GREAT PLAINS SOFTWARE INC, 424B4, 1997-06-24

GREAT PLAINS SOFTWARE INC
424B4, 1997-06-24
PREPACKAGED SOFTWARE

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3,000,000 SHARES

[LOGO]

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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All of the 3,000,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to this offering, there has been no public market for the
Common Stock. For factors considered in determining the initial public offering
price, see "Underwriting."

Shares of Common Stock are being reserved for sale at the initial public
offering price to resellers of the Company's products and services, directors,
officers and employees of the Company and certain other persons. Such resellers,
directors, officers, employees and other persons will purchase, in the
aggregate, not more than 15% of the Common Stock offered hereby. See
"Underwriting."

The Company has established a dedicated World Wide Web site (the "website")
relating to this offering at the address http://www.ipo-greatplains.com. The
user name for access to the website is "greatplains," and the password for
access to the website is "arthur." The website contains this Prospectus,
including demonstrations of certain of the Company's products and comments from
members of the Company's management. These demonstrations and comments are
reproduced in printed form in the appendix to this Prospectus.

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "GPSI."

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Per Share...................................... $16.00 $1.12 $14.88
Total (3)...................................... $48,000,000 $3,360,000 $44,640,000
</TABLE>

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

(2) Before deducting estimated expenses of $680,000 payable by the Company.

(3) The Company has granted to the Underwriters an option for 30 days to
purchase up to an additional 450,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to Company will be
$55,200,000, $3,864,000 and $51,336,000, respectively. See "Underwriting."

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

GOLDMAN, SACHS & CO.

HAMBRECHT & QUIST

PIPER JAFFRAY INC.
---------

The date of this Prospectus is June 19, 1997.
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Graphic and Text Appearing on Inside Front Cover of Prospectus:

This page contains a rendering of a figure standing on the Earth holding a
flashlight. The beam of the flashlight illuminates the sky over which the
following text is printed: "Mission Statement: To improve the life and
business success of partners and customers by providing superior financial
management software, services and tools."

This page contains a picture of a computer monitor displaying a model of the
Earth with figures ascending ladders to the top of the Earth which dissolves
into pixels. The words Great Plains Software, Great Plains Dynamics and
Great Plains C/S+ with related logos are printed on the pixels. Also printed
on the pixels are the words Designed for Microsoft Windows 95, Microsoft SQL
Server and Microsoft Windows NT and related logos. On the far left-hand side
of the page, the following text is printed: "New technology in and of itself
is often little more than a passing curiosity. But new technology bent to a
purpose can become a powerful tool that truly improves the lives of those
who use it. Since 1981 Great Plains Software has identified the best new
technologies and used them to craft innovative financial management
solutions that fulfill the purpose of our mission statement. Beyond our use
of the latest technologies our foundation remains based in the strong values
of an earlier time and an unblushing commitment to the service of our
customers and distribution partners throughout the world." The Company's
name and its sun and wheat logo are printed below this text.

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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

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ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the shares of Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained in the Registration Statement. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement, including exhibits and
schedules thereto, may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C. and copies of all or any part thereof may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, New York, New York 10048,
upon payment of certain fees prescribed by the Commission. The Commission also
maintains a World Wide Web site which provides online access to reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission at the address http://www.sec.gov.

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The Company intends to distribute to its shareholders annual reports
containing financial statements audited by its independent accountants and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.

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Great Plains Software-Registered Trademark-, Dynamics
C/S+-Registered Trademark-, Great Plains Dynamics-Registered Trademark- and
Dexterity-Registered Trademark- are registered trademarks of the Company in the
United States and other countries. Great Plains Accounting, the Company's
sun/wheat logo, DynamicTools, Dynamics Continuum, Stampede, the trademarks for
the Company's Internet applications and various other word and logo marks are
trademarks of the Company and are the subject of pending trademark and service
mark applications in the United States and other countries. This Prospectus also
includes names, trademarks, service marks and registered trademarks and service
marks of companies other than the Company.

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<TABLE>
<S> <C>
The Company has established a dedicated World Wide Web site relating to this
offering at the address http://www.ipo-greatplains.com. The user name for access to the
website is "greatplains," and the password for access to the website is "arthur." The
website contains this Prospectus, including demonstrations of certain of the Company's
products and comments from members of the Company's management. These demonstrations and
comments are reproduced in printed form in the appendix to this Prospectus.
</TABLE>

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS." UNLESS OTHERWISE
INDICATED HEREIN, ALL INFORMATION IN THIS PROSPECTUS (I) HAS BEEN ADJUSTED TO
GIVE EFFECT TO AN AMENDMENT AND RESTATEMENT OF THE COMPANY'S ARTICLES OF
INCORPORATION UPON CLOSING OF THIS OFFERING, PROVIDING FOR, AMONG OTHER THINGS,
AN INCREASE IN THE AUTHORIZED SHARES OF CAPITAL STOCK OF THE COMPANY, (II) HAS
BEEN ADJUSTED TO REFLECT THE PRO FORMA CONVERSION OF ALL OUTSTANDING SHARES OF
THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK (THE "SERIES A PREFERRED
STOCK") AND SERIES B CONVERTIBLE PREFERRED STOCK (THE "SERIES B PREFERRED STOCK"
AND, TOGETHER WITH THE SERIES A PREFERRED STOCK, THE "PREFERRED STOCK") INTO AN
AGGREGATE OF 1,847,627 SHARES OF COMMON STOCK UPON CLOSING OF THE OFFERING,
(III) HAS BEEN ADJUSTED TO GIVE EFFECT TO A FOUR-FOR-THREE SPLIT OF THE
OUTSTANDING COMMON STOCK, IN THE FORM OF A STOCK DIVIDEND, EFFECTED IMMEDIATELY
PRIOR TO THIS OFFERING AND (IV) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."

THE COMPANY

Great Plains Software, Inc. (the "Company") is a leading provider of
Microsoft Windows NT client/server financial management software for mid-sized
businesses. The Company's award-winning products and services automate essential
accounting functions and enhance the strategic value of financial information.
The Company's products and services are sold and implemented exclusively by its
extensive network of independent sales and support organizations throughout the
United States, Canada and select international markets.

The Company's client/server product lines, Dynamics C/S+ and Dynamics,
consist of a suite of financial applications, such as general ledger, accounts
receivable, accounts payable, payroll and sales order and purchase order
processing, and a suite of development and customization tools. The Company's
client/server products are designed to meet the broad spectrum of financial
management needs of the corporate or middle market (the "Corporate Market"),
which generally consists of mid-sized businesses with $1 million to $250 million
in revenues and 10 to 2,500 employees.

In order to meet the needs of the Corporate Market, the Company designs,
develops, markets, sells and supports client/server products that are
cost-effective, scalable and easy to customize and use. The Company's
client/server products are optimized for Microsoft technologies, most notably
Windows NT, Windows 95 and SQL Server, which are increasingly becoming the
standard in the Corporate Market. Moreover, by utilizing emerging Internet
technologies, the Company's financial management systems provide employees
throughout a business with quick, cost-effective and security-enhanced access to
information, and facilitate order placement and sharing of business information
with key customers and suppliers.

The Company has made a significant investment in building an experienced,
knowledgeable and highly motivated domestic and international service and
distribution network, which consists of value added resellers (VARs), systems
integrators, Big Six and other accounting firms, independent software vendors
(ISVs) and specialized software consultants (together, the "Partners"). Through
its Partner network, the Company provides customers with trained and
knowledgeable software professionals who are available locally to implement its
systems as well as provide ongoing service and support. Most of the Partners
customize the Company's systems to fit individual business needs, and some
Partners develop software applications that integrate with and extend the
functionality of the Company's products to meet the requirements of specific
industries.

The Company believes that prompt and effective service and technical support
are essential elements of a complete financial management software solution and
dedicates significant resources to delivering timely, reliable and
cost-effective service to its customers and Partners. The Company has received
numerous industry awards for its customer and Partner service.

The Company was founded in 1981 and was incorporated as a Minnesota
corporation in 1983. The Company's offices are located at 1701 S.W. 38th Street,
Fargo, North Dakota 58103, and its telephone number is (701) 281-0550.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................ 3,000,000 shares

Common Stock to be outstanding after the 12,927,961 shares(1)
offering.........................................

Use of proceeds.................................... For general corporate purposes,
including working capital, product
development, capital expenditures and
possible acquisitions. See "Use of
Proceeds."

Nasdaq National Market symbol...................... "GPSI"
</TABLE>

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(1) Based on the number of shares of Common Stock outstanding on May 9, 1997.
Excludes (a) 869,533 shares of Common Stock issuable upon exercise of stock
options outstanding as of May 9, 1997, with a weighted average exercise
price of $5.43 per share, of which options to purchase 161,940 shares were
then exercisable, (b) 30,000 shares issuable upon exercise of options
authorized to be granted to two nonemployee directors of the Company, with
an exercise price equal to the initial public offering price of the shares
offered hereby and (c) 1,212,020 shares reserved for issuance under the
Company's 1997 Stock Incentive Plan, 1983 Incentive Stock Option Plan and
Outside Directors' Stock Option Plan. See "Capitalization,"
"Management--Director Compensation" and "--Benefit Plans" and "Description
of Capital Stock."

