share:
Basic and diluted net loss per share from
continuing operations.................... $ (2.35) $ (1.31) $ (0.79) $ (0.50) $ (0.76)
========== ========== =========== ========== ===========
Basic and diluted net loss per share from
discontinued operations.................. -- -- -- -- --
========== ========== =========== ========== ===========
Basic and diluted net loss per share....... $ (2.35) $ (1.31) $ (0.79) $ (0.50) $ (0.76)
========== ========== =========== ========== ===========
Weighted average number of shares used in
computing basic and diluted net loss per
share.................................... 1,784,676 3,077,436 3,298,766 3,298,766 9,450,703
========== ========== =========== ========== ===========
Pro forma basic and diluted net loss per
share (unaudited)........................ $ (0.22) $ (0.41)
=========== ===========
Pro forma weighted average number of shares
used in computing basic and diluted net
loss per share (unaudited)............... 11,636,638 17,403,247
=========== ===========
</TABLE>

---------------
(1) Excludes $0, $0 and $283 in amortization of deferred stock compensation in
1998, 1999 and the nine months ended September 30, 2000, respectively.

(2) Excludes $0, $16 and $85 in amortization of deferred stock compensation in
1998, 1999 and the nine months ended September 30, 2000, respectively.

(3) Excludes $93, $104 and $2,086 in amortization of deferred stock compensation
in 1998, 1999 and the nine months ended September 30, 2000, respectively.

(4) Excludes $207, $114 and $2,499 in amortization of deferred stock
compensation in 1998, 1999 and the nine months ended September 30, 2000,
respectively.

The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 87

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFERRED OTHER TOTAL
PREFERRED PAID-IN PAID-IN STOCK COMPREHENSIVE ACCUMULATED COMPREHENSIVE
SHARES SHARES CAPITAL COMPENSATION LOSS DEFICIT LOSS
--------- ------- ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997.... $ 20 $ 19 $ 6,680 $ -- -- $ (5,607) $ --
Exercise of stock options...... -- -- 1 -- -- -- --
Amortization of beneficial
conversion feature........... -- -- 23 -- -- -- --
Net loss....................... -- -- -- -- -- (4,215) (4,215)
------- ---- -------- ------- ---- -------- -------
Total comprehensive loss......... $(4,215)
=======
Balance as of January 1, 1998.... 20 19 6,704 -- -- (9,822)
Issuance of shares, net........ 33 10 5,432 -- -- -- --
Conversion of shareholders'
loan......................... 11 -- 1,781 -- -- -- --
Conversion of Preferred shares
into Ordinary shares......... (2) 2 -- -- -- -- --
Deferred stock compensation
related to options granted to
employees, directors and
consultants.................. -- -- 487 (487) -- -- --
Amortization of deferred stock
compensation................. -- -- 276 300 -- -- --
Net loss....................... -- -- -- -- -- (4,022) (4,022)
------- ---- -------- ------- ---- -------- -------
Total comprehensive loss......... $(4,022)
=======
Balance as of December 31,
1998........................... 62 31 14,680 (187) -- (13,844)
Issuance of shares, net........ 35 -- 9,860 -- -- -- --
Deferred stock compensation
related to options granted to
employees.................... -- -- 712 (712) -- -- --
Amortization of deferred stock
compensation................. -- -- 20 234 -- -- --
Net loss....................... -- -- -- -- -- (2,598) (2,598)
------- ---- -------- ------- ---- -------- -------
Total comprehensive loss......... $(2,598)
=======
Balance as of December 31,
1999........................... 97 31 25,272 (665) -- (16,442)
Options issued pursuant to the
Knight Fisk Software Ltd.
acquisition (unaudited)...... -- -- 199 -- -- -- --
Issuance of shares, net
(unaudited).................. -- 39 75,909 -- -- -- --
Conversion of Preferred shares
upon IPO (unaudited)......... (97) 97 -- -- -- -- --
Exercise of options
(unaudited).................. -- 10 294 -- -- -- --
Deferred stock compensation
related to options granted to
employees (unaudited)........ -- -- 8,203 (8,203) -- -- --
Amortization of deferred stock
compensation (unaudited)..... -- -- -- 4,953 -- -- --
Unrealized holdings losses on
available for sale securities
during the period
(unaudited).................. -- -- -- -- (43) -- (43)
Foreign currency translation
adjustment (unaudited)....... -- -- -- -- 2 -- 2
Net loss (unaudited)........... -- -- -- -- -- (7,177) (7,177)
------- ---- -------- ------- ---- -------- -------
Total comprehensive loss
(unaudited).................... $(7,218)
=======
Balance as of September 30, 2000
(unaudited).................... $ -- $177 $109,877 $(3,915) $(41) $(23,619)
======= ==== ======== ======= ==== ========

<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIENCY)
-------------
<S> <C>
Balance as of January 1, 1997.... $ 1,112
Exercise of stock options...... 1
Amortization of beneficial
conversion feature........... 23
Net loss....................... (4,215)
-------
Total comprehensive loss.........
Balance as of January 1, 1998.... (3,079)
Issuance of shares, net........ 5,475
Conversion of shareholders'
loan......................... 1,792
Conversion of Preferred shares
into Ordinary shares......... --
Deferred stock compensation
related to options granted to
employees, directors and
consultants.................. --
Amortization of deferred stock
compensation................. 576
Net loss....................... (4,022)
-------
Total comprehensive loss.........
Balance as of December 31,
1998........................... 742
Issuance of shares, net........ 9,895
Deferred stock compensation
related to options granted to
employees.................... --
Amortization of deferred stock
compensation................. 254
Net loss....................... (2,598)
-------
Total comprehensive loss.........
Balance as of December 31,
1999........................... 8,293
Options issued pursuant to the
Knight Fisk Software Ltd.
acquisition (unaudited)...... 199
Issuance of shares, net
(unaudited).................. 75,948
Conversion of Preferred shares
upon IPO (unaudited)......... --
Exercise of options
(unaudited).................. 304
Deferred stock compensation
related to options granted to
employees (unaudited)........ --
Amortization of deferred stock
compensation (unaudited)..... 4,953
Unrealized holdings losses on
available for sale securities
during the period
(unaudited).................. (43)
Foreign currency translation
adjustment (unaudited)....... 2
Net loss (unaudited)........... (7,177)
-------
Total comprehensive loss
(unaudited)....................
Balance as of September 30, 2000
(unaudited).................... $82,479
=======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 88

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(4,215) $(4,022) $(2,598) $(1,654) $ (7,177)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Gain from disposal of a business
segment.......................... (182) -- -- -- --
Depreciation and amortization...... 431 360 399 135 404
Amortization of deferred stock
compensation..................... -- 576 254 95 4,953
Increase (decrease) in accrued
severance pay, net............... 32 (26) 53 46 119
Decrease (increase) in trade
receivables, net................. (314) (1,283) (1,576) (610) 703
Decrease (increase) in other
accounts receivable and prepaid
expenses......................... 204 127 (119) (258) (2,831)
Increase (decrease) in trade
payables......................... 32 (3) 82 61 1,104
Increase (decrease) in other
accounts payable................. (420) 1,031 856 471 1,734
Other.............................. (3) -- 46 50 9
------- ------- ------- ------- --------
Net cash used in operating activities... (4,435) (3,240) (2,603) (1,664) (982)
------- ------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment.... (538) (273) (499) (213) (1,337)
Purchase of long-term investment...... -- -- -- -- (25,985)
Purchase of other assets.............. -- -- -- -- (112)
Payment for acquisition of
consolidated subsidiary(1)......... -- -- -- -- (507)
Purchase of short-term deposits....... (7) (2,921) (876) -- --
Purchase of marketable securities..... -- -- -- -- (29,188)
Proceeds from sale of short-term
deposits........................... 555 2,934 -- -- 888
------- ------- ------- ------- --------
Net cash provided by (used in) investing
activities............................ $ 10 $ (260) $(1,375) $ (213) $(56,241)
======= ======= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 89

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Short-term bank credit, net.................. $ 1,238 $(1,238) $ -- $ -- $ (24)
Proceeds from issuance of shares, net........ -- 5,477 9,839 3,676 75,948
Proceeds from convertible shareholders' loan
and exercise of stock options............. 1,953 -- -- -- 304
Repayment of shareholders' loans............. -- (160) -- -- --
Proceeds from long-term debt................. 10 -- -- -- --
Repayment of long-term debt.................. (36) (36) (12) (12) (251)
------- ------- ------ ------ -------
Net cash provided by financing activities...... 3,165 4,043 9,827 3,664 75,977
------- ------- ------ ------ -------
Increase (decrease) in cash and cash
equivalents.................................. (1,260) 543 5,849 1,787 18,754
Cash and cash equivalents at the beginning of
the period................................... 1,561 301 844 844 6,693
------- ------- ------ ------ -------
Cash and cash equivalents at the end of the
period....................................... $ 301 $ 844 $6,693 $2,631 $25,447
======= ======= ====== ====== =======
(1) In February 2000, the Company acquired all
of the outstanding shares of Knight Fisk
Software Ltd. The net fair value of the
assets acquired and liabilities assumed,
at the date of acquisition as follows:
Working capital (unaudited)............... $ (8)
Fixed assets (unaudited).................. 41
Long term loans and other (unaudited)..... (45)
Goodwill (unaudited)...................... 718
-------
706
Options granted (unaudited)............... (199)
-------
$ 507
=======
(2) Supplemental disclosure of cash flows
activities:
(a) Cash paid during the period for:
Interest.............................. $ 77 $ 40 $ 19 $ 16 $ 1
======= ======= ====== ====== =======
(b) Non-cash activities:
Issuance of Preferred shares upon
conversion of Shareholders loan.... $ -- $ 1,792 $ -- $ -- $ --
======= ======= ====== ====== =======
Capital obligations incurred......... $ 9 $ -- $ -- $ -- $ --
======= ======= ====== ====== =======
Unrealized holding losses on
available-for-sale securities...... $ -- $ -- $ -- $ -- $ 43
======= ======= ====== ====== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 90

PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

NOTE 1: -- GENERAL

Precise Software Solutions Ltd. ("the Company") was established in Israel
on November 15, 1990. The Company has two active wholly-owned subsidiaries:
Precise Software Solutions, Inc., in the United States and Precise Software
Solutions UK Ltd. in the United Kingdom. The Company is a provider of software
products for performance management, monitoring and tuning of database
applications, and of related consulting, training and support services.

The Company's products are marketed in Asia through independent resellers
and in Europe, North and South America through its subsidiaries. As for major
customers, see Note 13.

In September 1997, the Company entered into a contract to sell its CPE
product line. Accordingly, the operating results of the CPE product have been
segregated from continuing operations and are reported as a separate line item
in the statement of operations.

NOTE 2: -- ACQUISITION OF KNIGHT FISK SOFTWARE LTD. (UNAUDITED)

In February 2000, in consideration of $706, the Company acquired all the
outstanding shares of Knight Fisk Software Ltd. ("Knight Fisk"), a U.K.-based
company and the distributor of the Company's products in the United Kingdom.
Knight Fisk subsequently changed its name to Precise Software Solutions UK Ltd.
(Precise UK). The purchase price has been allocated to the fair value of the
tangible assets acquired and the liabilities assumed. The excess of the purchase
price was allocated to goodwill. The acquisition was accounted under the
purchase method.

Pro forma financial information:

The operations of Precise UK are included in the Company's consolidated
operating results from February 1, 2000. The following unaudited pro forma
information presents the results of operations for the Company and Precise UK
for the nine months ended September 30, 2000 and for the year ended December 31,
1999 as if the acquisition had been consummated as of January 1, 2000 and
January 1, 1999, respectively. This pro forma information does not purport to be
indicative of what may occur in the future:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 2000
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Total revenues............................. $12,100 $ 8,201 $18,108
======= ======= =======
Net loss................................... $(3,027) $(1,788) $(7,099)
======= ======= =======
Basic and diluted net loss per............. $ (0.92) $ (0.54) $ (0.75)
======= ======= =======
</TABLE>

NOTE 3: -- SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States.

a. Use of estimates:

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

F-9
<PAGE> 91
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

b. Financial statements in U.S. dollars:

A majority of the revenues of the Company and one of its subsidiaries are
generated in U.S. dollars ("dollar"). In addition, a substantial portion of the
Company's and its subsidiary costs are incurred in dollars. The Company's
management believes that the dollar is the primary currency of the economic
environment in which the Company and one of its subsidiaries operate. Thus, the
functional and reporting currency of the Company and one of its subsidiaries is
the dollar.