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, ---------------------------
------------------------------------------------------- FEBRUARY 29, FEBRUARY 28,
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................. $21,204 $28,871 $29,114 $37,897 $42,271 $29,208 $39,453
Operating income (loss).................... (287) 1,329 (9,976) 629 3,262 1,955 2,910
Income tax provision (benefit)(1).......... 8 102 (27) 45 (4,099) 3 1,220
Net income (loss)(1)....................... (407) 921 (10,330) 124 7,461 2,000 1,995
Pro forma net income per share(2)(3)....... $ .74 $ .20
Pro forma weighted average number of shares
and common equivalent shares
outstanding(2)(3)........................ 10,017,269 10,100,140
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 28, 1997
--------------------------------
PRO FORMA
PRO FORMA(3) AS ADJUSTED(3)(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments............................................. $ 12,225 $ 56,185
Working capital.................................................................... 4,750 48,710
Total assets....................................................................... 28,724 72,684
Deferred revenues.................................................................. 9,745 9,745
Total stockholders' equity......................................................... 10,437 54,397
</TABLE>

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(1) Net income for the year ended May 31, 1996 includes an income tax benefit of
$4.1 million or $.41 per share related to the reversal of a valuation
allowance. The reversal reflects the recognition of net operating loss
carryforwards and other deferred tax assets and was a result of management's
analysis of the Company's current levels of earnings and future outlook,
which increased the likelihood of the Company realizing its deferred tax
assets. For subsequent periods, the Company has provided for income taxes
utilizing federal and state statutory income tax rates. See Note 9 of Notes
to Consolidated Financial Statements.

(2) For an explanation of the determination of the number of shares used in
computing pro forma net income per share, see Note 1 of Notes to
Consolidated Financial Statements.

(3) Gives effect to the conversion of all shares of the Company's Preferred
Stock into an aggregate of 1,847,627 shares of Common Stock upon the closing
of the offering made hereby. See Note 1 of Notes to Consolidated Financial
Statements.

(4) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered
hereby at the public offering price of $16.00 per share after deducting the
underwriting discount and the estimated offering expenses payable by the
Company.

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY

The Company's quarterly revenue and operating results have varied in the
past, and are likely to vary in the future. The Company operates with little
backlog, and most of its revenues in each quarter result from orders booked in
that quarter. The Company establishes its expenditure levels based on its
expectations as to future revenue, and, if revenue levels are below
expectations, expenses could be disproportionately high. As a result, a drop in
near term demand could significantly affect both revenue and profits in any
quarter. In the future, the Company's operating results may fluctuate for this
reason or as a result of a number of other factors, including increased
expenses, timing of product releases, increased competition, variations in the
mix of sales, announcements of new products by the Company or its competitors
and capital spending patterns of the Company's customers. As a result, there can
be no assurance the Company will be able to maintain profitability on an annual
or quarterly basis.

The Company's business has experienced and may continue to experience
seasonality. In recent years, the Company has recognized a greater percentage of
its revenue and operating income in its fourth fiscal quarter than in any of the
first three fiscal quarters due to a number of factors, including the timing of
product releases and the Company's sales incentive programs. Moreover, due to
fiscal year-end sales incentive programs, the Company has historically
recognized less revenue and operating income in its first fiscal quarter than in
the other quarters.

Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Furthermore, it
is possible that in some future quarters the Company's operating results will
fall below the expectations of the Company, market analysts and investors. In
such event, the price of the Company's Common Stock would likely be materially
and adversely affected.

DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT RISK

The market for the Company's products is characterized by rapid
technological advances and evolving industry standards and can be significantly
affected by new product introductions, changing customer requirements and market
activities of industry participants. The life cycles of the Company's products
are difficult to estimate, and the Company's position in the current market
could be undermined by rapid product advances. The Company's future success will
depend upon its ability to continue to improve existing products and to develop
and introduce products with new or enhanced capabilities that address the
increasingly sophisticated needs of its customers and keep pace with
technological and competitive developments. Among other things, the emergence of
the Internet as an alternative computing platform and distribution medium may
adversely affect the demand for client/ server products and alter current
software utilization, distribution and pricing patterns. There can be no
assurance that the Company will be able to successfully develop and market new
or enhanced products or respond effectively to technological changes or new
product announcements by others. Further, the Company may face challenges with
customers who are slower to adopt new technologies or otherwise commit resources
to convert to a client/server solution. Any failure by the Company to anticipate
or respond adequately to technological developments and customer requirements,
or any significant delays in product development or introduction, could result
in a loss of competitiveness and revenue.

Delays in the release of new and upgraded versions of the Company's software
products could have a significantly negative impact on the Company's sales and
results of operations. Because of the complexities inherent in developing
software products as sophisticated as those sold by the Company

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and the lengthy testing periods associated with such products, no assurance can
be given that future product introductions by the Company will not be delayed.
In addition, complex software programs may contain undetected errors or bugs
when they are first introduced or as new versions are released. There can be no
assurance that errors will not be found in the Company's existing or future
products, with the possible result of delays in or loss of market acceptance of
these products, diversion of the Company's resources, injury to the Company's
reputation and increased service and warranty expenses.

RELIANCE ON MICROSOFT TECHNOLOGY

The Company's software products are designed for Microsoft technologies,
including Windows NT, Windows 95 and SQL Server. In addition, the Company's
products utilize other Microsoft technologies, including Internet Information
Server, FrontPage, Visual Basic and Visual Basic for Applications. Although the
Company believes that Microsoft technologies are and will be widely utilized by
Corporate Market businesses, no assurance can be given that these businesses
will actually adopt such technologies as anticipated or will not in the future
migrate to other computing technologies that the Company does not support.
Moreover, the Company's strategy will require that the Company's products and
technology be compatible with new developments in Microsoft's technology.

RELIANCE ON THIRD-PARTY SUPPLIERS

The Company's products utilize certain software licensed to it by
third-party software developers. Although the Company believes that there are
alternatives for these products, any significant interruption in the supply of
such third-party software could have a material adverse impact on the Company's
sales unless and until the Company can replace the functionality provided by
these products. In addition, the Company is to a certain extent dependent upon
such third parties' abilities to enhance their current products, to develop new
products on a timely and cost-effective basis and to respond to emerging
industry standards and other technological changes. There can be no assurance
that the Company would be able to replace the functionality provided by the
third party software currently offered in conjunction with the Company's
products in the event that such software becomes obsolete or incompatible with
future versions of the Company's products or is otherwise not adequately
maintained or updated. The absence of or any significant delay in the
replacement of that functionality could have a material adverse effect on the
Company's business, results of operations and financial condition.

DECLINE IN SALES OF DOS- AND MACINTOSH-BASED PRODUCTS

The Company has shifted its focus from a product based on DOS, Macintosh and
local area network (LAN) technologies, Great Plains Accounting, to products
based on Windows and client/server technologies. As a result of this shift and
the decrease in general market demand for DOS- and Macintosh-based products, the
Company's revenues from its Great Plains Accounting product have been declining
and are expected to decline for the foreseeable future. There can be no
assurance that the decline in revenues from sales of Great Plains Accounting
will not have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RELIANCE UPON PARTNER DISTRIBUTION CHANNEL; RISKS ASSOCIATED WITH EXPANDING
DISTRIBUTION

The Company relies exclusively upon its Partner network to provide marketing
and sales opportunities. There can be no assurance that the Company's Partners
will aggressively market the Company's products or will maintain their
relationships with the Company. The failure of the Company to maintain its
existing Partner relationships, or to establish new Partner relationships in the
future, because of a divergence of interests, or for any other reason, could
have a material adverse effect on the Company's business, results of operations
and financial condition.

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The Company's ability to achieve significant revenue growth in the future
will depend in large part on adding new Partners and leveraging its
relationships with existing Partners. In addition, an integral part of the
Company's strategy is to add distributors internationally, who in turn recruit
Partners in their territory. The Company typically grants exclusive distribution
rights to its international Partners. The Company is currently investing, and
intends to continue to invest, significant resources to develop these channels.
There can be no assurance that the Company will be able to leverage
relationships with existing Partners and add new Partners and distributors to
market the Company's products effectively. The inability to do so could have a
material adverse effect on the Company's business, results of operations and
financial condition.

COMPETITION

In the United States, the Company faces a number of competitors both in the
Dynamics C/S+ segment of the Corporate Market, including Platinum Software
Corporation, and in the Dynamics segment of the Corporate Market, including
Solomon Software, and State of the Art, Inc. In Canada, the Company's primary
competitor is Computer Associates International, Inc. (AccPac and AccPac 2000).
Outside North America, the Company also faces a number of other competitors,
several of which have significant share in their home markets. In addition, the
Company competes for Corporate Market business with companies primarily
targeting businesses larger than those comprising the Corporate Market; several
of these competitors, which principally sell UNIX-based systems, offer or have
announced their intention to deliver Windows NT solutions. The Company's
products also face competition from providers of industry-specific applications
as well as indirect competition from in-house, custom-developed financial
management applications.

Certain of the Company's competitors have substantially greater financial,
marketing or technical resources than the Company. There can be no assurance
that other companies have not developed or marketed or will not develop or
market products that are superior to those of the Company, that are offered at
substantially lower prices than those of the Company or that have or will
achieve greater market acceptance than those of the Company. In addition, there
can be no assurance that alternative methods of delivering financial management
systems will not provide increased competition.

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends to a significant extent on the
Company's executive officers and certain technical, managerial, sales and
marketing personnel. The loss of the services of any of these individuals or
group of individuals could have a material adverse effect on the Company's
business, results of operations and financial condition.

Competition for qualified personnel in the software industry is intense. The
future success of the Company will depend in large part on its ability to
attract and retain qualified management and technical employees, and there can
be no assurance that the Company will be able to do so. The Company believes
that the continued employment of a number of key management and technical
personnel is important to the Company's future success. The Company has from
time to time experienced difficulty in locating and retaining candidates with
appropriate qualifications.

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MANAGEMENT OF GROWTH

The Company's growth has resulted in an increase in responsibilities placed
upon the Company's management and has placed added pressures on the Company's
operating and other systems. To manage its growth effectively, the Company will
be required to continue to implement additional systems and controls, and to
expand, train and manage its employee base. There can be no assurance that the
management skills and systems currently in place will be adequate if the Company
continues to grow, or that the Company will be able to implement additional
systems successfully and in a timely manner as required. In addition, the
Company from time to time may seek acquisitions of businesses, products and
technologies that are complementary to those of the Company, or that allow the
Company to enter new markets. Any such acquisition would place additional
strains upon the Company's management resources. See "Business--Employees" and
"Management--Executive Officers and Directors."

DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT

The Company relies on a combination of trade secret, copyright and trademark
laws, nondisclosure agreements and other contractual provisions and technical
measures to protect its intellectual property rights. There can be no assurance
that these protections will be adequate to prevent the Company's competitors
from copying or reverse-engineering the Company's products, or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. The Company
makes source code available to certain of its Partners and customers. This
availability may increase the likelihood of misappropriation or other misuse of
the Company's intellectual property. The Company has no patents, and existing
copyright laws afford only limited protection for the Company's intellectual
property rights and will not protect such rights in the event competitors
independently develop products similar to those of the Company. While the
Company licenses its Dynamics C/S+ product under signed licenses, the Company
licenses its Dynamics and Great Plains Accounting products primarily under
"shrink wrap" licenses that are not signed by its licensees. These shrink wrap
licenses may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of certain countries in which the Company's products are or
may be licensed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States.

Although the Company has never been the subject of a material intellectual
property dispute, there can be no assurance that a third party will not assert
that the Company's technology violates its intellectual property rights in the
future. As the number of software products in the Company's target market
increases and the functionality of these products further overlap, the Company
believes that software developers may become increasingly subject to
infringement claims. Any such claims, whether with or without merit, can be time
consuming and expensive to defend. There can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to its current or future products or that any such assertion will not
require the Company to enter into royalty arrangements or litigation that could
be costly to the Company.

INTERNATIONAL SALES AND OPERATIONS

The Company sells its products in select international markets in addition
to the United States and Canada. The Company has recently entered into
distribution arrangements in Western and Eastern Europe, Australasia, Southern
Africa, the Middle East and Southeast Asia. As a result of the royalty structure
for the Company's international Partner network, the Company's gross margin on
international sales is generally less than its gross margin on domestic sales.
The Company's international business may be affected by such factors as local
economic and market conditions, political and economic instability, greater
difficulty in administering operations, difficulties in enforcing intellectual
property and contractual rights, difficulties in tailoring the Company's
software products to fit local accounting principles, rules, regulations,
language, tax codes and customs, fluctuations in currency exchange rates and

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the need for compliance with a wide variety of foreign and United States export
regulations. There can be no assurance that one or more of these factors will
not have a material adverse effect on the Company's international operations
and, consequently, the Company's business, results of operations and financial
condition.

PRODUCT LIABILITY

The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective
under the laws of certain jurisdictions. The sale and support of products by the
Company and its Partners may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future.
Furthermore, some of the Company's licenses with customers are governed by laws
of jurisdictions other than the United States, and there can be no assurance
that purported limitations on liability in these licenses would be enforced were
foreign law to govern. A product liability claim brought against the Company
could have a material adverse effect upon the Company's business, results of
operations and financial condition.

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the offering there has been no public market for the Common Stock.
Accordingly, there can be no assurance that an active trading market will
develop or be sustained upon completion of the offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price of the Common Stock was determined by
negotiations between the Company and the representatives of the Underwriters and
may not be indicative of the prices that will prevail in the public market. See
"Underwriting."

The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, developments or disputes concerning intellectual property
rights, technological innovations or new products, governmental regulatory
action, general conditions in the accounting and financial management software
industry, increased price competition, changes in earnings estimates by analysts
or other events or factors, many of which are beyond the Company's control. In
addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
computer software companies and which have often been unrelated to the operating
performance of such companies.

SIGNIFICANT SHAREHOLDERS; ANTI-TAKEOVER CONSIDERATIONS

Upon completion of the offering, the Company's directors and executive
officers beneficially will own in the aggregate approximately 41.1% of the
Company's outstanding Common Stock (plus such additional shares such persons may
purchase in the offering). In addition, certain of the Company's other principal
shareholders (who are affiliated with or represented by certain of the Company's
directors and executive officers) beneficially will own in the aggregate
approximately 13.9% of the Company's outstanding Common Stock. See "Principal
Shareholders." If these shareholders vote together as a group, they will be able
to substantially influence the business and affairs of the Company, including
the election of individuals to the Company's Board of Directors, and to
otherwise affect the outcome of certain actions that require shareholder
approval, including the adoption of amendments to the Company's Articles of
Incorporation, and certain mergers, sales of assets and other business
acquisitions or dispositions.

Upon completion of the Offering, the Company will have an authorized class
of 30,000,000 shares of undesignated preferred stock, $.01 par value, which may
be issued by the Company's Board of Directors on such terms, and with such
rights, preferences and designations, as the Company's Board of Directors may
determine. In addition, the Company's Bylaws provide for a Board of Directors
elected to staggered terms and establish specific procedures for calling
meetings of shareholders and

12
<PAGE>
appointing and removing members of the Board of Directors. The Company is
subject to certain provisions of the Minnesota Business Corporation Act which
restrict certain business combinations. Some or all of the foregoing factors and
other provisions of the Company's Bylaws could have the effect of discouraging
certain attempts to acquire the Company and, as a result, could deprive the
Company's shareholders of opportunities to sell their shares of Common Stock at
prices higher than prevailing market prices. See "Description of Capital
Stock--Preferred Stock" and "--Provisions of the Company's Restated Articles and
Bylaws and the Minnesota Business Corporation Act."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 12,927,961 shares of Common Stock
to be outstanding upon completion of the offering, the 3,000,000 shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless (a) the shares are purchased by "affiliates" of the Company
within the meaning of Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"), or (b) such shares are directed shares purchased by Partners
in the offering. See "Underwriting."

The remaining 9,927,961 shares of Common Stock held by existing shareholders
upon completion of the offering will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act. The Company's directors and officers and certain of its shareholders have
agreed, and the Company's Partners who purchase directed shares in this offering
will agree, that they will not sell, directly or indirectly, any Common Stock
without the prior consent of the representatives of the Underwriters for a
period of 180 days from the date of this Prospectus. Subject to these lock-up
agreements and the provisions of Rules 144, 144(k) and 701, additional shares
will be available for sale in the public market (subject in the case of shares
held by affiliates to compliance with certain volume restrictions) as follows:
(i) 759,340 shares will be available for immediate sale in the public market on
the date of this Prospectus, (ii) 464,446 shares will be eligible for sale 90
days after the date of this Prospectus and (iii) 8,211,304 shares will be
eligible for sale upon the expiration of lock-up agreements 180 days after the
date of this Prospectus. In addition, certain shareholders, representing
approximately 1,793,627 shares of Common Stock, have the right, subject to
certain conditions, to include their shares in future registration statements
relating to the Company's securities and to cause the Company to register
certain Common Stock owned by them. See "Shares Eligible for Future
Sale--Registration Rights" and "Underwriting."

After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's stock-based benefit plans. See
"Management--Director Compensation" and "--Benefit Plans." Such registration
statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to Rule 144 limitations applicable to affiliates.
See "Shares Eligible for Future Sale."

NO DIVIDENDS

The Company has never paid or declared a dividend on its capital stock and
does not anticipate doing so for the foreseeable future. See "Dividend Policy."

DILUTION

Purchasers of the shares offered hereby will incur an immediate, substantial
dilution in net tangible book value per share. See "Dilution."

13
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated to
be $43,960,000 ($50,656,000 if the Underwriters' over-allotment option is
exercised in full), at the offering price of $16.00 per share after deducting
the estimated underwriting discount and offering expenses payable by the
Company. The principal purposes of this offering are to increase the Company's
equity capital, to create a public market for the Common Stock, to increase the
visibility of the Company in the marketplace and to facilitate future access by
the Company to public equity markets.

The Company expects to use the net proceeds from this offering for general
corporate purposes, including the funding of working capital and growth. In
addition, the Company may seek acquisitions of businesses, products and
technologies that are complementary to those of the Company, and a portion of
the net proceeds may be used for such acquisitions. While the Company engages
from time to time in discussions with respect to potential acquisitions, the
Company has no plans, commitments or agreements with respect to any material
acquisitions as of the date of this Prospectus, and there can be no assurance
that any such acquisitions will be made.

Pending such uses, the Company intends to invest the net proceeds from this
offering in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business.