Accordingly, monetary accounts maintained in currencies other than the
dollar are remeasured into U.S. dollars in accordance with Statement No. 52 of
the Financial Accounting Standards Board ("FASB"). All transactions gains and
losses of the remeasurement of monetary balance sheet items are reflected in the
statements of operations as financial income or expenses, as appropriate.

The financial statements of a subsidiary whose functional currency is not
the U.S. dollar have been translated into U.S. dollars. All balance sheet
accounts have been translated using the exchange rates in effect at the balance
sheet date. Statement of operations amounts have been translated using the
average exchange rate for the period. The resulting translation adjustments are
reported as a component of accumulated other comprehensive loss in shareholder's
equity.

c. Principles of consolidation:

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany balances and transactions have
been eliminated upon consolidation.

d. Cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily
convertible to cash with original maturities of three months or less.

e. Short-term deposits:

The Company classifies deposits with maturities of more than three months
and less than one year as short-term deposits. The short-term deposits are
presented at their cost, including accrued interest.

f. Long-term investments and marketable securities:

Management determines the proper classification of investments in
obligations with fixed maturities and marketable equity securities at the time
of purchase and reevaluates such designations as of each balance sheet date. At
September 30, 2000, all securities covered by SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" were designated as
available-for-sale. Accordingly, these securities are stated at fair value, with
unrealized gains and losses reported in a separate component of shareholders'
equity, accumulated other comprehensive income (loss). Realized gains and losses
on sales of investments, as determined on a specific identification basis, are
included in the consolidated statement of income.

F-10
<PAGE> 92
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

g. Property and equipment:

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated by the straight-line method over the estimated useful
lives of the assets at the following annual rates:

<TABLE>
<CAPTION>
%
--------------------------
<S> <C>
Computers and peripheral equipment.......... 25-33
Office furniture and equipment.............. 7-15
Leasehold improvements...................... Over the term of the lease
</TABLE>

The Company and its subsidiaries periodically assess the recoverability of
the carrying amount of property and equipment and provide for any possible
impairment loss based upon the difference between the carrying amount and fair
value of such assets. As of December 31, 1999, no impairment losses have been
identified.

h. Other assets:

Licensing rights and goodwill are stated at amortized cost. Amortization is
calculated using the straight-line method over their estimated useful life,
which is four to ten years.

i. Research and development costs:

Statement of Financial Accounting Standards ("SFAS") 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed",
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility.

Based on the Company's product development process, technological
feasibility is established upon completion of a working model. The Company does
not incur material costs between the completion of the working model and the
point at which the products are ready for general release. Therefore, research
and development costs are charged to the statement of operations as incurred.

j. Income taxes:

The Company and its subsidies account for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income
Taxes". This Statement prescribes the use of the liability method whereby
deferred tax assets and liability account balances are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The Company and its subsidiaries
provide a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.

k. Revenue recognition:

Revenues from software sales are recognized in accordance with SOP 97-2, as
amended. License revenues are comprised of perpetual license fees which are
derived from contracts with end-customers, and an original equipment
manufacturer ("OEM"). The Company and its subsidiaries generally do not grant
rights of return. When right of return exists, the Company and its subsidiaries
defer the revenues until such right expires. The Company is entitled to
royalties from the OEM upon the sublicensing of the Company's products to end
users. Royalties due from this OEM are recognized when such royalties are
reported to the Company upon the sublicensing of the products by the OEM.
License revenues from sales to distributors and end-customers are recognized
upon delivery of the software when

F-11
<PAGE> 93
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

collection is probable; all license payments are due within one year; the
license fee is otherwise fixed or determinable; vendor-specific objective
evidence exists; and persuasive evidence of an arrangement exists.

Service revenues are comprised of revenues from maintenance and support
arrangements, consulting fees, and training, none of which are considered
essential to the functionality of the software license. Revenues from support
arrangements are deferred and recognized on a straight-line basis as service
revenues over the life of the related agreement. Consulting and training
revenues are recognized at the time the services are rendered. Customer advances
and billed amounts due from customers in excess of revenues recognized are
recorded as deferred revenues.

Where software arrangements involve multiple elements, revenue is allocated
to each element based on vender specific objective evidence ("VSOE") of the
relative fair values of each element in the arrangement in accordance with the
"Residual Method" prescribed by SOP 98-9. The Company's VSOE used to allocate
the sales price to training and maintenance is based on the price charged when
these elements are sold separately. License revenues are recorded based on the
residual method. Under the residual method, revenue is recognized for the
delivered elements when (1) there is VSOE of the fair values of all the
undelivered elements other than those accounted for using long term contract
accounting and (2) all revenue recognition criteria of SOP 97-2, as amended are
satisfied.

l. Concentration of credit risks:

Financial instruments which potentially subject the Company and its
subsidiaries to concentrations of credit risk consist principally of cash and
cash equivalents, short-term deposits, long-term investments, marketable
securities and trade receivables. Cash and cash equivalents, short-term deposits
are invested in major banks in Israel and the United States. Management believes
that the financial institutions holding the Company's investments are
financially sound and, accordingly, minimal credit risk exists with respect to
these investments. The trade receivables of the Company and its subsidiaries are
mainly derived from sales to customers located primarily in the U.S., and
resellers located in Europe and Asia. The Company and its subsidiaries perform
periodic credit evaluations of their customers' financial condition and
generally do not require collateral. The Company's marketable securities and
long-term investment include investments in debentures of U.S. corporations.
Management believes that those corporations are financially sound, the portfolio
is well diversified, and accordingly, minimal credit risk exits with respect to
these marketable securities.

m. Accounting for stock-based compensations:

The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB-25"), "Accounting for Stock Issued to Employees", in accounting for its
employee stock option plans. Under APB-25, when the exercise price of the
Company's stock options equals or is above the best estimated market value of
the underlying shares on the date of grant, no compensation expense is
recognized. Deferred compensation, if recorded, is amortized over the vesting
period of the underlying options. Pro-forma disclosure as required by SFAS No.
123 is provided in Note 8d.

The Company applies SFAS No. 123, "Accounting for Stock-Based Compensation"
and EITF 96-18 "Accounting For Equity Instruments that Are Issued to Other Than
Employees For Acquiring in Conjunction with Selling, Goods or Services", with
respect to warrants issued to non-employees. SFAS No. 123 requires the use of
option valuation models to measure the fair value of the warrants at the date of
grant.

F-12
<PAGE> 94
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

n. Royalty-bearing grants:

Royalty-bearing grants from the Government of Israel for funding approved
research and development projects and for the encouragement of marketing
activity, are recognized at the time the Company is entitled to such grants, on
the basis of the costs incurred and are netted from research and development and
selling and marketing costs, respectively. Development grants amounted to $104,
$0 and $0 in 1997, 1998 and 1999, respectively. Marketing grants amounted to
$260, $0 and $0 in 1997, 1998 and 1999, respectively.

o. Severance pay:

The Company's liability for severance pay is calculated pursuant to the
Israeli Severance Pay Law based on the most recent salary of the employees
multiplied by the number of years of employment as of the balance sheet date.
Employees are entitled to one month's salary for each year of employment or a
portion thereof. The Company's liability for all of its employees, is fully
provided by monthly deposits with severance pay funds, insurance policies and by
an accrual.

The deposited funds include profits accumulated up to the balance sheet
date. The deposited funds may be withdrawn only in accordance with the Israeli
Severance Pay Law or labor agreements. The value of the deposited funds are
based on the cash surrender value of these policies, and include immaterial
profits.

p. Impairment of long-lived assets:

On January 1, 1996, the FASB issued Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which became effective as of that date. This Statement requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets is less than the asset's carrying amount.

q. Fair value of financial instruments:

The following methods and assumptions were used by the Company and its
subsidiaries in estimating their fair value disclosures for financial
instruments:

The carrying amounts of cash and cash equivalents, short-term deposits,
accounts receivable and payables approximate their fair value due to the
short-term maturity of such instruments.

The fair value for available-for-sale securities are based on the quoted
market prices.

The carrying amount of the Company's long-term borrowing approximates its
fair value. The fair value was estimated using discounted cash flow analysis,
based on the Company's incremental borrowing rates for similar types of
borrowing arrangements.

r. Basic and diluted net loss per share:

Basic net loss per share is computed based on the weighted average number
of Ordinary shares outstanding during each period. Diluted net loss per share is
computed based on the weighted average number of Ordinary shares outstanding
during each period, plus dilutive potential Ordinary shares considered
outstanding during the period, in accordance with FASB Statement No. 128,
"Earnings per Share".

F-13
<PAGE> 95
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

All convertible Preferred shares, outstanding stock options, and warrants
have been excluded from the calculation of the diluted net loss per Ordinary
share because all such of these securities are anti-dilutive for all periods
presented. The total numbers of shares related to the outstanding convertible
Preferred shares, options and warrants excluded from the calculations of diluted
net loss per share were 2,996,670, 7,610,994 and 10,256,164 for the years ended
December 31, 1997, 1998 and 1999, respectively.

Basic and diluted pro forma net loss per share, as presented in the
statements of operations, has been calculated as described above and also gives
effect to the automatic conversion of the convertible Preferred shares into
Ordinary shares (using the as-if converted method).

The following table presents the calculation of pro forma basic and diluted
net loss per share:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
Net loss........................................ $ (2,598) $ (7,177)
=========== ===========
Pro forma:
Shares used in computing basic and diluted net
loss per share............................. 3,298,766 9,450,703
Effect of assumed conversion of convertible
preferred shares (unaudited)............... 8,337,872 7,952,544
----------- -----------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........ 11,636,638 17,403,247
=========== ===========
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.22) $ (0.41)
=========== ===========
</TABLE>

s. Impact of recently issued accounting standards:

In June the Financial Accounting Standards Board issued SFAS No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133") in June 1999 and its amendments, statements 137 and 138, in June 1999 and
June 2000, respectively. These statements establish accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded on the balance
sheet as either an asset or liability measured at its fair value. These
statements also require that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The FASB has issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133". The
Statement defers for one year the effective date of SFAS No. 133. The rule will
apply to all fiscal quarters of all fiscal years beginning after June 15, 2000.
The Company does not expect the impact of this new statement on the Company's
consolidated balance sheets or results of operations to be material.

In March 2000, the Financial Accounting Statement Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No. 25 (FIN 44). The
Interpretation clarifies guidance for certain issues that arose in application
APB Opinion No. 25, "Accounting to Stock Issued to Employees". The
Interpretation will apply to all fiscal

F-14
<PAGE> 96
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

quarters of all fiscal years beginning after July 1, 2000. The Company does not
expect an impact of this new FIN on the Company's consolidated balance sheets or
results of operations.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements", which summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company does not expect the impact of this new SAB on the Company's
consolidated balance sheets or result of operations.

t. Unaudited Information:

The financial statements include the unaudited consolidated balance sheet
as of September 30, 2000 and the statement for changes in shareholders' equity
for the nine months ended September 30, 2000 and the related consolidated
statements of operations and cash flows for the nine months ended September 30,
1999 and 2000. This unaudited information has been prepared by the Company on
the same basis as the audited consolidated financial statements and, in
management's opinion, reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information, in accordance with generally accepted accounting principles, for
the period presented. Results for interim periods are not necessarily indicative
of the results to be expected for the entire year.

NOTE 4: -- PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
------ ------
<S> <C> <C>
Cost:
Computers and peripheral equipment................... $1,329 $1,692
Office furniture and equipment....................... 152 207
Leasehold improvements............................... 53 104
------ ------
1,534 2,003
------ ------
Accumulated deprecation:
Computers and peripheral equipment................... 629 927
Office furniture and equipment....................... 49 69
Leasehold improvements............................... 23 35
------ ------
701 1,031
------ ------
Depreciated cost....................................... $ 833 $ 972
====== ======
</TABLE>

Depreciation expenses for the years ended December 31, 1997, 1998 and 1999
were $297, $290 and $360, respectively.