14
<PAGE>
DILUTION

The pro forma net tangible book value of the Company at February 28, 1997
was $9,876,062 or $1.01 per share of Common Stock, after giving effect to the
automatic conversion of all outstanding shares of Preferred Stock into Common
Stock in connection with the offering made hereby. Pro forma net tangible book
value per share is equal to the Company's total tangible assets (total assets
less goodwill and trademarks) less total liabilities, divided by the total
number of shares of Common Stock outstanding, including shares of Common Stock
issued upon the automatic conversion of the Preferred Stock in connection with
the offering made hereby. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the offering made hereby and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the offering. After giving effect to the sale by the Company of the 3,000,000
shares of Common Stock offered hereby at the offering price of $16.00 per share,
and after deducting the estimated underwriting discount and offering expenses,
the pro forma net tangible book value of the Company as of February 28, 1997
would have been $53,836,062 or $4.22 per share of Common Stock. This represents
an immediate increase in such pro forma net tangible book value of $3.21 per
share to existing shareholders and an immediate dilution of $11.78 per share to
new investors purchasing shares in the offering. The following table illustrates
this per share dilution:

<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share..................................... $ 16.00
Pro forma net tangible book value per share as of February 28, 1997....... $ 1.01
Pro forma increase per share attributable to new investors................ 3.21
---------
Pro forma net tangible book value per share as of February 28, 1997 after
offering.................................................................. $ 4.22
---------
Pro forma net tangible book value dilution per share to new investors....... $ 11.78
---------
---------
</TABLE>

The following table summarizes on a pro forma basis as of February 28, 1997,
after giving effect to the automatic conversion of all outstanding shares of
Preferred Stock into Common Stock in connection with the offering made hereby,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing shareholders and by new investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)..................... 9,769,828 76.5% $ 14,441,742 23.1% $ 1.48
New investors................................ 3,000,000 23.5 48,000,000 76.9 $ 16.00
------------- ----- -------------- -----
Total.................................... 12,769,828 100.0% $ 62,441,742 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>

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

(1) Excludes (a) 158,133 shares of Common Stock issued pursuant to the exercise
of options between March 1, 1997 and May 9, 1997 with a weighted average
exercise price of $2.13 per share and (b) 869,533 shares of Common Stock
issuable pursuant to the exercise of options outstanding at May 9, 1997 at a
weighted average exercise price of $5.43 per share, of which options to
purchase 161,940 shares were then exercisable. If such shares are included
or such options are exercised, there will be further dilution to the new
investors. Also excludes (i) 30,000 shares issuable upon exercise of options
authorized to be granted to two nonemployee directors of the Company, with
an exercise price equal to the initial public offering price of the shares
offered hereby and (ii) 1,212,020 shares reserved for issuance under the
Company's 1997 Stock Incentive Plan, 1983 Incentive Stock Option Plan and
Outside Directors' Stock Option Plan. See "Capitalization," "Management--
Director Compensation" and "--Benefit Plans" and "Description of Capital
Stock."

15
<PAGE>
CAPITALIZATION

The following table sets forth the pro forma capitalization of the Company
as of February 28, 1997 (i) to give effect to the conversion of all shares of
Preferred Stock into an aggregate of 1,847,627 shares of Common Stock upon the
closing of the offering made hereby (see Note 1 of Notes to Consolidated
Financial Statements) and (ii) as adjusted to give effect to the sale of
3,000,000 shares of Common Stock offered by the Company hereby at the offering
price of $16.00 per share after deducting the underwriting discount and
estimated offering expenses payable by the Company. See "Use of Proceeds." This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- ------------
(IN THOUSANDS)
<S> <C> <C>

Stockholders' equity:

Preferred Stock, $.01 par value, 30,000,000 shares authorized, none outstanding....... -- --

Common Stock, $.01 par value, 100,000,000 shares authorized, 9,769,828 shares issued
and outstanding, pro forma; and 12,769,828 shares issued and outstanding, pro forma
as adjusted(1)...................................................................... $ 98 $ 128

Additional paid-in capital............................................................ 14,701 58,631

Accumulated deficit................................................................... (4,362) (4,362)
----------- ------------

Total stockholders' equity............................................................ 10,437 54,397
----------- ------------

Total capitalization................................................................ $ 10,437 $ 54,397
----------- ------------
----------- ------------
</TABLE>

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

(1) Excludes (a) 158,133 shares of Common Stock issued pursuant to the exercise
of options between March 1, 1997 and May 9, 1997 and (b) 869,533 shares of
Common Stock issuable pursuant to the exercise of options outstanding at May
9, 1997, of which options to purchase 161,940 shares were then exercisable.
Also excludes (i) 30,000 shares issuable upon exercise of options authorized
to be granted to two nonemployee directors of the Company, with an exercise
price equal to the initial public offering price of the shares offered
hereby, and (ii) 1,212,020 shares reserved for issuance under the Company's
1997 Stock Incentive Plan, 1983 Incentive Stock Option Plan and Outside
Directors' Stock Option Plan. See "Management--Director Compensation" and
"--Benefit Plans" and "Description of Capital Stock."

16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus. The selected consolidated statement of
operations data set forth below for the years ended May 31, 1994, 1995 and 1996
and the nine months ended February 28, 1997 and the consolidated balance sheet
data at May 31, 1995 and 1996 and February 28, 1997 are derived from, and are
qualified by reference to, the audited financial statements included elsewhere
in this Prospectus and should be read in conjunction with those consolidated
financial statements and notes thereto. The selected consolidated statement of
operations data presented below for the years ended May 31, 1992 and 1993 and
the consolidated balance sheet data at May 31, 1992, 1993 and 1994 are derived
from audited financial statements not included elsewhere in this Prospectus. The
selected consolidated financial data as of and for the nine months ended
February 29, 1996 has been derived from unaudited financial statements of the
Company which, in the opinion of management, include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein. The results for the nine months ended
February 28, 1997 are not necessarily indicative of the results to be expected
for the full year or for any future period.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, ---------------------------
------------------------------------------------------ FEBRUARY 29, FEBRUARY 28,
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................... $ 14,985 $ 20,790 $ 19,165 $ 25,050 $27,078 $ 17,791 $24,357
Service................................... 6,219 8,080 9,949 12,847 15,193 11,417 15,096
--------- --------- --------- --------- ---------- ------------- ------------
Total revenues............................ 21,204 28,870 29,114 37,897 42,271 29,208 39,453
Cost of revenues:
License................................... 3,335 3,101 4,997 4,439 4,913 3,019 4,552
Service................................... 3,445 3,868 5,479 5,622 5,980 4,361 5,699
--------- --------- --------- --------- ---------- ------------- ------------
Total cost of revenues.................... 6,780 6,969 10,476 10,061 10,893 7,380 10,251
--------- --------- --------- --------- ---------- ------------- ------------
Gross profit............................ 14,424 21,901 18,638 27,836 31,378 21,828 29,202
Operating expenses:
Sales and marketing....................... 9,472 11,582 14,331 14,013 14,477 10,126 15,416
Research and development.................. 2,769 6,021 10,676 9,308 8,876 6,351 6,903
General and administrative................ 2,470 2,969 3,607 3,886 4,763 3,396 3,973
--------- --------- --------- --------- ---------- ------------- ------------
Total operating expenses................ 14,711 20,572 28,614 27,207 28,116 19,873 26,292
--------- --------- --------- --------- ---------- ------------- ------------
Operating income (loss)..................... (287) 1,329 (9,976) 629 3,262 1,955 2,910
Total other expenses (income)............... 112 306 381 260 (100) (48 ) (305 )
--------- --------- --------- --------- ---------- ------------- ------------
Income (loss) before income taxes....... (399) 1,023 (10,357) 369 3,362 2,003 3,215
Income tax provision (benefit)(1)........... 8 102 (27) 45 (4,099) 3 1,220
--------- --------- --------- --------- ---------- ------------- ------------
Income (loss) before cumulative effect
of change in accounting principle..... (407) 921 (10,330) 324 7,461 2,000 1,995
Cumulative effect of a change in accounting
principle................................. -- -- -- (200) -- -- --
--------- --------- --------- --------- ---------- ------------- ------------
Net income (loss)....................... $ (407) $ 921 $ (10,330) $ 124 $ 7,461 $ 2,000 $ 1,995
--------- --------- --------- --------- ---------- ------------- ------------
--------- --------- --------- --------- ---------- ------------- ------------
Pro forma net income per share(2)(3)........ $ .74 $ .20
Pro forma weighted average number of shares
and common equivalent shares
outstanding(2)(3)......................... 10,017,269 10,100,140
</TABLE>

<TABLE>
<CAPTION>
MAY 31,
----------------------------------------------------- FEBRUARY 28,
1992 1993 1994 1995 1996 1997(3)
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Assets:
Cash, cash equivalents and investments.................... $ 399 $ 1,351 $ 119 $ 2,892 $ 8,256 $ 12,225
Total assets.............................................. 7,618 13,407 8,845 15,327 24,361 28,724
Working capital............................................. (4,521) (5,096) (15,400) (4,992) 1,012 4,750
Liabilities and stockholders' equity:
Deferred revenues......................................... 2,574 4,952 6,897 8,027 9,018 9,745
Long-term debt and capital lease obligations, less current
portion................................................. 1,249 984 1,281 750 20 --
Mandatorily redeemable convertible preferred stock........ -- -- -- 8,300 11,502 --
Total stockholders' equity(4)............................. (2,173) (1,011) (11,303) (9,066) (4,812) 10,437
</TABLE>

17
<PAGE>
- --------------

(2) For an explanation of the determination of the number of shares used in
computing pro forma net income per share, see Note 1 of Notes to
Consolidated Financial Statements.

(4) The Company has not declared or paid any dividend for any of the periods
presented. See "Dividend Policy."

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Prospectus.

OVERVIEW

Great Plains Software is a leading provider of Microsoft Windows NT
client/server financial management software for mid-sized businesses. The
Company's award-winning products and services automate essential accounting
functions and enhance the strategic value of financial information. The
Company's products and services are sold and implemented exclusively by its
extensive network of Partners throughout the United States, Canada and select
international markets.

In 1982, the Company began selling Great Plains Accounting (the "heritage
product"), which is currently a DOS- and Macintosh-based financial management
software system for local area network (LAN) personal computers. In anticipation
of the general market shift to Windows and client/server technologies, the
Company began developing client/server financial management software systems,
and in February 1993, released Dynamics. Dynamics is the Company's client/server
product for Corporate Market businesses that need a Windows client/server system
that is flexible and cost-effective, but does not require information technology
(IT) personnel dedicated to database administration. In July 1994, the Company
released Dynamics C/S+, a Windows client/server system for Corporate Market
businesses that have high volume processing requirements, complex financial
management needs and formal IT departments.

The Company made significant investments in research and development in the
early 1990s to launch its Windows client/server products. In addition, the
Company has made a significant investment in building an experienced and
knowledgeable Partner distribution network to market, implement, support and
service its Dynamics C/S+ and Dynamics products (together, the "client/server
products"). Since the release of the client/server products, the Company's
principal source of revenues has shifted from the heritage product to the
client/server products. Client/server products accounted for 13.8%, 40.2%, 61.4%
and 79.9% of the Company's total revenues for fiscal 1994, 1995 and 1996 and the
nine months ended February 28, 1997, respectively.

The Company's revenues are derived from two principal sources: software
license fees ("license fees") and fees for maintenance, technical support,
training and consulting services (collectively, "service fees"). The Company
recognizes revenue in accordance with Statement of Position 91-1, Software
Revenue Recognition. See Note 1 of Notes to Consolidated Financial Statements.
License fee revenues are generally recognized upon shipment of the related
software product. Fees for the Company's maintenance and support plans are
recorded as deferred revenue when billed to the customer and recognized ratably
over the term of the maintenance and support agreement, which is typically one
year. Fees for the Company's training and consulting services are recognized at
the time the services are performed.

The Company's client/server customers are required to purchase a one-year
maintenance plan at the time the product is acquired. A majority of the
client/server customers renew the maintenance plan after the initial term. Under
the maintenance plan, the Company provides client/server customers with product
upgrades in addition to online assistance and information. The Company's
heritage product customers, on the other hand, are not required to purchase a
maintenance plan at the time the product is acquired. In addition, the optional
heritage product maintenance plan does not include significant product upgrades.
The Company has historically released significant upgrades of its heritage
product approximately every two years. Prior to fiscal 1996, when heritage
product revenues represented the principal source of the Company's revenues, the
release of a significant upgrade of the heritage product

19
<PAGE>
had a positive impact on revenues in the quarters following release. As a result
of the shift to client/server products as the Company's principal source of
revenues, the Company expects to experience less fluctuation in total revenues
in the event significant upgrades of its heritage product are released.

The Company currently sells its products outside the United States and
Canada through international Partners and a subsidiary located in the United
Kingdom to markets in the following geographic regions: Western and Eastern
Europe, Australasia, Southern Africa, the Middle East and Southeast Asia. The
Company's client/server products have been sold in approximately 50 countries.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
consolidated statement of operations.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, ----------------------------
------------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License................................................ 65.8% 66.1% 64.1% 60.9% 61.7%
Service................................................ 34.2 33.9 35.9 39.1 38.3
--------- --------- --------- ----- -----
Total revenues....................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- ----- -----
Cost of revenues:
License................................................ 17.2 11.7 11.6 10.4 11.5
Service................................................ 18.8 14.9 14.2 14.9 14.5
--------- --------- --------- ----- -----
Total cost of revenues............................... 36.0 26.6 25.8 25.3 26.0
--------- --------- --------- ----- -----
Gross margin......................................... 64.0 73.4 74.2 74.7 74.0
--------- --------- --------- ----- -----
Operating expenses:
Sales and marketing.................................... 49.2 37.0 34.2 34.7 39.1
Research and development............................... 36.7 24.5 21.0 21.7 17.5
General and administrative............................. 12.4 10.2 11.3 11.6 10.0
--------- --------- --------- ----- -----
Total operating expenses............................. 98.3 71.7 66.5 68.0 66.6
--------- --------- --------- ----- -----
Operating income (loss).................................. (34.3) 1.7 7.7 6.7 7.4
Income tax provision (benefit)........................... (0.1) 0.1 (9.7) 0.0 3.1
Net income (loss)........................................ (35.5)% 0.3% 17.6% 6.8% 5.1%
</TABLE>

REVENUES

REVENUES. Revenues increased from $29.1 million in fiscal 1994 to $37.9
million in fiscal 1995 and to $42.3 million in fiscal 1996, representing
increases of 30.2% and 11.5%, respectively. Revenues increased from $29.2
million for the nine months ended February 29, 1996 to $39.5 million for the
nine months ended February 28, 1997, representing an increase of 35.1%. These
increases in revenues were primarily due to increased demand for the Company's
client/server products and related service fees.

20
<PAGE>
The following table sets forth for the periods indicated client/server and
heritage product revenues, each as a percentage of total revenues:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, --------------------------------
------------------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
----------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Client/server product revenues......................... 13.8% 40.2% 61.4% 56.3% 79.9%
Heritage product revenues.............................. 86.2 59.8 38.6 43.7 20.1
</TABLE>

Client/server product revenues, including license and service fees,
increased from $4.0 million in fiscal 1994 to $15.2 million in fiscal 1995 and
to $25.9 million in fiscal 1996, representing increases of 277.7% and 70.4%,
respectively. Client/server product revenues increased from $16.5 million for
the nine months ended February 29, 1996 to $31.5 million for the nine months
ended February 28, 1997, representing an increase of 91.5%.

The increase in client/server product revenues was offset, in part, by a
decrease in revenues from the Company's heritage product. Heritage product
revenues decreased from $25.1 million in fiscal 1994 to $22.7 million in fiscal
1995 and to $16.4 million in fiscal 1996, representing decreases of 9.6% and
28.0%, respectively. Heritage product revenues decreased from $12.7 million for
the nine months ended February 29, 1996 to $8.0 million for the nine months
ended February 28, 1997, representing a decrease of 37.7%. The decrease in
heritage product revenues was primarily due to a decrease in demand for DOS- and
Macintosh-based financial management software, which reflects the broader market
trend toward Windows and client/server computing.

The Company's international revenues increased from $2.0 million in fiscal
1994 to $4.1 million in fiscal 1995 and to $4.4 million in fiscal 1996,
representing 6.9%, 10.8% and 10.4% of total revenues, respectively. In addition,
international revenues increased from $2.5 million for the nine months ended
February 29, 1996 to $5.6 million for the nine months ended February 28, 1997,
representing 8.5% and 14.1% of total revenues, respectively. These increases
resulted from the addition of distribution arrangements in international
markets.

LICENSE. Total license fee revenues increased from $19.2 million in fiscal
1994 to $25.1 million in fiscal 1995 and to $27.1 million in fiscal 1996,
representing increases of 30.7% and 8.1%, respectively. Total license fee
revenues increased from $17.8 million for the nine months ended February 29,
1996 to $24.4 million for the nine months ended February 28, 1997, representing
an increase of 36.9%. These increases in total license fee revenues are largely
attributable to increased market acceptance of the Company's client/server
products and a broader client/server product offering. The Company added to its
client/server product offering with the release of Dynamics C/S+ in July 1994,
the release of a Microsoft SQL Server edition of Dynamics C/S+ in April 1996 and
the release of additional functionality and applications for the SQL Server
edition in November 1996. Moreover, since the release of the Company's
client/server products, the Company has increased its sales, marketing and
service capacity. These factors have led to both an increase in the number of
client/server software licenses and an increase in the average revenues derived
from individual client/server licenses.

The increase in client/server product license fee revenues was offset, in
part, by a decrease in heritage product license fee revenues. The decrease in
heritage product license fees is primarily a result of decreased demand for DOS-
and Macintosh-based financial management software. In addition, the Company has
historically released significant upgrades of its heritage product approximately
every two years, which had a positive impact on heritage product license fee
revenues in the quarters following release. A significant upgrade of the
heritage product was released in February 1997, which the Company expects to
market principally to the Company's installed base of heritage product
customers. Notwithstanding the positive impact on revenues this release may
have, the Company expects that overall heritage product license fee revenues
will continue to decline. In addition, the Company also

21
<PAGE>
anticipates that fluctuations in heritage product license fee revenues due to
new releases will have a reduced impact on total license fee revenues as
heritage product license fee revenues become a smaller portion of total license
fee revenues.

SERVICE. Service revenues increased from $9.9 million in fiscal 1994 to
$12.8 million in fiscal 1995 and to $15.2 million in fiscal 1996, representing
increases of 29.1% and 18.3%, respectively. In addition, service revenues
increased from $11.4 million for the nine months ended February 29, 1996 to
$15.1 million for the nine months ended February 28, 1997, representing an
increase of 32.2%. The increase in the number of licenses for client/server
products has resulted in increases in service revenues. Service revenues as a
percentage of total revenues were 34.2%, 33.9% and 35.9% for fiscal 1994, 1995
and 1996, respectively. Similarly, service revenues as a percentage of total
revenues were 39.1% and 38.3% for the nine months ended February 29, 1996 and
February 28, 1997, respectively. The increases in service revenues largely
reflect increases in the installed base of customers and renewals of existing
maintenance and support contracts.

COSTS AND EXPENSES

COST OF LICENSE FEES. Cost of license fees consists primarily of the costs
of product manuals, media, shipping and royalties paid to third parties. Cost of
license fees decreased from $5.0 million in fiscal 1994 to $4.4 million in
fiscal 1995 and then increased to $4.9 million in fiscal 1996, representing
26.1%, 17.7% and 18.1% of total license fee revenues in fiscal 1994, 1995 and
1996, respectively. In addition, cost of license fees increased from $3.0
million for the nine months ended February 29, 1996 to $4.6 million for the nine
months ended February 28, 1997, representing 17.0% and 18.7% of total license
fee revenues for such periods, respectively. The decrease in the cost of license
fees as a percentage of total license fee revenues in fiscal 1995 is a result of
the change in the Company's product mix from the heritage product to the
client/server products. The Company's client/server products generate higher
license fees per individual license than its heritage product, and, as a result,
the cost of license fees as a percentage of total product license fee revenues
is lower for the Company's client/server products than for its heritage product.
In addition, in fiscal 1995, the Company reduced costs for product packaging and
documentation. The increases in cost of license fees in fiscal 1996 and for the
nine months ended February 28, 1997 are primarily attributable to the overall
growth in license fee revenues and an increase in royalties paid to third party
vendors. The increase in royalties is primarily due to a new royalty arrangement
entered into in the second half of fiscal 1996 with a third party for a report
writer application that is bundled with the Company's client/server products.
The Company anticipates that cost of license fees will increase in dollar amount
as license fee revenues increase, but remain relatively constant as a percentage
of total license fee revenues. However, in the event that the Company enters
into additional royalty arrangements in the future, cost of license fees as a
percentage of total license fee revenues may increase.