NOTE 5: -- RELATED PARTIES TRANSACTIONS

In 1997, the Company received convertible loans bearing interest of
LIBOR+2% from its shareholders. The Company issued 661,402 warrants for
Preferred shares, in connection with the convertible loan agreement. The
warrants are exercisable at par value from the date of grant through the
Company's initial public offering.

The fair value of these warrants, which was determined by the difference
between the incremental interest rate of the Company to the actual interest rate
of the loan, has been recorded as additional paid-in capital and amortized using
the interest method from the date of issuance through the date the loan became
convertible. The additional interest expense amounted to $23.

F-15
<PAGE> 97
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

NOTE 6: -- LONG-TERM DEBT

a. Composed as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
WEIGHTED AVERAGE ------------
LINKAGE INTEREST RATE 1998 1999
------- ---------------- ---- ----
<S> <C> <C> <C> <C>
Capital lease obligations.................. U.S.$ 9.5% $ 12 $ --
Other loans(1)............................. CPI 0% 197 199
---- ----
209 199
Less -- current maturities................. 12 --
---- ----
$197 $199
==== ====
</TABLE>

b. As of December 31, 1999, the aggregate annual maturities of long-term
loans are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
First year(current maturities).............................. $ 12 $ --
Other(1).................................................... 197 199
---- ----
$209 $199
==== ====
</TABLE>

---------------
(1) Other loans are from former shareholders and are payable upon consummation
of the Company's initial public offering. The amount to be paid is adjusted
for changes in the Israeli Consumer Price Index ("CPI").

NOTE 7: -- ACCRUED SEVERANCE PAY

The Company's liability for severance pay pursuant to Israeli law, is fully
provided. Part of the liability is funded through insurance policies, which are
designed only for disbursing severance pay. The value of these policies is
recorded as an asset in the Company's balance sheet. Severance pay expenses for
the years ended December 31, 1997, 1998 and 1999 were $325, $249 and $260,
respectively.

NOTE 8: -- SHAREHOLDERS' EQUITY

a. Automatic Conversion Upon IPO:

All preferred shares were automatically converted into Ordinary Shares at
the time of the Company's Initial Public Offering ("IPO"), which took place in
July 2000. Since then, the ordinary shares have been traded on NASDAQ in U.S.

b. Reverse Split:

All share and per share data included in these financial statements have
been retroactively adjusted to reflect a two-for-three reverse split as approved
by the Company's shareholders on April 12, 2000.

c. Preferred shares:

The Preferred shares ("A" and "B") conferred upon theirs holders voting
rights and the right to receive cash dividends. The Preferred shares were
convertible into Ordinary shares on a one-for-one basis, at the holders'
discretion, or upon the consummation of the Company's initial public offering.
The Preferred shares had a preference in liquidation totaling approximately
$36,640 as of December 31, 1999, and contained anti-dilution protection rights
and certain preemptive rights.

F-16
<PAGE> 98
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

c. Ordinary shares:

Ordinary shares confer upon their holders voting rights, the right to
receive cash dividends and the right to a share in excess assets upon
liquidation of the Company. Ordinary A shares confer upon their holders the same
rights except for voting rights and will be converted to Ordinary shares upon
the consummation of the Company's initial public offering.

d. Stock Option Plans:

The Company has two stock option plans, the 1995 and 1998 Share Option and
Incentive Plans ("the Plans"). Under the Plans, options may be granted to
employees, officers, directors and consultants of the Company and its
subsidiary. Options granted under these Plans generally vest annually over 3-4
years. These options will expire ten years from the date of grant. Pursuant to
the Plans, a total of 7,333,000 Ordinary shares and Ordinary A shares of the
Company are reserved for issuance. A summary of activity in the Plans is as
follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------------ --------------------
1997 1998 1999 2000
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning
of period.................. 713,232 $0.59 616,500 $0.81 2,559,348 $0.86 3,681,044 $ 1.04
Granted...................... 355,686 $1.04 2,019,516 $0.58 1,248,366 $1.40 1,997,216 $12.64
Exercised.................... (2,222) $0.38 -- $ -- -- $ -- (123,828) $ 0.81
Forfeited.................... (450,196) $0.63 (76,668) $1.04 (126,670) $1.04 (107,172) $ 1.61
-------- ----- --------- ----- --------- ----- --------- ------
Outstanding at the end of the
period..................... 616,500 $0.81 2,559,348 $0.86 3,681,044 $1.04 5,447,260 $ 5.29
======== ===== ========= ===== ========= ===== ========= ======
Exercisable options.......... 150,427 $0.50 223,633 $0.65 1,088,448 $0.80 1,987,731 $ 0.86
======== ===== ========= ===== ========= ===== ========= ======
</TABLE>

The Company has a contingent liability to issue certain of its employees
88,282 additional stock options. The liability is subject to meeting certain
objectives. As of December 31, 1999, none of the options has been earned.

During 2000, the Company adopted its 2000 Employee Share Purchase Plan
("ESPP"). The Company reserved 667,000 ordinary shares for issuance under the
ESPP.

The options outstanding as of December 31, 1999, have been separated into
ranges of exercise price as follows:

<TABLE>
<CAPTION>
WEIGHTED OPTIONS
AVERAGE WEIGHTED EXERCISABLE EXERCISE
OPTIONS REMAINING AVERAGE AS OF PRICE OF
OUTSTANDING AS OF EXERCISE CONTRACTUAL EXERCISE DECEMBER 31, OPTIONS
DECEMBER 31, 1999 PRICE LIFE PRICE 1999 EXERCISABLE
----------------- -------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
705,220...... $0.38 7.6 $0.38 386,630 $0.38
2,005,800.... $1.04 7.9 $1.04 701,818 $1.04
970,024...... $1.50 9.8 $1.50 -- $ --
----- ----- --------- -----
3,681,044.... $1.04 $1.04 1,088,448 $0.80
===== ===== ========= =====
</TABLE>

In November 1998, the Board of Directors approved a repricing of its
outstanding options to an exercise price of $1.04 -- the fair value of Ordinary
shares at the date of the repricing.

F-17
<PAGE> 99
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

Pro forma information regarding net loss is required by SFAS No. 123 (for
grants issued after December 1995), and has been determined as if the Company
had accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant,
using the Black-Scholes Option Valuation Model, with the following
weighted-average assumptions for each of the three years in the period ended
December 31, 1999: expected volatility of 0.001; risk-free interest rates of 6%,
5.5% and 6%; dividend yields of 0%; and a weighted-average expected life of the
options of 3.25, 3.44 and 4.13 years.

Weighted-average fair values of options granted during 1997, 1998 and 1999,
whose exercise price is less than the fair value of the stock on the date of
grant were $0, $0.71 and $0.63, respectively. Weighted-average fair values of
options granted during 1997, 1998 and 1999 whose exercise price equals the fair
value of the stock on the date of grant, were $0.21, $0.17 and $0.15,
respectively.

Pro forma information under SFAS 123:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss as reported...................................... $(4,215) $(4,022) $(2,598)
Pro forma net loss........................................ (4,237) (4,030) (2,628)
Pro forma basic and diluted net loss per share from
continuing operations................................... (2.36) (1.31) (0.80)
Pro forma net loss per share from discontinued
operations.............................................. -- -- --
Pro forma basic and diluted net loss per share............ $ (2.36) $ (1.31) $ (0.80)
</TABLE>

e. Stock warrants:

Warrants outstanding as of December 31, 1999:

<TABLE>
<CAPTION>
CONVERTIBLE
ORDINARY PREFERRED EXERCISE PRICE EXERCISABLE
YEAR ISSUED ISSUED TO SHARES SHARES PER SHARE THROUGH
----------- ------------ -------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
1995..................... Shareholders -- 229,732 $1.41 IPO
1997..................... Shareholders -- 661,402 $0.02 IPO
earlier of
January 2008
1998..................... Director -- 140,000(1) $0.38 and IPO
1998..................... Officer 266,990 -- $0.02 IPO
1999..................... Officer 19,324 -- $0.02 IPO
------- ---------
286,314 1,031,134
======= =========
</TABLE>

---------------
(1) The warrants vest quarterly over a two-year period. The Company recorded
$156 as deferred compensation. $128 and $28 were amortized to compensation
expenses in 1998 and 1999, respectively. The fair market value of these
warrants was estimated using the Black-Scholes Valuation model with the
following assumptions: expected volatility of 0.1, risk free interest of 5%,
dividend yield of 0% and a weighted-average expected life of 4 years.

NOTE 9: -- INCOME TAXES

a. Israeli income tax:

The Company has been granted an "Approved Enterprise" status for three
investment programs approved in 1992, 1994 and 1998, by the Israeli Government
under the Law for Encouragement of Capital Investments, 1959 ("the Law").

F-18
<PAGE> 100
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

Undistributed Israeli income derived from the first and the third "Approved
Enterprise" programs entitle the Company to a tax exemption for a period of two
years and to a reduced tax rate of 10%-25% for an additional period of five to
eight years (depending on the level of foreign-investment in the Company).
Undistributed Israeli income derived from the second "Approved Enterprise"
program entitles the Company to a tax exemption of four years and to a reduced
tax rate of 10%-25% for an additional period of three to six years (depending on
the level of foreign-investment in the Company). These tax benefits are subject
to a limitation of the earlier of twelve years from commencement of operations,
or fourteen years from receipt of approval. Thereafter, the Company's income
will be subject to the regular income tax rate of 36%. Since the Company has had
no taxable income, the benefits have not yet commenced for all programs.

The Company completed implementation of its first and second investment
programs in 1994 and 1998, respectively. The third program has not yet been
completed.

The tax exempt profits that will be earned by the Company's "Approved
Enterprises" can be distributed to shareholders, without imposing tax liability
to the Company only upon the complete liquidation of the Company. If these
retained tax-exempt profits are distributed in a manner other than in the
complete liquidation of the Company they would be taxed at the corporate tax
rate applicable to such profits as if the Company had not elected the
alternative system of benefits currently between 10% to 25% for an "Approved
Enterprise". The Company's Board of Directors has determined that such tax
exempt income will not be distributed as dividends.

Income from sources other than the "Approved Enterprise" during the benefit
period, will be subject to tax at the regular corporate tax rate of 36%. The
Company has not utilized these tax benefits since it has incurred losses from
its inception.

Results of the Company for tax purposes are measured and reflected in real
terms in accordance with the changes in the Israeli CPI. As explained in Note 3,
the financial statements are presented in U.S. dollars. The difference between
the change in the Israel CPI and in the NIS/U.S. dollar exchange rate causes a
difference between taxable income or loss and the income or loss reflected in
the financial statements. In accordance with paragraph 9(f) of SFAS 109, the
Company has not provided deferred income taxes on this difference between the
reporting currency and the tax bases of assets and liabilities.

The Company is an "industrial company" under the Law for the Encouragement
of Industry (Taxation), 1969 and as such is entitled to certain tax benefits,
including accelerated rate of depreciation and deduction of public offering
expenses. The Company has not utilized this tax benefit.

b. Deferred income taxes:

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Operating loss carryforward.............................. $ 3,772 $ 4,208
Reserves and allowances.................................. 509 574
------- -------
Net deferred tax asset before valuation all.............. 4,281 4,782
Valuation allowance...................................... (4,281) (4,782)
------- -------
Net deferred tax asset................................... $ -- $ --
======= =======
</TABLE>

F-19
<PAGE> 101
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

The Company and its subsidiary have provided valuation allowance in respect
of deferred tax assets resulting from tax loss carryforwards. Management
currently believes that since the Company and its subsidiary have a history of
losses it is more likely than not that the deferred tax regarding the tax loss
carryforwards and other temporary differences will not be realized in the
foreseeable future.

c. Net operating losses carryforwards:

The Company has accumulated losses for tax purposes as of December 31,
1999, in the amount of approximately $1.3 million, which may be carried forward
and offset against taxable income in the future for an indefinite period.