COST OF SERVICES. Cost of services consists of the costs of providing
telephone support, training and consulting services to customers and Partners.
Cost of services increased from $5.5 million in fiscal 1994 to $5.6 million in
fiscal 1995 and to $6.0 million in fiscal 1996, representing 55.1%, 43.8% and
39.4% of total service revenues, respectively. In addition, cost of services
increased from $4.4 million for the nine months ended February 29, 1996 to $5.7
million for the nine months ended February 28, 1997, representing 38.2% and
37.8% of total service revenues, respectively. The increase in cost of services
is primarily due to the expansion of the Company's customer and Partner service
resources. Cost of services as a percentage of service revenues has decreased as
a result of improved efficiency in operations. The Company anticipates that cost
of services will increase in dollar amount as service revenues increase, but
will remain relatively constant as a percentage of service revenues.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and travel and promotional expenses. Sales and marketing
expenses have remained relatively constant

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<PAGE>
at $14.3 million in fiscal 1994, $14.0 million in fiscal 1995 and $14.5 million
in fiscal 1996, representing 49.2%, 37.0% and 34.2% of total revenues,
respectively. Sales and marketing expenses increased from $10.1 million for the
nine months ended February 29, 1996 to $15.4 million for the nine months ended
February 28, 1997, representing 34.7% and 39.1% of total revenues, respectively.
The decrease in sales and marketing expenses as a percentage of revenues from
fiscal 1994 through fiscal 1996 reflects an increase in sales and marketing
productivity and a corresponding increase in revenues derived from the Company's
client/server products. Since the beginning of fiscal 1997, however, the Company
has increased spending on sales and marketing to promote the Microsoft SQL
Server edition of its Dynamics C/S+ product. The increase in sales and marketing
expenses and sales and marketing expenses as a percentage of total revenues
reflects the hiring of additional sales and marketing personnel, expanded
promotional activities and increased commissions relating to the increase in
client/server product revenues. In addition, the Company has increased sales and
marketing expenditures related to the operation of a United Kingdom sales
subsidiary that was acquired in February 1996.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation of development personnel and depreciation of
equipment. The Company has made significant investments in research and
development with total expenses of $10.7 million in fiscal 1994, $9.3 million in
fiscal 1995 and $8.9 million in fiscal 1996, representing 36.7%, 24.5% and 21.0%
of total revenues, respectively. Research and development expenses were $6.4
million for the nine months ended February 29, 1996 and $6.9 million for the
nine months ended February 28, 1997, representing 21.7% and 17.5% of total
revenues, respectively. These research and development expenses were primarily
related to the Company's efforts to release additional applications for its
client/server products and the Microsoft SQL Server edition of Dynamics C/S+.
More recently, the Company has devoted resources to the development of
Internet-enabled applications. The Company anticipates that it will continue to
devote substantial resources to its research and development efforts and that
research and development expenses will increase in dollar amount in future
periods.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive, financial, human resource and information
services personnel as well as outside professional fees. General and
administrative expenses increased from $3.6 million in fiscal 1994 to $3.9
million in fiscal 1995 and to $4.8 million in fiscal 1996, representing 12.4%,
10.2% and 11.3% of total revenues, respectively. General and administrative
expenses increased from $3.4 million for the nine months ended February 29, 1996
to $4.0 million for the nine months ended February 28, 1997, representing 11.6%
and 10.0% of total revenues, respectively. These increases in dollar amounts
were primarily due to increased staffing and related expenses necessary to
manage and support the expansion of the Company's operations. The Company
believes that its general and administrative expenses will increase in dollar
amount in the future to support the expansion of its operations and as a result
of expenses associated with being a public company.

PROVISION (BENEFIT) FOR INCOME TAXES. Provision (benefit) for income taxes
was ($27,000), $45,000, and $(4,099,000) in fiscal 1994, 1995 and 1996,
respectively. For the nine months ended February 29, 1996 and February 28, 1997,
the Company's provision for income taxes was $3,000 and $1,220,000,
respectively. In fiscal 1994 and 1995, the Company's provision or benefit
included the federal alternative minimum tax and state income taxes. The Company
incurred a net loss in fiscal 1994 and, consequently, recorded no federal income
tax expense for such period. The Company had net operating loss carryforwards
for federal income tax purposes of approximately $3.0 million as of May 31,
1996. Prior to May 1996, the Company determined that the realization of the net
operating loss carryforward and other deferred tax assets did not meet the
recognition criteria under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," and, accordingly, a valuation allowance was
established to reserve the net operating loss carryforward and other deferred
tax assets. For fiscal 1996, the Company recorded a $4.1 million tax benefit
related to the reversal of the valuation allowance. This reversal was based on
management's analysis of current levels of earnings and its future outlook,

23
<PAGE>
which increased the likelihood of the Company realizing its deferred tax assets;
thus the valuation allowance was no longer deemed necessary. In the nine months
ended February 28, 1997, the Company recorded an income tax provision consistent
with federal and state statutory income tax rates. The Company expects that the
income tax provision will continue to reflect the statutory tax rates. See Note
9 of Notes to Consolidated Financial Statements.

SELECTED QUARTERLY OPERATING RESULTS

The following table sets forth certain unaudited consolidated financial
information for each of the four quarters in the Company's fiscal year ended May
31, 1996 and for the first three quarters in the Company's fiscal year ending
May 31, 1997. In management's opinion, this unaudited quarterly information has
been prepared on the same basis as the audited consolidated financial statements
and includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the quarters presented,
when read in conjunction with the audited consolidated financial statements and
notes thereto included elsewhere in this Prospectus. The Company believes that
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.

SELECTED QUARTERLY OPERATING RESULTS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
AUGUST 31, NOVEMBER 30, FEBRUARY 29, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1995 1995 1996 1996 1996 1996 1997
------------- --------------- ------------- ----------- ----------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ $ 5,535 $ 6,314 $ 5,943 $ 9,286 $ 6,655 $ 8,478 $ 9,224
Service................ 3,348 3,954 4,114 3,777 4,413 5,208 5,475
------------- --------------- ------------- ----------- ----------- --------------- -------------
Total revenues....... 8,883 10,268 10,057 13,063 11,068 13,686 14,699
------------- --------------- ------------- ----------- ----------- --------------- -------------
Cost of revenues:
License................ 805 1,004 1,209 1,895 1,170 1,550 1,832
Service................ 1,330 1,509 1,522 1,619 1,636 2,012 2,050
------------- --------------- ------------- ----------- ----------- --------------- -------------
Total cost of
revenues........... 2,135 2,513 2,731 3,514 2,806 3,562 3,882
------------- --------------- ------------- ----------- ----------- --------------- -------------
Gross profit......... 6,748 7,755 7,326 9,549 8,262 10,124 10,817
------------- --------------- ------------- ----------- ----------- --------------- -------------
Operating expenses:
Sales and marketing.... 2,867 3,786 3,473 4,351 4,054 5,660 5,702
Research and
development.......... 1,998 2,260 2,093 2,525 2,172 2,318 2,414
General and
administrative....... 994 1,184 1,218 1,367 1,224 1,209 1,540
------------- --------------- ------------- ----------- ----------- --------------- -------------
Total operating
expenses........... 5,859 7,230 6,784 8,243 7,450 9,187 9,656
------------- --------------- ------------- ----------- ----------- --------------- -------------
Operating income......... 889 525 542 1,306 812 937 1,161
Other income............. 3 37 8 52 83 119 103
------------- --------------- ------------- ----------- ----------- --------------- -------------
Income before income
taxes.............. 892 562 550 1,358 895 1,056 1,264
Income tax provision
(benefit).............. 3 -- -- (4,102) 344 406 470
------------- --------------- ------------- ----------- ----------- --------------- -------------
Net income............... $ 889 $ 562 $ 550 $ 5,460 $ 551 $ 650 $ 794
------------- --------------- ------------- ----------- ----------- --------------- -------------
------------- --------------- ------------- ----------- ----------- --------------- -------------
</TABLE>

The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's Common Stock. The Company establishes its expenditure levels

24
<PAGE>
based on its expectations as to future revenue, and, if revenue levels are below
expectations, expenses can be disproportionately high. As a result, a drop in
near term demand for the Company's products could significantly affect both
revenues and profits in any quarter. In the future, the Company's operating
results may fluctuate for this reason or as a result of a number of other
factors, including increased expenses, timing of product releases, increased
competition, variations in the mix of sales, announcements of new products by
the Company or its competitors and capital spending patterns of the Company's
customers.

The Company's business has experienced and may continue to experience
seasonality. In recent years, the Company has recognized a greater percentage of
its revenue and operating income in its fourth fiscal quarter than in any of the
first three quarters due to a number of factors, including the timing of product
releases and the Company's sales incentive programs. Moreover, due to fiscal
year-end sales incentive programs, the Company has historically recognized less
revenue and operating income in its first fiscal quarter than in the other
quarters.

As a result of these factors, there can be no assurance that the Company
will be able to maintain profitability on a quarterly basis.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically funded operations primarily through cash
provided by operations and the sale of equity securities and, to a lesser
extent, from borrowings. Currently, the Company meets its working capital needs
and capital equipment needs with cash provided by operations.