Through December 31, 1999, Precise Software Solutions, Inc. had U.S.
federal net operating loss carryforwards of approximately $10.5 million that can
be carried forward and offset against taxable income for 15 to 20 years and
expire from 2009 to 2014.

d. Income (Loss) from continued operation consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Domestic.................................... $(1,046) $(2,434) $ 499
Foreign..................................... (3,159) (1,588) (3,097)
------- ------- -------
$(4,205) $(4,022) $(2,598)
======= ======= =======
</TABLE>

NOTE 10: -- COMMITMENTS AND CONTINGENT LIABILITIES

a. Lease Commitments

The Company and its subsidiary lease their facilities under non-cancelable
operating lease agreements for periods through 2004.

Future minimum commitments under non-cancelable operating leases as of
December 31, 1999, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, OPERATING LEASES
----------------------- ----------------
<S> <C>
2000....................................................... $ 774
2001....................................................... 614
2002....................................................... 424
2003....................................................... 383
2004....................................................... 223
------
$2,418
======
</TABLE>

Lease expenses under operating leases for the years ended December 31,
1997, 1998 and 1999, approximated $258, $276 and $406, respectively.

b. Royalties:

1. The Company is committed to pay royalties to the Chief Scientist of the
Ministry of Industry and Trade at a rate of 3% on the sales of products
developed with funds provided by the Chief Scientist, up to an amount
equal to 100%-150% of dollar-linked research and development grants
related to such projects, from the Chief Scientist. Grants received
after January 1, 1998 bear interest at annual rate equal to LIBOR.

F-20
<PAGE> 102
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

Royalties paid or accrued amounted to $84, $173, $295 and $354 in 1997,
1998, 1999 and for the nine months ended September 30, 2000,
respectively.

As of December 31, 1999 and September 30, 2000, the Company had an
outstanding contingent liability of $624 and $325, respectively.

2. The Government of Israel, through the Fund for the Encouragement of
Marketing Activities ("the Fund"), awarded the Company grants for
participation in its foreign marketing expenses. The Company is
committed to pay royalties at the rate of 4% of the increase in export
sales, up to the amount of the grants.

Royalties paid or accrued amounted to $316, $155, $108 and $30 in 1997,
1998, 1999 and for the nine months ended September 30, 2000,
respectively.

As of December 31, 1999, the Company had an outstanding liability of $28
and as of September 30, 2000, the Company does not have an outstanding
contingent liability to the Fund.

c. Charges:

The Company has a fixed charge on certain fixed assets in favor of the
supplier of those assets.

The Company also has a floating charge in favor of a bank.

NOTE 11: -- DISCONTINUED OPERATIONS

On September 6, 1997, the Company adopted a formal plan to sell its CPE
product line to one of its shareholders. The sale became effective as of
September, 30, 1997 with the buyer assuming all assets and liabilities related
to the CPE product line. The disposal was completed with the transfer of the
assets and liabilities on September 30, 1997. The results of the CPE segment
have been classified as discontinued operations.

Operating results from the discontinued operations for the year ended
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
1997
------
<S> <C>
Net sales................................................... $1,675
======
Cost of sales............................................... 88
======
Research and development expenses........................... 1,249
======
Selling expenses............................................ 530
======
Loss from discontinued operations........................... (192)
======
Gain from disposal of business segment...................... $ 182
======
</TABLE>

F-21
<PAGE> 103
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

NOTE 12: -- SELECTED STATEMENTS OF OPERATIONS DATA

Financial (expenses) income, net:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
------ ------ -----
<S> <C> <C> <C>
Financial income:
Interest and others............................... 57 161 122
Foreign currency translation differences.......... 53 70 5
----- ----- ----
110 231 127
----- ----- ----
Financial expenses:
Interest and other bank charges................... (193) (92) (21)
Foreign currency translation differences.......... (119) (105) (35)
----- ----- ----
(312) (197) (56)
----- ----- ----
$(202) $ 34 $ 71
===== ===== ====
</TABLE>

NOTE 13: -- SEGMENT, CUSTOMERS AND GEOGRAPHIC INFORMATION

a. Summary information about geographical areas

Precise operates in one industry segment, the development and marketing of
performance software products. Operations in Israel include research and
development, marketing and sales. Operations in the United States and in
the United Kingdom include marketing and sales. The following is a summary
of operations within geographic areas based on customer's location.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30
------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues from sales to unaffiliated customers:
U.S.A............................................. $1,899 $4,632 $ 7,753 $4,786 $12,216
North and South America (except U.S.A.)........... 170 201 530 490 879
Japan............................................. 560 509 340 183 621
Far East (except Japan)........................... -- 156 701 409 585
Europe and others................................. 159 691 2,290 1,900 3,625
------ ------ ------- ------ -------
$2,788 $6,189 $11,614 $7,768 $17,926
====== ====== ======= ====== =======
Long-lived assets, by geographic region:
Israel............................................ $ 435 $ 399 $ 477 451 825
United States..................................... 414 434 495 460 1,080
United Kingdom.................................... -- -- -- -- 89
------ ------ ------- ------ -------
$ 849 $ 833 $ 972 $ 911 $ 1,994
====== ====== ======= ====== =======
</TABLE>

b. Major customer data as a percentage of total revenues:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30
----------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A........................................ -- 4.0% 15.3% 15.2% 5.2%
Customer B........................................ 20.1% 8.2% 2.9% 2.4% 3.1%
Customer C........................................ -- -- 0.8% 0.7% 26.2%
</TABLE>

F-22
<PAGE> 104
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED)

In October 2000, the Company entered into agreement to acquire Savant
Corporation (Savant). The acquisition will expand the breadth and depth of
Precise's performance solutions allowing its customers to improve business
performance. The consummation of the acquisition is subject to regulatory
approval and customary closing conditions. The total purchase price payable
consists of $2.5 million in cash and 512,455 ordinary shares. In addition,
Savant's shareholders will have the right to receive additional ordinary shares
based on the achievement of certain post acquisition revenue performance
targets. The Company has incurred approximately $300 in expenses related to the
acquisition.

The acquisition of Savant will be accounted for as a purchase, with the
result of Savant's operations included in the Company's results of operations
from the date of acquisition. The following unaudited pro forma information
presents the results of operation for the Company and Savant for the nine months
ended September 30, 1999 and 2000 as if the acquisition had been consummated as
of January 1, 1999 and January 1, 2000, respectively (in thousands, except per
share amounts, unaudited):

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30
-----------------------------
1999 2000
------------ -------------
<S> <C> <C>
Revenue............................................ $ 10,460 $ 20,504
Net loss........................................... $ 3,921 $ 9,151
Basic and diluted net loss per share............... $ 1.03 $ 0.92
</TABLE>

The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results that would have
occurred had the transaction been completed at the beginning of the earliest
period presented, nor is it necessarily indicative of future operating results.

F-23
<PAGE> 105

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Savant Corporation

We have audited the accompanying balance sheets of Savant Corporation (the
"Company") as of June 30, 2000 and 1999, and the related statements of
operations, shareholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Savant Corporation at June
30, 2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.

/s/Ernst & Young LLP

McLean, Virginia
August 23, 2000

F-24
<PAGE> 106

SAVANT CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
(UNAUDITED) JUNE 30,
------------- -----------------------
2000 2000 1999
------------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 488,838 $ 333,783 $ 567,813
Accounts receivable..................................... 494,245 1,037,578 400,084
Receivable for redeemable convertible preferred stock... -- 50,400 --
Prepaid offering costs.................................. 54,689 -- 75,000
Other prepaid expenses and current assets............... -- 49,546 39,518
---------- ---------- ----------
Total current assets............................... 1,037,772 1,471,307 1,082,415
Property and equipment:
Furniture and fixtures.................................. 100,333 100,333 96,142
Computer equipment...................................... 154,599 154,599 84,435
Leasehold improvements.................................. 14,310 14,310 14,310
Equipment under capital lease........................... 84,345 54,706 114,200
---------- ---------- ----------
353,587 323,948 309,087
Less: accumulated depreciation and amortization............. (230,215) (216,843) (128,451)
---------- ---------- ----------
123,372 107,105 180,636
Software rights and development costs, net.................. 872,585 626,090 48,857
Deposits.................................................... 4,870 6,826 1,644
---------- ---------- ----------
Total assets....................................... $2,038,599 $2,211,328 $1,313,552
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Unearned revenue........................................ $ 700,929 $ 786,806 $ 386,291
Accounts payable........................................ 118,690 109,334 88,143
Current portion of notes payable to related party....... 580,952 547,591 584,453
Current portion of notes payable to third parties....... -- 105,064 172,800
Accrued professional fees and other current
liabilities........................................... -- -- 30,631
Accrued payroll expenses................................ 239,666 102,878 88,176
Capital lease obligations -- current.................... 17,442 16,039 24,087
---------- ---------- ----------
Total current liabilities.......................... 1,657,679 1,667,712 1,374,581
Notes payable to related party.............................. -- -- 237,997
Capital lease obligations................................... 22,768 1,898 18,327
---------- ---------- ----------
Total liabilities.................................. 1,680,447 1,669,610 1,630,905
Redeemable convertible preferred stock, $0.01 and $.000005
par value; authorized shares 5,005,000, issued and
outstanding 615,950 and 615,950 at September 30 and June
30, 2000 and 2,223 at June 30, 1999 ($1,571,693
liquidation value)........................................ 1,420,331 1,420,331 900,657
Shareholders' deficit:
Common stock, $0.000005 par value; authorized shares
100,000,000, issued and outstanding 22,170,476,
21,886,000, and 21,746,000 at September 30, 2000, June 30,
2000 and June 30, 1999, respectively...................... 111 110 110
Additional paid-in capital.................................. 1,721,949 1,621,596 1,416,425
Accumulated deficit......................................... (2,784,239) (2,500,319) (2,634,545)
---------- ---------- ----------
(1,062,179) (878,613) (1,218,010)
---------- ---------- ----------
Total liabilities and shareholders' deficit........ $2,038,599 $2,211,328 $1,313,552
========== ========== ==========
</TABLE>

See accompanying notes.
F-25
<PAGE> 107

SAVANT CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED JUNE 30,
------------- -----------------------
2000 2000 1999
------------- ---------- ----------
<S> <C> <C> <C>
Net revenue:
Product sales........................................... $ 249,486 $2,555,952 $2,318,227
Development & design.................................... -- 81,510 899,490
Maintenance and other revenues.......................... 410,400 1,120,949 444,243
--------- ---------- ----------
659,886 3,758,411 3,661,960
Operating expenses:
General and administrative.............................. 361,921 1,242,777 986,377
Sales and marketing..................................... 393,257 1,450,582 1,215,721
Research and development................................ 120,749 688,626 1,078,862
Product maintenance..................................... 51,299 151,539 60,887
--------- ---------- ----------
927,226 3,533,524 3,341,847
--------- ---------- ----------
Income (loss) from operations............................. (267,340) 224,887 320,113
Other income (expense):
Interest and other income............................... 4,048 8,274 12,975
Interest expense........................................ (20,628) (98,935) (213,232)
--------- ---------- ----------
(16,580) (90,661) (200,257)
--------- ---------- ----------
Income (loss) before cumulative effect of accounting
change.................................................. (283,920) 134,226 119,856
========= ========== ==========
Cumulative effect of accounting change:
Adoption of SOP 98-5.................................... -- -- (16,364)
--------- ---------- ----------
Net income (loss)......................................... $(283,920) $ 134,226 $ 103,492
========= ========== ==========
</TABLE>