Cash provided (used) by operating activities was ($1.7) million, ($2.4)
million and $8.3 million for fiscal 1994, 1995 and 1996, respectively. The
increase in cash used by operations in fiscal 1995 was primarily due to an
increase in accounts receivable and a decrease in accounts payable, offset, in
part, by improved profitability. Accounts receivable increased in fiscal 1995
due to the release of a significant, new version of the Company's heritage
product in April 1995. The increase in cash provided by operations in fiscal
1996 was primarily due to increased profitability of the Company's operations
and an increase in deferred revenues. Cash provided by operating activities for
the nine-month periods ended February 29, 1996 and February 28, 1997 decreased
from $6.3 million to $5.7 million. The decrease resulted primarily from an
increase in accounts receivable from February 29, 1996 to February 28, 1997,
partially offset by a decrease in deferred tax assets as a result of utilization
of net operating loss carryforwards in 1997.

The Company's investing activities used cash of $1.7 million, $1.2 million
and $2.1 million in fiscal 1994, 1995 and 1996, respectively. For the nine
months ended February 29, 1996 and February 28, 1997, cash used for investing
activities was $2.4 million and $4.1 million, respectively. The principal use of
cash in investing activities was for capital expenditures related to the
acquisition of computer equipment required to support expansion of the Company's
operations. For the nine months ended February 28, 1997, the Company purchased
$2.1 million of government obligations in order to increase the rate of return
earned from cash resources.

The Company's financing activities provided (used) cash of $2.2 million,
$6.3 million and ($.8) million during fiscal 1994, 1995 and 1996 respectively.
In fiscal 1995, the cash provided by financing activities included $8.1 million
received in connection with the sale of Series B Preferred Stock and $2.0
million from the sale of Common Stock to employees, partially offset by $3.8
million of payments on the Company's outstanding line of credit and notes
payable. For the nine months ended February 29, 1996 and February 28, 1997, the
Company's financing activities provided (used) cash of ($.7) million and $.3
million, respectively. For fiscal 1996 and for the nine months ended February
29, 1996, financing activities used cash primarily for payments on capital lease
obligations and notes payable. For the nine months ended February 28, 1997, cash
of $.3 million was provided from financing activities which

25
<PAGE>
consisted primarily of proceeds received from the exercise of stock options
offset in part by payments on capital lease obligations and notes payable.

The Company's sources of liquidity at February 28, 1997 consisted
principally of cash, cash equivalents and investments of $12.2 million. The
Company also has a $5.0 million revolving line of credit facility with a bank.
The line of credit expires in November 1997 and borrowings made thereunder are
subject to certain covenants. No amounts were outstanding under the line of
credit at February 28, 1997. See Note 6 to Consolidated Financial Statements.

The Company believes that the proceeds from this offering, cash generated
from operations and amounts available under the line of credit will be
sufficient to fund its operations for the foreseeable future.

26
<PAGE>
BUSINESS

INDUSTRY BACKGROUND

In recent years, businesses of all sizes have been subjected to heightened
competitive pressures and rapidly changing market conditions. These pressures
and conditions have challenged businesses to increase the speed with which they
make decisions, establish closer relationships with customers and suppliers,
raise the productivity of employees throughout the business and reduce costs.
Many mid-sized and larger businesses are meeting these challenges by leveraging
the increased functionality, flexibility and access to information offered by
financial management systems based on client/server technologies.

In the past, information technology architectures, particularly the
centralization of information on mainframe systems and minicomputers, prevented
businesses from using their financial management systems for purposes other than
maintaining financial records and processing accounting transactions. These
systems were based on a centralized processing and reporting model which was
inflexible and did not allow effective integration with other systems or ready
access to information.

With the advent of client/server technologies, however, businesses are
better able to use information from their financial management systems to
respond to rapidly changing market conditions. The acceptance of client/server
systems has been driven by their ability to combine the ease of use and data
accessibility of personal computers with the high-volume processing and data
storage capabilities of minicomputer and mainframe systems. Client/server-based
financial management systems offer real-time information access and distributed
processing which enable businesses to increase the speed of decision making and
enhance employee productivity. When integrated with Internet technologies,
client/server systems provide employees throughout the business and key
customers and suppliers with access to critical information.

Businesses employing client/server financial management systems can
generally be grouped into two market segments: (i) the corporate or middle
market (the "Corporate Market") and (ii) the enterprise or high-end market (the
"Enterprise Market"). The Corporate Market generally consists of businesses with
$1 million to $250 million in revenues and 10 to 2,500 employees. In contrast,
the Enterprise Market generally consists of companies with revenues in excess of
$250 million and more than 2,500 employees. Although many Corporate Market
businesses have formal information technology (IT) departments, Corporate Market
companies typically have fewer IT resources than Enterprise Market companies. In
addition, whereas Corporate Market businesses have historically employed
financial management systems based on LANs, minicomputers and mainframes,
Enterprise Market companies have principally used mainframe financial management
systems.

Businesses in the Enterprise Market were the first to adopt client/server
architecture as the standard for new implementations of financial management
systems. More recently, businesses in the Corporate Market have also begun to
demand financial management systems based on client/server technology. However,
client/server financial management systems designed for the Enterprise Market
have not been widely implemented by Corporate Market businesses because they are
generally too complex and take too long and cost too much to implement.
Furthermore, the implementation of client/server financial management systems
designed for the Enterprise Market often requires significant business process
re-engineering that is overly burdensome for Corporate Market businesses,
especially smaller Corporate Market businesses.

27
<PAGE>
CORPORATE MARKET FINANCIAL MANAGEMENT SYSTEM NEEDS

Corporate Market businesses have a number of key business requirements that
are different from those of Enterprise Market businesses. The Company believes
that Corporate Market businesses require a client/server financial management
system that is cost-effective, designed for Microsoft technologies, easy to
customize and use and scalable.

Corporate Market businesses generally have fewer IT resources than
businesses in the Enterprise Market. As a result, these businesses require
cost-effective software solutions from vendors that can provide a substantial
amount of assistance during the software system selection and implementation
process as well as ongoing local support and service. These businesses also
require systems that can be rapidly implemented and are easy to learn, use and
modify.

In order to ensure ongoing compatibility, supportability and ease of
maintenance, many Corporate Market businesses are standardizing on Microsoft
technologies, most notably Windows NT, Windows 95 and SQL Server. For example,
according to International Data Corporation estimates, Windows NT is the fastest
growing server operating system for new client/server applications. Many
Corporate Market businesses are requesting a financial management system that
takes full advantage of Microsoft technologies. Systems that are 32-bit and
native to Windows currently offer the optimal Microsoft-standard solution.

Many Corporate Market businesses experience rapid growth and have evolving
business models. These businesses require financial management systems that can
be customized quickly and cost-effectively to accommodate the constantly
changing nature of their business systems and procedures. The Company believes
that financial management systems must allow Corporate Market businesses to
easily modify windows, to integrate third-party solutions and to quickly write
and seamlessly integrate custom applications.

Finally, Corporate Market companies require financial management systems
that can be scaled up as their businesses grow. This requirement is best met by
products that offer broad functionality and scalable processing capabilities,
and that have an open and flexible architecture that can easily incorporate
additional technologies, including Internet technologies which can extend the
availability of information from the financial management system to employees
across the business and to key customers and suppliers.

THE GREAT PLAINS SOFTWARE SOLUTION

The Company designs, develops, markets, sells and supports its client/server
financial management products based on the following principles:

OPTIMIZE PRODUCTS FOR LEADING TECHNOLOGIES. The Company has consistently
focused on identifying leading technologies and integrating them into its
products. In particular, the Company's products are designed for Microsoft
technologies, including Windows NT, Windows 95, SQL Server, Internet Explorer,
Internet Information Server, Visual Basic, Visual Basic for Applications and
C++. Due to their flexible 32-bit open architecture, the Company's products can
also be integrated with technologies from other leading suppliers, such as
Netscape, Citrix Systems, IBM/Lotus and Novell.

LEVERAGE PARTNER NETWORK. The Company has made a significant investment in
building an experienced, knowledgeable and highly motivated Partner network,
which consists of VARs, systems integrators, Big Six and other accounting firms,
ISVs and specialized software consultants. The Company's products are sold and
implemented exclusively through its extensive network of Partners. The Company
believes that its Partners have a significant influence over product choices by
customers, and that the Company's relationships with its Partners are essential
to the Company's success. Through its Partner network, the Company is able to
provide customers with trained and knowledgeable software professionals who are
available locally to implement its systems as well as provide ongoing service
and

28
<PAGE>
technical support. Many of the Partners customize the Company's products to fit
individual business needs and develop software applications that integrate with
and extend the functionality of the Company's products.

PROVIDE AWARD-WINNING SERVICE AND TECHNICAL SUPPORT. The Company believes
that prompt and effective service and technical support are essential elements
of a complete financial management software solution, and dedicates significant
resources to delivering timely, reliable and cost-effective service to its
customers and Partners. The Company has received numerous industry awards for
its customer and Partner service, including the 1996 Positive Performer Grand
National Award for excellence in customer service from Inc. magazine and MCI
Communications.

MEET BROAD SPECTRUM OF CORPORATE MARKET NEEDS. The Company's client/server
product lines, Dynamics C/S+ and Dynamics, are designed to meet the broad
spectrum of financial management needs of the Corporate Market. Dynamics C/S+ is
designed for businesses in the Corporate Market that have high volume processing
requirements, complex financial management needs and formal IT departments.
Dynamics is designed for Corporate Market businesses that need a Windows
client/server solution that is cost-effective and flexible, but does not require
IT personnel dedicated to database administration. Whereas Dynamics C/S+ is
designed for Corporate Market businesses that are typically migrating their
financial management systems from minicomputers and mainframes, Dynamics is
designed for businesses that are migrating from LANs to client/server systems.
The Company's customers can easily and cost-effectively upgrade from Dynamics to
Dynamics C/S+ as their businesses grow and financial management software needs
evolve.