See accompanying notes.
F-26
<PAGE> 108

SAVANT CORPORATION

STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998.............. 20,000,000 $100 $ 960,717 $(2,738,037) $(1,777,220)
Conversion of debt to common stock.... 1,508,000 8 229,100 -- 229,108
Common stock issued as consideration
for services........................ 124,000 1 47,499 -- 47,500
Amortization of compensatory stock
options............................. -- -- 155,334 -- 155,334
Common stock issued to directors...... 114,000 1 23,775 -- 23,776
Net income............................ -- -- -- 103,492 103,492
---------- ---- ---------- ----------- -----------
Balance at June 30, 1999.............. 21,746,000 $110 $1,416,425 $(2,634,545) $(1,218,010)
========== ==== ========== =========== ===========
Exercise of stock options............. 54,000 -- 2,700 -- 2,700
Common stock issued to directors...... 86,000 -- 23,220 -- 23,220
Amortization of compensatory stock
options............................. -- -- 179,251 -- 179,251
Net income............................ -- -- -- 134,226 134,226
---------- ---- ---------- ----------- -----------
Balance at June 30, 2000.............. 21,886,000 $110 $1,621,596 $(2,500,319) $ (878,613)
========== ==== ========== =========== ===========
Exercise of stock options............. 14,000 -- 722 -- 722
Conversion of debt to common stock.... 270,476 1 56,799 -- 56,800
Amortization of compensatory stock
options............................. -- -- 42,832 -- 42,832
Net loss.............................. -- -- -- (283,920) (283,920)
---------- ---- ---------- ----------- -----------
Balance at September 30, 2000
(unaudited)......................... 22,170,476 $111 $1,721,949 $(2,784,239) $(1,062,179)
========== ==== ========== =========== ===========
</TABLE>

See accompanying notes.
F-27
<PAGE> 109

SAVANT CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED JUNE 30,
---------------- -------------------
2000 2000 1999
---------------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $(283,920) $134,226 $103,492
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 17,539 142,805 154,079
Amortization of compensatory stock options........... 42,832 179,251 155,334
Write-off of prepaid offering costs.................. -- 75,000 --
Common stock issued as consideration for services.... -- -- 47,500
Common stock issued to directors..................... -- 23,220 23,776
Cumulative effect of accounting change............... -- -- 16,364
Changes in operating assets and liabilities:
Accounts receivable................................ 543,333 (637,494) (76,107)
Other prepaid expenses and current assets.......... (5,143) (10,028) (23,745)
Deposits........................................... 1,956 (5,182) 14,376
Unearned revenue................................... (85,877) 400,515 206,209
Accounts payable and accrued professional fees..... 9,356 (9,440) 23,423
Accrued payroll expenses........................... 136,788 14,702 48,127
--------- -------- --------
Net cash provided by operating activities................. 376,864 307,575 692,828
INVESTING ACTIVITIES
Purchase of property and equipment........................ -- (14,861) (66,613)
Acquisition of software rights and development............ (250,662) (631,646) --
--------- -------- --------
Net cash used in investing activities..................... (250,662) (646,507) (66,613)
FINANCING ACTIVITIES
Proceeds from long-term debt and short-term borrowings.... 722 -- 750,000
Proceeds from the exercise of stock options............... -- 2,700 --
Proceeds from indebtedness................................ (14,903) 120,000 --
Proceeds from note payable to Space Applications
Corporation............................................. -- -- --
Repayments of indebtedness................................ -- (462,595) (840,096)
Repayments of note payable................................ -- -- --
Proceeds from sale of convertible preferred stock, net.... 50,400 469,274 --
Prepaid offering costs.................................... -- -- (75,000)
Payments under capital lease obligations.................. (7,366) (24,477) (32,242)
--------- -------- --------
Net cash provided by (used in) financing activities....... 28,853 104,902 (197,338)
(Decrease) increase in cash............................... 155,055 (234,030) 428,877
Cash at beginning of year................................. 333,783 567,813 138,936
--------- -------- --------
Cash at end of year....................................... $ 488,838 $333,783 $567,813
========= ======== ========
Cash paid for interest.................................... $ 20,628 $ 98,935 $162,464
========= ======== ========
</TABLE>

See accompanying notes.
F-28
<PAGE> 110

SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Savant Corporation (the "Company") develops, sells, supports, and provides
training for computer software applications. Currently, the Company's primary
product which was released for sale in March 1997, is Diagnostic Center software
for use with Oracle Relational Data Base Management Systems ("RDBMS") and which
allows the users to monitor and adjust the operations of RDBMS. The Company is
capable of providing its software and services worldwide.

During the year ended June 30, 2000, the Company developed three additional
products that work with the Diagnostic Center: Sensor, Analyst and Profiler.

INTERIM FINANCIAL INFORMATION

The accompanying financial statements as of September 30, 2000, and for the
three months then ended are unaudited. This unaudited information has been
prepared by the Company on the same basis as the audited consolidated financial
statements and, in the opinion of management, all adjustments, consisting only
of normal recurring accruals considered necessary for a fair presentation, have
been included in the accompanying unaudited statements as of and for the three
months ended September 30, 2000. The results for the three months ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the entire fiscal year ending June 30, 2001.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at historical cost. Depreciation of
equipment is computed using the straight-line method over the estimated useful
lives of the assets. The Company estimates the useful lives to be three years
for computers and software and five years for equipment. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the term of the lease or the assets useful lives. Amortization of
equipment under capital lease is computed using the straight-line method over
the shorter of the term of the lease or the related asset's estimated useful
life. Depreciation expense recognized for the three months ended September 30,
2000 and the years ended June 30, 2000 and 1999 was $13,372, $88,392 and
$65,005, respectively.

RESEARCH AND DEVELOPMENT

All research and development costs are expensed as incurred until
technological feasibility has been established ("beta stage"). Once
technological feasibility has been established, such costs are capitalized until
the software has completed beta testing and is generally available. After the
software becomes generally available, the related capitalized costs are
amortized on a straight-line basis over a period that approximates its useful
life. Management periodically reviews recoverability of the remaining
unamortized costs and, if necessary, makes an adjustment to reduce the carrying
value to approximate net realizable value.

SOFTWARE RIGHTS AND DEVELOPMENT COSTS

Software rights and development costs are stated at cost. Amortization of
software rights and development costs is computed on the straight-line basis
over three years. The Company capitalized $250,662 and $581,646 of software
development costs during the three months ended September 30, 2000 and the year
ended June 30, 2000. The Company also paid $50,000 to a third party for the
rights to certain software. In connection with this purchase of the rights to
certain software from a third party, the

F-29
<PAGE> 111
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company will have to make an additional payment of $25,000 to the third party
once the software is available for commercial release. Such payment will be
recorded by the Company when it is earned and amortized over the remaining life
of the software.

The amortization expense recognized for software rights and development
costs for the three months ended September 30, 2000 and the years ended June 30,
2000 and 1999 was $4,167, $54,413 and $89,074, respectively. Accumulated
amortization as of September 30, 2000, June 30, 2000 and June 30, 1999 was
$291,086, $286,919 and $232,506, respectively.

ORGANIZATIONAL COSTS

On July 1, 1998, the Company adopted the provisions of Statement of
Position ("SOP") 98-5, Reporting the Costs of Start-Up Activities. SOP 98-5
requires that any costs related to start-up activities be expensed in the period
incurred. In addition, in connection with the adoption of SOP 98-5, the Company
wrote-off its remaining organization costs of $16,364 and reflected such
write-off as the cumulative effect of adopting an accounting change in the
statement of operations for the year ended June 30, 1999.

REVENUE RECOGNITION

The Company records revenue in accordance with AICPA Statement of Position
97-2, "Software Revenue Recognition," as amended. In accordance with SOP 97-2,
revenue from product sales is recognized upon shipment provided that no
significant vendor and post contract support obligations remain and collection
of the related receivable is considered probable. Revenues from post contract
customer support, primarily maintenance, are recognized ratably over the period
the customer support services are provided, which is generally one year. In
software arrangements that include post contract customer support, the Company
allocates the total fee among each deliverable based on the relative fair value
of the deliverables determined on vendor specific objective evidence.

Development and design revenues represent research services provided to a
third party for development of certain software. Such revenues are recognized as
performance hurdles are met (in accordance with the provisions of the agreement)
and collectibility is probable.

ADVERTISING EXPENSE

The cost of advertising is expensed as incurred, and amounted to $10,574,
$65,987 and $62,746 for the three months ended September 30, 2000 and the years
ended June 30, 2000 and 1999, respectively.

INCOME TAXES

The Company computes income taxes under the liability method. Under the
liability method, deferred income taxes are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.

STOCK BASED COMPENSATION

During fiscal 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The
provisions of SFAS No. 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25")
but disclose the pro forma effects on net income had the fair value of the
options been expensed. The
F-30
<PAGE> 112
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company has elected to continue to apply APB 25 in accounting for its stock
option incentive plans. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the estimated fair market value of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock (See Note 7).

USE OF ESTIMATES

2. ORGANIZATION AND CAPITALIZATION

The Company was incorporated on April 30, 1996. On this date, the Company
purchased substantially all of the assets of Envision Software, Incorporated
("Envision") for $100,000 and a 55% interest in the outstanding common stock of
the Company. The purchase price was allocated to both the tangible assets and
the software rights acquired from Envision.

During fiscal year 1996, the Company sold a 45% interest in the outstanding
common stock of the Company to Space Applications Corporation ("SAC") for cash
totaling $700,000 and notes receivable totaling $440,000. The notes receivable
were due monthly through September 1996. These notes were paid in full as of
October 16, 1996. During fiscal 1999, SAC sold its 45% interest in the Company
to Summit Aviation, Inc. ("Summit").

3. RELATED PARTY TRANSACTIONS

The Company had an administrative services agreement with SAC, whereby SAC
will provide the Company with certain administrative and management services.
The payment of up to $200,000 of these costs may be deferred by the Company
under a line of credit agreement. Any deferred amounts bore interest at an
annual rate of 20% from the date of invoice until paid in full.

In September 1998, the Company consolidated all outstanding debt with SAC
(including amounts drawn down under the administrative services agreement) into
one note in the amount of $235,709, bearing an annual interest rate of 10.5% and
amortizing over the term of the note, which matures on October 1, 2000. The note
is secured by certain assets of the Company. At June 30, 1999, the outstanding
balance on this note was $162,505.

In September 1998, the Company entered into a promissory note with Summit
in the amount of $750,000, bearing an annual interest rate of 14% and amortizing
over the term of the note, which matures on October 31, 2000. This note is
personally secured by the President of the Company. The proceeds of this note
were used to retire the line of credit with Capital Financial and Management,
Inc. (see Note 4). At June 30, 1999, the outstanding balance on this note was
$659,945.

In March 2000, the Company, SAC and Summit agreed on a new payment plan in
connection with raising additional capital. The new payment plan provided for
three payments to settle the debt with the last payment on May 15, 2000, the
anticipated date of closing a transaction to raise capital. As of September 30,
2000, the Company has not made all of these payments as it did not raise the
capital it anticipated. As a result, the entire remaining balances are
classified as current, as they are due. At September 30, 2000 the outstanding
balances on these notes payable to SAC and Summit were $87,097 and $493,855,
respectively and are reflected in notes payable to related parties in the
balance sheet. At June 30, 2000, the outstanding balances on these notes payable
to SAC and Summit were $87,097 and $460,494, respectively and are reflected in
notes payable to related party in the balance sheet. Included in these amounts
is accrued interest totaling $90,161.
F-31
<PAGE> 113
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In December 1998, the Company signed a memorandum of understanding with
Steven Myers & Associates, Inc. ("SMA"), a company affiliated with Summit, for
SMA to provide professional services to the Company with respect to a private
placement of Company securities. The total fee for such services was expected to
be $300,000, of which $75,000 was paid as of June 30, 1999. The $75,000 paid as
of June 30, 1999 was capitalized and included in prepaid offering costs in the
June 30, 1999 balance sheet. The prepaid offering costs were expensed in general
and administrative expenses during the year ended June 30, 2000 as the private
placement never occurred. In the event that the Company is acquired, the
remaining $225,000 obligation would be payable to SMA under this memorandum of
understanding.

4. LONG-TERM DEBT

On July 9, 1997, the Company entered into a letter of agreement with a
third party for the express purpose of raising operating capital for the
Company. This agreement provided that the Company would pay interest at a rate
of 20% per annum for all loans received, with principal and interest payments
due 24 months from the date of investment. Upon loan maturity, the Company would
repay the principal and interest in full, or at the investors option, credit the
interest towards the purchase of Company stock at a value of $0.209 per share.
The Company borrowed $120,000 under this agreement. This loan had a maturity
date of July 9, 1999.

On August 1, 1999, the loan was replaced by another loan with principal and
interest payments due 13 months from the date of investment. Upon loan maturity,
the Company would repay the principal and interest in full, or at the investors
option, credit the interest towards the purchase of Company stock at a value of
$0.209 per share. The Company borrowed $120,000 under this agreement. This loan
has a maturity date of September 1, 2000. The interest accrued and unpaid at
June 30, 2000 and 1999 was $58,483 and $52,800, respectively and is included as
part of this debt balance. The principal amount outstanding at June 30, 2000 and
1999 was $46,581 and $120,000, which is included in notes payable to third
party. On August 29, 2000, $56,800 of accrued interest was converted to 270,476
shares of the Company's common stock under terms stipulated in the original loan
agreement. In addition, the rest of the balance was fully paid during the three
months ended September 30, 2000.

On September 15, 1997, the Company entered into a line of credit, with
Capital Financial and Management, Inc. with a maximum borrowing amount not to
exceed $900,000, which was due on September 15, 1999. Interest on any
outstanding principal amounts was payable at an annual rate of 22%. There is no
balance outstanding as of June 30, 2000 and 1999, and the line of credit was
terminated at its maturity date.

An additional note was entered into on May 21, 1998, in the amount of
$50,000 which is due on or before May 21, 2000. Interest on this note is payable
at an annual rate of 10%, to be paid at maturity. The note contains a conversion
feature which allows the lender to convert all principal and interest due to
shares of common stock of the Company, on or before the date of note maturity,
at a rate of $0.270 per share. In March 1999, an additional $50,000 note was
entered into on substantially the same terms as the first note. In June 1999,
the entire outstanding balance of $105,990, which included $5,990 of accrued
interest, was converted into 392,000 shares of common stock.

5. LEASES

The Company leases office facilities and certain equipment. The office
facility lease is classified as an operating lease. The equipment leases are
classified as either operating or capital leases. The Company incurred rent
expense related to operating leases of $33,112, $119,584 and $114,644 for the
three months ended September 30, 2000 and the years ended June 30, 2000 and
1999, respectively.

F-32
<PAGE> 114
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

As of September 30, 2000, future minimum lease payments under capital
leases and non-cancelable operating leases with initial terms of one year or
more are as follows (unaudited):

<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING JUNE 30, LEASES OPERATING LEASES
-------------------- ------- ----------------
<S> <C> <C>
2001........................................................ $23,815 $122,158
2002........................................................ 13,702 105,442
2003........................................................ 11,737 3,307
------- --------
Total minimum lease payments...................... 49,254 $230,907
========
Amount representing interest................................ (9,044)
-------
Present value of net minimum lease payments................. $40,210
=======
</TABLE>

As of June 30, 2000, future minimum lease payments under capital leases and
non-cancelable operating leases with initial terms of one year or more are as
follows:

<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING JUNE 30, LEASES OPERATING LEASES
-------------------- ------- ----------------
<S> <C> <C>
2001........................................................ $17,921 $122,158
2002........................................................ 1,965 105,442
2003........................................................ -- 3,307
------- --------
Total minimum lease payments...................... 19,886 $230,907
========
Amount representing interest................................ 1,949
-------
Present value of net minimum lease payments................. $17,937
=======
</TABLE>

The Company entered into capital lease obligations for equipment in the
amount of $23,639, $0 and $17,894 during the three months ended September 30,
2000 and the years ended June 30, 2000 and 1999, respectively.

6. INCOME TAXES

At September 30 and June 30, 2000, the Company has net operating loss
carryforwards for federal income tax purposes of approximately $2,321,386 and
$2,037,466, respectively, which are available to offset future federal taxable
income through 2015. Net deferred tax assets have been fully offset by a
valuation allowance due to the uncertainty of their realization.

7. SHAREHOLDERS' EQUITY

SALE OF PREFERRED STOCK

On or before January 31, 1997 the Company sold 2,223 shares of non-voting
redeemable convertible preferred stock (the "1997 Preferred Stock"), par value
$0.01, at $417.13 per share in a private placement memorandum. There are 5,000
shares of the 1997 Preferred Stock authorized for issuance. The 1997 Preferred
Stock is non-voting, except that holders are entitled to elect one individual to
serve on the Company's Board of Directors. Each holder of the 1997 Preferred
Stock will have the right to convert, at any time, any or all of such holder's
shares into common stock at an applicable conversion ratio as defined in the
private placement memorandum dated December 16, 1996. The 1997 Preferred Stock
is non-cumulative, does not have a defined dividend rate and is convertible into
4,446,000 shares of Company common stock. In the event of the sale of the
Company, a merger of the Company into another company or the sale or disposition
of all or substantially all of the Company's assets, the Company is required to
redeem the 1997 Preferred Stock in cash at a rate of $417.13 per share.

F-33
<PAGE> 115
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In March 2000, the Company's shareholders approved the issuance of up to an
additional 5,000,000 shares of convertible preferred stock with terms identical
to the redeemable preferred stock sold in 1997 (the "2000 Redeemable Preferred
Stock"). In May 2000, the Company completed the sale of 613,727 shares of the
2000 Preferred Stock, par value $0.000005, at $1.05 per share in a private
placement memorandum. The net proceeds to the Company were $519,674 of which
$50,400 is still owed as of June 30, 2000 and is reflected as a receivable in
the June 30, 2000 balance sheet. This amount was received subsequent to June 30,
2000. The 2000 Preferred Stock is non-voting. Each holder of the 2000 Preferred
Stock will have the right to convert, at any time, any or all of such holder's
shares into common stock at an applicable conversion ratio as defined in the
private placement memorandum dated March 24, 2000. The 2000 Preferred Stock is
non-cumulative, does not have a defined dividend rate and is convertible into
613,727 shares of Company common stock. In the event of the sale of the Company,
a merger of the Company into another company or the sale or disposition of all
or substantially all of the Company's assets, the Company is required to redeem
the 2000 Preferred Stock in cash at a rate of $1.05 per share.

STOCK OPTION PLAN

The Company has a nonqualified stock option plan, under which options are
granted to all employees and vest over periods generally ranging from one to
four years. A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Balance at June 30, 1998.................................... 8,890,000 $0.120
Granted................................................ 2,276,000 0.268
Exercised.............................................. -- --
Forfeited.............................................. (120,000) 0.050
----------

Balance at June 30, 1999.................................... 11,046,000 0.150
Granted................................................ 586,234 0.251
Exercised.............................................. (54,000) 0.050
Forfeited.............................................. (690,000) 0.269
----------

Balance at June 30, 2000.................................... 10,888,234 0.148
Granted................................................... 972,500 1.050
Exercised................................................. (14,000) 0.050
Forfeited................................................. (505,000) 0.312
----------

Balance at September 30, 2000 (unaudited)................... 11,341,734 $0.218
----------
</TABLE>

F-34
<PAGE> 116
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following represents the Company's outstanding and exercisable stock
options at September 30, 2000 (unaudited):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
APPROXIMATE OPTIONS EXERCISABLE
WEIGHTED -------------------------------
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING EXERCISABLE AT WEIGHTED
EXERCISE SEPTEMBER 30, CONTRACTUAL LIFE SEPTEMBER 30, AVERAGE
PRICE 2000 (IN YEARS) 2000 EXERCISE PRICE
-------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
$0.005 307,692 9.51 -- $0.005
0.050 710,000 7.75 710,000 0.050
0.079 4,972,000 5.75 4,972,000 0.079
0.209 3,116,000 7.00 3,116,000 0.209
0.270 1,203,042 8.80 596,000 0.270
1.050 1,033,000 9.97 -- 1.050
</TABLE>

The following represents the Company's outstanding and exercisable stock
options at June 30, 2000:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
APPROXIMATE
WEIGHTED OPTIONS EXERCISABLE
NUMBER AVERAGE -------------------------------
OUTSTANDING AT REMAINING NUMBER WEIGHTED
EXERCISE SEPTEMBER 30, CONTRACTUAL LIFE EXERCISABLE AT AVERAGE
PRICE 2000 (IN YEARS) JUNE 30, 2000 EXERCISE PRICE
-------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
$0.005 307,692 9.76 -- $0.005
0.050 724,000 8 724,000 0.050
0.079 4,972,000 6 4,972,000 0.079
0.209 3,116,000 7.25 3,116,000 0.209
0.270 1,680,542 9.05 -- 0.270
1.050 88,000 9.80 -- 1.050
</TABLE>

The Company granted 2,704,000 options during fiscal 1996, whose grant
prices were less than the deemed fair value of the Company's common stock. The
Company recognized $117,881 of compensation expense during fiscal 1999 and 1998
related to these options. In addition, the Company recorded $21,030, $121,815
and $37,453 in compensation expense during the three months ended September 30,
2000 and the years ended June 30, 2000 and 1999, respectively, related to
certain stock options granted to the President of the Company.

During fiscal 1998, the Company issued 460,000 warrants to third party as
consideration for services received. The warrants are fully vested and
exercisable for a period of 10 years at a strike price of $0.209. All of the
warrants are outstanding as of September 30, 2000.

During fiscal year 2000, the Company granted 307,692 options whose grant
prices were less than the deemed fair value of the Company's common stock. As a
result, the Company recognized $21,802 and $57,436 in compensation expense
during the three months ended September 30, 2000 and the year ended June 30,
2000 related to these options.

Had compensation cost related to the stock option plan been determined
based on the fair value at the grant date for options granted during the three
months ended September 30, 2000 and the years ended June 30, 2000 and 1999
consistent with the provisions of SFAS 123, the Company's pro forma net
(loss)income would be $(313,045), $87,946 and $82,370, respectively. The fair
value of the options granted during fiscal year 1999 are estimated at $0.064 per
share on the date of grant using the minimum value option-pricing model with the
following assumptions: no dividend yield, no volatility, a risk-free

F-35
<PAGE> 117
SAVANT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

investment rate of 5.5% and an expected life of 5.0 years from the date of
issuance. The fair value of the options granted during fiscal year 2000 are
estimated at $0.126 per share on the date of grant using the minimum value
option-pricing model with the following assumptions: no dividend yield, no
volatility, a risk-free investment rate of 5.5% and an expected life of 5.0
years from the date of issuance. The effect of applying SFAS 123 on pro forma
net income is not necessarily representative of the effects on reported net
income for future years due to, among other things, the changes in fair value of
additional stock options in future years.

COMMON STOCK

In March 2000, the Company's shareholders approved a 2-for-1 stock split of
the Company's common stock. In July 1999, the Company's shareholders approved a
1,000-for-1 stock split of the Company's common stock. Accordingly, all data
shown in the accompanying financial statements and notes has been retroactively
adjusted to reflect the stock splits.

In March 2000, the Company's shareholders approved an increase of the
authorized shares of Company common stock from 25,000,000 to 100,000,000. In
July 1999, the Company's shareholders approved an increase of the authorized
shares of Company common stock from 20,000,000 to 25,000,000.

During fiscal 1999, the Company issued 124,000 shares of common stock to a
third party as consideration for certain services valued at $47,500. In
addition, during fiscal 2000 and 1999, the Company issued 86,000 and 114,000
shares of common stock, respectively, to non-employee directors as consideration
for past services valued at $23,220 and $23,776 in the aggregate.

8. EMPLOYEE BENEFIT PLAN

In July 1999, the Company established the Savant Corporation 401(k) Plan
(the "Plan"). The Plan was established to qualify as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code (the "Code"). The
Plan covers all employees who have completed three months of service and
attained the age of twenty-one. The Plan allows employees to contribute up to
15% of their total compensation, subject to Code limitations. The Company may
make a matching contribution at its discretion. No such matching contributions
were made during the three months ended September 30, 2000 and the year ended
June 30, 2000.

9. SYBASE LITIGATION

In May 2000, Sybase, Inc. ("Sybase") filed a lawsuit alleging a breach of
contract by the Company relating to a software development agreement. Sybase
seeks to have certain software transferred to it plus unspecified damages. The
Company has filed a counter complaint against Sybase for breach of contract and
seeks damages for services believed to be in excess of $700,000. The Company has
denied the allegations in Sybase's complaint and intends to vigorously defend
the action. The Company does not believe that this matter will have a material
impact on its financial position or results of operations.

10. SUBSEQUENT EVENT (UNAUDITED)

In October 2000, the Company and Precise Software Solutions Ltd. (Precise)
entered into an agreement under which Precise would acquire all of the
outstanding shares of capital stock of the Company for total stock and cash
consideration of $20,000,000. In addition, the Company will have the right to
receive additional consideration based on the achievement of certain
post-acquisition revenue performance targets. The additional consideration would
be in an amount equal to four and one-half times the amount by which such
revenue exceeds $7 million (up to a maximum of $13 million in revenue).

F-36
<PAGE> 118

PRECISE SOFTWARE SOLUTIONS AND SAVANT

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements
have been prepared to give effect to the acquisition of Savant Corporation
(Savant) under the purchase method of accounting after giving effect to the pro
forma adjustments described in the accompanying notes.

The following unaudited pro forma condensed combined balance sheet as of
September 30, 2000 gives effect to the acquisition of Savant as if it had
occurred on such date, and reflects the allocation of the purchase price to the
Savant assets acquired based on their estimated fair values at the date of
acquisition. The excess of the consideration paid by Precise in the acquisition
over the fair value at Savant's identifiable assets and liabilities has been
recorded as goodwill.

The following unaudited pro forma condensed combined statements of
operations combine the historical statements of operations of Precise and
Savant. The unaudited pro forma condensed combined statement of operations for
the nine months ended September 30, 2000 and for the year ended December 31,
1999, give effect to the acquisition as if it had occurred on January 1, 1999,
and combine the historical unaudited statements of operations of Precise and
Savant for such period. It is expected that following the acquisition Precise
will incur additional costs, which are expected to be significant to the
combined results of operations, in connection with integrating the two
companies. Integration costs are not included in the accompanying unaudited pro
forma condensed combined financial statements. This pro forma information should
be read in conjunction with the respective consolidated historical financial
statements (including notes thereto) of Precise and Savant, for the year ended
December 31, 1999 and for the nine months period ended September 30, 2000,
appearing elsewhere herein.

Unaudited pro forma condensed combined financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the acquisition occurred at the beginning of the periods presented,
nor is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma condensed combined financial statements
are based upon the respective historical financial statements of Precise and
Savant and do not incorporate, nor do they assume, any benefits from cost
savings or synergies of the combined company. The pro forma adjustments are
based on available financial information and certain estimates and assumptions
that the Company believes are reasonable and that are set forth in the notes to
the unaudited pro forma condensed combined financial statements.

F-37
<PAGE> 119

PRO FORMA FINANCIAL INFORMATION

PRECISE SOFTWARE SOLUTIONS AND SAVANT

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO
------------------- PRO FORMA FORMA
PRECISE SAVANT ADJUSTMENTS REFERENCES COMBINED
-------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 25,447 $ 489 $ (2,800) A,B $ 23,136
Marketable securities.................... 29,149 -- -- 29,149
Trade receivable, net...................... 3,507 494 -- 4,001
Other account receivables and prepaid
expenses................................. 3,253 60 -- 3,313
-------- -------- -------- --------
Total current assets............. 61,356 1,043 (2,800) 59,599
Long-Term investments...................... 25,981 -- -- 25,981
Property and equipment, net................ 1,994 123 -- 2,117
Severance pay fund......................... 445 -- -- 445
Other assets, net.......................... 778 873 5,227 C,D 6,878
Goodwill................................... -- -- 8,847 E 8,847
-------- -------- -------- --------
Total assets..................... $ 90,554 $ 2,039 $ 11,274 $103,867
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables............................. $ 1,894 $ 119 -- $ 2,013
Deferred revenues.......................... 2,154 701 -- 2,855
Current portion of notes payable to related
party.................................... -- 581 -- 581
Employee and payroll accruals.............. 1,128 240 -- 1,368
Accrued expenses........................... 1,807 -- -- 1,807
Other accounts payable..................... 339 40 379
-------- -------- -------- --------
Total current liabilities........ 7,322 1,681 -- 9,003
Accrued severance pay...................... 753 -- -- 753
Redeemable Convertible Preferred Shares.... -- 1,421 (1,421) G --

SHAREHOLDERS' EQUITY:
Ordinary shares.......................... 177 -- 4 F 181
Additional paid-in capital............... 109,877 1,721 12,107 F,G 123,705
Deferred stock compensation.............. (3,915) -- -- (3,915)
Accumulated other comprehensive loss..... (41) -- -- (41)
Accumulated deficit........................ (23,619) (2,784) 584 G,H (25,819)
-------- -------- -------- --------
Total liabilities and
shareholders' equity........... $ 90,544 $ 2,039 $ 11,274 $103,867
======== ======== ======== ========
</TABLE>

See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-38
<PAGE> 120

PRECISE SOFTWARE SOLUTIONS AND SAVANT

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRECISE SAVANT ADJUSTMENTS REFERENCES COMBINED
------- ------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues, net................................. $17,926 $2,578 $ -- $ 20,504
Cost of revenues.............................. 1,658 139 -- 1,797
------- ------ ------- --------
Gross profit.................................. 16,268 2,439 -- 18,707
------- ------ ------- --------
Operating expenses:
Research and development, net............... 3,437 335 -- 3,772
Selling and marketing, net.................. 13,787 1,317 -- 15,104
General and administration.................. 2,640 903 -- 3,543
Amortization of purchased intangible
assets................................... -- -- 1,786 I 1,786
Amortization of stock-based compensation.... 4,953 -- -- 4,953
------- ------ ------- --------
Total operating expenses............ 24,817 2,555 1,786 29,158
------- ------ ------- --------
Income (loss) from operations................. (8,549) (116) (1,786) (10,451)
Financial income (expense):
Interest income.......................... 1,372 8 -- 1,380
Interest expense......................... -- (60) -- (60)
------- ------ ------- --------
Net other income (expense).................... 1,372 (52) -- 1,320
------- ------ ------- --------
Net loss...................................... (7,177) $ (168) $(1,786) $ (9,131)
======= ====== ======= ========
Basic and diluted net loss per share.......... $ (0.76) $ (0.92)
======= ========
Weighted average number of shares used in
computing basic and diluted net loss per
share....................................... 9,451 9,963
======= ========
Basic and diluted pro forma net loss per
share....................................... $ (0.41) $ (0.51)
======= ========
Weighted average number of shares used in
computing pro forma basic and diluted net
loss per share.............................. 17,403 17,915
======= ========
</TABLE>

See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-39
<PAGE> 121

PRECISE SOFTWARE SOLUTIONS AND SAVANT

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRECISE SAVANT ADJUSTMENTS REFERENCES COMBINED
------- ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues, net................................ $11,614 $ 3,629 $ -- $15,243
Cost of revenues............................. 1,647 88 -- 1,735
------- ------- ------- -------
Gross profit................................. 9,967 3,541 -- 13,508
------- ------- ------- -------
Operating expenses:
Research and development, net.............. 2,891 1,442 -- 4,333
Selling and marketing, net................. 7,913 1,585 -- 9,498
General and administration................. 1,598 881 -- 2,479
Amortization of purchased intangible
assets.................................. -- -- 2,381 I 2,381
Amortization of stock-based compensation... 234 -- -- 234
------- ------- ------- -------
Total operating expenses........... 12,636 3,908 2,381 18,925
------- ------- ------- -------
Income (loss) from operations................ (2,669) (367) (2,381) (5,417)
Financial income (expense):
Interest income............................ 71 11 -- 82
Interest expense........................... -- (148) -- (148)
------- ------- ------- -------
Net other income (expense)................... 71 (137) -- (66)
------- ------- ------- -------
Net income (loss)............................ $(2,598) $ (504) $(2,381) $(5,483)
======= ======= ======= =======
Basic and diluted net loss per share......... $ (0.79) $ (1.44)
======= =======
Weighted average number of shares used in
computing basic and diluted net loss per
share...................................... 3,299 3,811
======= =======
Basic and diluted pro forma net loss per
share...................................... $ (0.22) $ (0.45)
======= =======
Weighted average number of shares used in
computing pro forma basic and diluted net
loss per share............................. 11,637 12,149
======= =======
</TABLE>

See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-40
<PAGE> 122

PRECISE SOFTWARE SOLUTIONS AND SAVANT

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

NOTE 1

The unaudited pro forma condensed combined financial statements reflect the
purchase of Savant Corporation ("Savant"). The total purchase price consisted of
$2,800 in cash and $13,081 in shares, which represented the market value of
512,455 ordinary shares at the date of the agreement, and included $300 of
transaction costs, consisting primarily of legal, accounting, and valuation
fees.

In addition, Savant will have the right to receive additional consideration
based on the achievement of certain post-acquisition revenue performance
targets.

Based upon a preliminary valuation of tangible and intangible assets
acquired, Precise has allocated the total cost of the acquisition to Savant
assets as follows (in thousands) (This allocation is for pro forma purposes
only. Actual fair values will be based on financial information at the
acquisition date):

<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
<S> <C>
Tangible assets acquired.................................... $ (515)
Intangible assets-assembled workforce, customer lists, and
goodwill.................................................. 11,747
Completed technology........................................ 3,200
In-process research and development......................... 2,200
-------
$16,632
=======
</TABLE>

NOTE 2

The pro forma condensed combined balance sheet includes the adjustments
necessary to give effect to the acquisition as if it had occurred on September
30, 2000 and to reflect the allocation of the acquisition cost to the fair value
of tangible and intangible assets acquired as noted above, including the
elimination of Savant's equity account.

The amount of excess of cost attributable to in process research and
development of Savant is estimated to be in the sum of approximately $2,200.
This amount will be recorded as research and development cost during the fiscal
quarter in which the acquisition is consummated. This expense has not been
included in Pro Forma Combined Condensed Statements of Operations as it does not
represent a continuing expense.

Adjustments included in the pro forma condensed combined balance sheet are
summarized as follows (in thousands):

(A) Cash consideration paid for Savant

(B) Transaction costs.

(D) Valuation of Savant's intangible assets of $6,100.

(E) Valuation of Savant's goodwill of $8,847.

(F) Issuance of shares in amount of $13,831

(G) Elimination of the Savant equity accounts and the conversion of
the redeemable shares.

(H) Write off estimated of acquired in-process research and
development of $2,200.

F-41
<PAGE> 123
PRECISE SOFTWARE SOLUTIONS AND SAVANT

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

NOTE 3

The pro forma condensed combined statements of operations include the
adjustments necessary to give effect to the acquisition as if it had occurred on
January 1, 1999. Adjustments included in the pro forma condensed combined
statements of operations are summarized as follows:

(I) Amortization of purchased intangible assets.

Amortization of acquired intangible assets is calculated using the
following estimated useful lives:

<TABLE>
<S> <C>
Assembled workforce......................................... 5 years
Goodwill.................................................... 7 years
Customer lists.............................................. 7 years
Completed technology........................................ 5 years
</TABLE>

Amortization for the year ended December 31, 1999 and for the nine months
ended September 30, 2000 was $2,381 and $1,786, respectively.

F-42

[INSIDE BACK COVER]
<PAGE> 124

Precise Software Solutions
[Precise Logo]
accelerating e-business performance
<PAGE> 125

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

4,350,000 SHARES

[PRECISE SOFTWARE SOLUTIONS LTD. LOGO]

PRECISE SOFTWARE SOLUTIONS LTD.

ORDINARY SHARES

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

PROSPECTUS

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

MERRILL LYNCH & CO.

CIBC WORLD MARKETS

DAIN RAUSCHER WESSELS

WIT SOUNDVIEW

FAC/EQUITIES

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 126

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Companies Law provides that an Israeli company cannot exempt an office
holder from liability with respect to a breach of his fiduciary
responsibilities. However, our articles of association provide that, subject to
the provisions of the Companies Law, we may insure the liability, in whole or in
part, of any of our office holders with respect to: (a) a breach of the duty of
care to us or to another person; (b) a breach of the fiduciary duty to us,
provided that the office holder acted in good faith and had reasonable cause to
assume that his act would not prejudice our interests, or (c) a financial
liability imposed upon him in favor of another person in respect of an act
performed by him in his capacity as an office holder of Precise. In addition, we
may indemnify an office holder against: (i) a financial liability imposed on him
in favor of another person by any judgment, including a compromise judgment or
an arbitrator's award approved by a court in respect of an act performed in his
capacity as an office holder of Precise, and (ii) reasonable litigation
expenses, including attorneys' fees, incurred by such office holder or charged
to him by a court in proceedings instituted against him by Precise or on its
behalf or by another person, or in a criminal charge from which he was
acquitted, all in respect of an act performed in his capacity as an office
holder of Precise. Our articles of association state that an office holder, for
purposes of the provisions of the articles relating to insurance and
indemnification, includes a director, a general manager, the chief executive
officer, an executive vice president, a vice president, other managers directly
subordinate to the general manager and any person who fills one of the above
positions, even if he carries a different title. Furthermore, our articles of
association provide that we may also procure insurance or indemnify any person
who is not an office holder, including, without limitation, an employee, agent,
consultant or contractor of Precise who is not an office holder. We have entered
into indemnity agreements with our office holders and have obtained directors'
and officers' liability insurance for the benefit of our office holders.

Our U.S. subsidiary has also entered into indemnification agreements with
certain of our key employees. These agreements provide, independent of the
indemnification these individuals are entitled to by law and under the
provisions of our subsidiary's charter, indemnification for certain acts while
employed by the subsidiary. These indemnification agreements contain exclusions,
such as limiting indemnification that would be unlawful or that is covered by
other liability insurance. Moreover, employees are not indemnified against
liability to the extent that the employee gained a personal profit to which he
or she is not legally entitled, including proceeds obtained from the illegal
trading of our equity securities. These agreements are guaranteed by Precise
Software Solutions Ltd. as parent of the U.S. subsidiary, to the extent
permitted by Israeli law.

ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES.

Precise has issued (without payment of any selling commissions to any
person) the following securities since September 30, 1997 without registration
under the Securities Act of 1933. The following information reflects a
two-for-three reverse share split effected by the Company in April 2000.

Since September 30, 1997, Precise has issued options to purchase an
aggregate of 4,980,464 ordinary shares and series A ordinary shares under its
1995 Share Option and Incentive Plan and its 1998 Share Option and Incentive
Plan. From September 30, 1997 through September 30, 2000, options to purchase
123,828 ordinary shares had been exercised. The following table lists options
granted between September 30, 1997 and September 30, 2000.

<TABLE>
<CAPTION>
DATE SHARES PRICE
---- --------- ------
<S> <C> <C>
November 1998......................................... 500,408 $ 0.38
November 1998......................................... 1,519,108 1.04
February 1999......................................... 48,338 1.04
May 1999.............................................. 46,668 1.04
</TABLE>

II-1
<PAGE> 127

<TABLE>
<CAPTION>
DATE SHARES PRICE
---- --------- ------
<S> <C> <C>
October 1999.......................................... 183,336 $ 1.04
October 1999.......................................... 970,024 1.50
January 2000.......................................... 3,334 1.04
March 2000............................................ 410,672 1.50
March 2000............................................ 230,362 10.35
April 2000............................................ 40,000 1.04
May 2000.............................................. 33,333 10.35
June 2000............................................. 571,070 15.00
August 2000........................................... 424,110 19.63
September 2000........................................ 33,334 1.04
September 2000........................................ 6,000 1.50
</TABLE>

In May 1997, Precise issued to certain of its existing shareholders an
aggregate of $1,288,923 in face value of notes convertible into series A
preferred shares at a conversion price equal to the price of equity securities
issued in any subsequent round of equity financing provided at least $2.5
million was raised. In addition, Precise issued warrants to purchase 377,944
series A preferred shares at an exercise price of $0.02 per share, with each
shareholder to whom a note was issued receiving a warrant to purchase the number
of series A preferred shares equal to the amount of the face value of the note
issued to the investor divided by $3.41. In October, November and December of
1997, Precise issued, without additional consideration, additional warrants to
purchase an aggregate of 283,458 series A preferred shares pursuant to the terms
of the original notes and warrants.

In November 1998, Precise issued a warrant to purchase 286,314 series A
ordinary shares to an employee.

In November 1997, Precise issued to certain of its existing shareholders an
aggregate of $617,700 in principal amount of notes, convertible into series A
preferred shares at a conversion price equal to the price per share of equity
securities offered in a subsequent offering, provided that at least $2.0 million
in cash was raised in that offering.

In February 1998, Precise issued and sold series A preferred shares
convertible into an aggregate of 3,956,046 ordinary shares to various investors
for a purchase price of $1.42 per share paid in cash or conversion of notes
issued by Precise and held by some of the investors. Precise also issued an
aggregate of 1,327,879 ordinary shares to existing investors pursuant to
anti-dilution provisions of securities held by these investors without
additional consideration.

In November 1998, Precise issued a warrant to purchase 140,000 series A
preferred shares to a consultant at an exercise price of $0.38 per share.

In September 1999, Precise issued 4,875,800 series B preferred shares
convertible into 4,875,800 ordinary shares at a purchase price of $2.04 per
share to various investors.

In July 2000, Precise issued 312,500 ordinary shares to EMC Investment
Corporation.

No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of the options to purchase ordinary
shares described above, Rule 701 of the Securities Act or were issued outside of
the United States in transactions not subject to the United States federal
securities laws. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.

II-2
<PAGE> 128

ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
-------- ----------------------- ----------
<S> <C> <C>
1.1* Form of Underwriting Agreement
2.1* Agreement and Plan of Merger, dated as of October 27, 2000,
by and among the Registrant, Precise Acquisition Corporation
and Savant Corporation
2.2* Amendment to Agreement and Plan of Merger, dated as of
November 13, 2000, by and among the Registrant, Precise
Acquisition Corporation and Savant Corporation
3.1(1) Memorandum of Association of Registrant, dated November 14,
1990 (English translation)
3.2(1) Amendment to Memorandum of Association of Registrant, dated
April 12, 2000 (English translation)
3.3(1) Amended and Restated Articles of Association of Registrant
4.1(1) Specimen of Ordinary Share Certificate
5.1* Opinion of Volovelsky, Dinstein, Sneh & Co. as to the
validity of the shares
10.1(1) Lease Agreement by and between Precise and Africa Israel
Investments Ltd. dated April 29, 1997 (English translation)
10.2(1) Sublease Agreement, by and between the Travelers Indemnity
Company and Precise Software Solutions, Inc. dated June 3,
1999
10.3(1)+ Application Software Vendor Agreement by and between Precise
and Amdocs UK Limited dated January 12, 1998
10.4(1)+ Software License Agreement by and between Precise and EMC
Corporation dated March 19, 1999 and the amendments thereto
dated October 5, 1999 and December 13, 1999
10.5(1) Share Purchase Agreement by and among Precise and the
Investors named therein, dated July 22, 1999, as amended on
August 5, 1999
10.6(1) Share Purchase Agreement by and among the Registrant and
certain investors dated as of December 31, 1997
10.7(1) Share Purchase and Shareholders Agreement by and among the
Registrant, certain shareholders of the Registrant, Gemini
Israel Fund LP, certain Advent Limited Partnerships and
certain other purchasers dated May 6, 1996
10.8(1) Agreement by and among the Registrant, certain shareholders
of the Registrant, Gemini Israel Fund LP and certain Advent
Limited Partnerships, dated November 9, 1993
10.9(1) Letter Agreement between Precise and EMC Investment
Corporation dated April 18, 2000, as amended May 19, 2000
and June 26, 2000
21.1* Subsidiaries of the Registrant
23.1 Consent of Kost, Forer & Gabbay, a member of Ernst and Young
International
23.2* Consent of Volovelsky, Dinstein, Sneh & Co. (contained in
Exhibit 5.1)
23.3 Consent of Ernst & Young LLP
24.1* Powers of Attorney
</TABLE>

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

* Previously filed.

+ Confidential treatment granted as to certain portions, which portions have
been separately filed with the Securities and Exchange Commission.

(1) Incorporated by reference to the exhibits to the registrant's registration
statement on Form F-1 (File No. 333-11992).

(b) FINANCIAL STATEMENT SCHEDULES.

Schedule II -- Valuation and Qualifying Accounts

II-3
<PAGE> 129

ITEM 9. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 130

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto, duly authorized, in the City of Boston, Massachusetts, on November
14, 2000.

PRECISE SOFTWARE SOLUTIONS LTD.

By: /s/ SHIMON ALON
------------------------------------
Shimon Alon
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

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

/s/ SHIMON ALON Chief Executive Officer, President November 14, 2000
------------------------------------ and Director and Authorized United
Shimon Alon States Representative

* Chief Financial Officer November 14, 2000
------------------------------------
J. Benjamin H. Nye

* Controller November 14, 2000
------------------------------------
Dror Elkayam

* Director and Chairman of the Board November 14, 2000
------------------------------------ of Directors
Ron Zuckerman

Director
------------------------------------
Yuval Cohen

* Director November 14, 2000
------------------------------------
Robert J. Dolan

* Director November 14, 2000
------------------------------------
Erel Margalit

* Director November 14, 2000
------------------------------------
Mary A. Palermo

Director
------------------------------------
Yoseph Sela

Director
------------------------------------
Anton Simunovic

/s/ SHIMON ALON Attorney-in-Fact
------------------------------------
* By: Shimon Alon
</TABLE>

II-5
<PAGE> 131

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE
BALANCE AT CHARGED TO CHARGED AT END
BEGINNING COSTS AND TO OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
allowance for doubtful accounts.............. $30,000 $25,000 -- -- $55,000
Year ended December 31, 1998
allowance for doubtful accounts.............. 0 30,000 -- -- 30,000
Year ended December 31, 1997
allowance for doubtful accounts.............. 67,119 32,871 -- (99,990) 0
</TABLE>

S-1
<PAGE> 132

LIST OF EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
------- ----------------------- ----------
<S> <C> <C>
1.1* Form of Underwriting Agreement
2.1* Agreement and Plan of Merger, dated as of October 27, 2000,
by and among the Registrant, Precise Acquisition Corporation
and Savant Corporation
2.2* Amendment to Agreement and Plan of Merger, dated as of
November 13, 2000, by and among the Registrant, Precise
Acquisition Corporation and Savant Corporation
3.1(1) Memorandum of Association of Registrant (English
translation)
3.2(1) Amendment to Memorandum of Association of Registrant, dated
April 12, 2000 (English translation)
3.3(1) Amended and Restated Articles of Association of Registrant
4.1(1) Specimen of Ordinary Share Certificate
5.1* Opinion of Volovelsky, Dinstein, Sneh & Co. as to the
validity of the shares
10.1(1) Lease Agreement by and between Precise and Africa Israel
Investments Ltd. dated April 29, 1997 (English translation)
10.2(1) Sublease Agreement, by and between the Travelers Indemnity
Company and Precise Software Solutions, Inc. dated June 3,
1999
10.3(1)+ Application Software Vendor Agreement by and between Precise
and Amdocs UK Limited dated January 12, 1998
10.4(1)+ Software License Agreement by and between Precise and EMC
Corporation dated March 19, 1999 and the amendments thereto
dated October 5, 1999 and December 13, 1999
10.5(1) Share Purchase Agreement by and among Precise and the
Investors named therein, dated July 22, 1999, as amended on
August 5, 1999
10.6(1) Share Purchase Agreement by and among the Registrant and
certain investors dated as of December 31, 1997
10.7(1) Share Purchase and Shareholders Agreement by and among the
Registrant, certain shareholders of the Registrant, Gemini
Israel Fund LP, certain Advent Limited Partnerships and
certain other purchasers dated May 6, 1996
10.8(1) Agreement by and among the Registrant, certain shareholders
of the Registrant, Gemini Israel Fund LP and certain Advent
Limited Partnerships dated November 9, 1993
10.9(1) Letter Agreement between Precise and EMC Investment
Corporation dated April 18, 2000, as amended May 19, 2000
and June 26, 2000
21.1* Subsidiaries of the Registrant
23.1 Consent of Kost, Forer & Gabbay, a member of Ernst and Young
International
23.2* Consent of Volovelsky, Dinstein, Sneh & Co. (contained in
Exhibit 5.1)
23.3 Consent of Ernst & Young LLP
24.1* Powers of Attorney
</TABLE>

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

* Previously filed.

+ Confidential treatment granted as to certain portions, which portions have
been separately filed with the Securities and Exchange Commission.

(1) Incorporated by reference to the exhibits to the registrant's registration
statement on Form F-1 (File No. 333-11992).