ENABLE RAPID IMPLEMENTATION, EASE OF USE AND CUSTOMIZATION. The Company has
designed its software for rapid implementation. The Company's products, which
are based on the Windows-interface standard, are easy to learn and use. The
Company also offers a suite of tools that allow its customers and Partners to
easily modify and create windows and reports, to integrate third-party solutions
and to quickly write and seamlessly integrate custom applications. In addition,
customers and Partners can accomplish similar customization using
industry-standard, third-party tools, such as Microsoft Visual Basic and Visual
Basic for Applications, Crystal Reports and FRx financial report writer.

IMPROVE INFORMATION ACCESS. The architecture and design of the Company's
client/server products allow customers to quickly and easily access real-time
information. Instead of having to print and analyze reports to locate data,
customers can use the extensive "drill down" capabilities of the products to
gain online access to information contained throughout the financial management
system. In addition, customers can easily transfer information from the
Company's client/server products to desktop applications, such as Microsoft Word
and Excel, for analysis and dissemination.

INTEGRATE AND LEVERAGE INTERNET TECHNOLOGIES. The Company's products employ
Internet technologies to facilitate financial reporting, analysis and
communication both within an organization and with its customers and suppliers.
In addition, Dynamics.Order, the Company's electronic commerce solution, allows
customers of Corporate Market businesses to place and track orders over the
Internet. The Company believes that enabling easy, cost-effective and
security-enhanced communication and information sharing among employees as well
as facilitating order placement with customers are important elements of a
Corporate Market financial management system.

29
<PAGE>
STRATEGY

The Company's strategy is to extend its position as a leading provider of
Microsoft Windows NT client/server financial management systems to the Corporate
Market. The following are the key elements of the Company's strategy:

EXTEND TECHNOLOGY LEADERSHIP. The Company has a strong record of technical
innovation and leadership and intends to continue to invest in the development
of new technologies and products. The Company's client/server product lines,
Dynamics C/S+ and Dynamics, were among the first financial management systems in
the Corporate Market to receive Microsoft Windows 95 (Dynamics C/S+ and
Dynamics) and Microsoft BackOffice (Dynamics C/S+) logo compliance (recognition
from Microsoft that they meet the development criteria for Windows 95 as well as
Microsoft BackOffice technologies, including Windows NT and SQL Server). In
addition, the Company's client/server products have received industry awards,
including an Editors' Choice Award from PC Magazine and a Reviewers' Choice
Award from Personal Computing Magazine in the United Kingdom. The Company
believes that its open, componentized, multi-tier client/server architecture is
well-suited for the ongoing integration of new technologies. This architecture
has allowed the Company to be among the first to market Internet-enabled
financial management solutions for Corporate Market businesses. The Company
maintains a research team dedicated to assessing new and emerging technologies.
In addition, the Company intends to maintain its leadership in providing
customization capabilities that are essential to businesses in the Corporate
Market.

EXPAND AND STRENGTHEN PARTNER NETWORK. The Company believes that its
Partner network has been able to penetrate the Corporate Market by providing
high-quality, cost-effective marketing, sales and service. Through its channel
development and recruiting efforts, as well as its training, certification and
performance recognition programs, the Company intends to continue to expand and
strengthen this network. For example, the Company recently instituted a program,
Center for Organizational Excellence (CORE), which offers Partners increased
training, service and support to help them develop and expand their businesses.
The program also provides product and curricula offerings to colleges and
universities designed to increase the number of graduates familiar with the
Company's products. The Company also hosts a number of business and technology
conferences each year, including "Stampede," an annual three-day Partner
conference in Fargo, where the Company is headquartered, that had over 1,000
Partner participants in 1996.

CONTINUE AWARD-WINNING SERVICE AND TECHNICAL SUPPORT. The Company believes
that prompt and effective service and technical support are essential elements
of a complete financial management software system and are vital to maintaining
customer and Partner satisfaction. The Company has received numerous industry
awards for its customer and Partner service, and continues to invest in its
support infrastructure. For example, the Company is expanding its existing
Internet-based technical support to customers and Partners. The Company believes
that its initiatives will further increase the timeliness and effectiveness of
its service and technical support.

SUPPORT DOS-BASED PRODUCTS AND MIGRATE CUSTOMERS TO CLIENT/SERVER. The
Company intends to continue to support customers who use its DOS-based product,
Great Plains Accounting, and to offer specialized pricing programs and tools to
migrate these customers to its client/server products. In addition, the Company
has developed and is marketing migration tools for moving customers from
competitors' DOS-based accounting systems to its client/server financial
management systems.

EXPAND GLOBAL PRODUCT OFFERING AND INFRASTRUCTURE. The Company currently
sells its products through international Partners and a subsidiary located in
the United Kingdom to markets in the following geographic regions: Western and
Eastern Europe, Australasia, Southern Africa, the Middle East and Southeast
Asia. The Company's client/server products have been sold in approximately 50
countries.

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<PAGE>
The Company intends to expand its global infrastructure by entering into
additional international distribution agreements, acquiring certain existing
distributors and pursuing the acquisition of related software products or
companies.

MAINTAIN GREAT PLAINS SOFTWARE VALUES. Great Plains Software is deeply
committed to developing and sustaining long-term relationships with its
Partners, customers, employees and suppliers. The Company has been built on a
Mission Statement and a set of Shared Values that express this commitment. The
Company believes that a continued commitment to its Mission Statement and these
values results in higher employee, customer and Partner satisfaction.

GREAT PLAINS SOFTWARE MISSION STATEMENT

To improve the life and business success of Partners and Customers by
providing superior financial management software, services and tools.

GREAT PLAINS SOFTWARE SHARED VALUES

We must:

1. Foster a close relationship with our Partners and Customers that
will result in a better understanding of what they are experiencing;

2. Encourage innovation, independent action, team spirit and personal
growth in all employees;

3. Ensure that everything we do reflects exceptional levels of quality;
and

4. Demonstrate high integrity in all business relationships.

TECHNOLOGY

The Company's products leverage key Microsoft technologies and are based on
the following strategies:

32-BIT OPTIMIZATION FOR WINDOWS NT AND WINDOWS 95. The Company's
client/server products are 32-bit applications optimized for Windows NT and
Windows 95, and are among the few financial management systems that can be
integrated with Visual Basic for Applications, which the Company has licensed
from Microsoft. In addition, as 32-bit applications, the Company's client/server
products are among the few financial management systems that support Windows NT
on both the desktop and the server, which maximizes the performance and fault
tolerance capabilities of Windows NT.

MICROSOFT SQL SERVER OPTIMIZATION. Dynamics C/S+ is optimized for the
latest releases of Microsoft SQL Server and includes over 4,000 stored
procedures to enhance distributed processing, overall performance and data
integrity. The Company's implementation of Microsoft SQL Server and Windows NT
also enhances data accessibility and system scalability.

NATIVE WINDOWS NT AND WINDOWS 95 IMPLEMENTATION. The Company's
client/server products are designed to take full advantage of Windows NT and
Windows 95 capabilities, unlike "screen scraper" products that have a graphical
interface grafted onto DOS-based or legacy software systems. The Company
believes that its design philosophy has resulted in products that are easier to
use and more intuitive because they adhere closely to the same interface
standards as Windows desktop applications. Moreover, as native Windows
applications, the Company's client/server products require less memory and
enable more efficient multi-tasking than screen-scraper products.

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<PAGE>
COMPONENTIZED FUNCTIONALITY. The business rules, or financial logic, of the
Company's products have been designed and developed into "logic components."
This "componentization" or "object orientation" of the product allows the
Company to use software code multiple times within a product and from product to
product, increasing the speed with which new applications and product extensions
can be developed. The componentized architecture of the Company's products also
allows Company and third-party applications to share a common user interface
thereby creating a seamless and easy to use environment for customers. Moreover,
the Company makes certain components available to ISV Partners, which
facilitates their ability to integrate third party applications into the
Company's client/server products.

MULTI-TIER CLIENT/SERVER ARCHITECTURE. The multi-tier client/server
architecture of the Company's products enhances the processing flexibility and
efficiency of its products by allowing processing to occur on the desktop
computer, the application server or the database server. In addition, this
architecture enhances scalability and deployment capabilities over wide area
networks and the Internet.

INTERNET INTEGRATION. The Company has deployed and is continuing to develop
Internet products to extend the availability of information from financial
management systems to employees across the business and key customers and
suppliers. The Company's client/server products take advantage of leading
Internet technologies, including Microsoft Internet Explorer, Netscape
Navigator, Microsoft Internet Information Server, FrontPage, ActiveX and Java.

PRODUCTS

The Company's client/server product lines, Dynamics C/S+ and Dynamics,
consist of a suite of financial applications and a suite of customization and
development tools. The Company also offers a DOS- and Macintosh-based product,
Great Plains Accounting.

DYNAMICS C/S+

First released in July 1994, Dynamics C/S+ is the Company's client/server
financial management system for Corporate Market businesses that have high
volume processing requirements, complex financial management needs and formal IT
departments. These businesses require the distributed processing and increased
throughput delivered by Windows NT, Microsoft SQL Server and the multi-tier
architecture of the Company's products. Dynamics C/S+ has received several
industry awards and was one of the first client/server financial management
systems to receive Microsoft Windows 95 and BackOffice logo compliance. The
Dynamics C/S+ implementation of Windows NT allows deployment on either Intel or
Digital's Alpha processor technology.

DYNAMICS

First released in February 1993, Dynamics is the Company's client/server
financial management system for Corporate Market businesses that need a Windows
client/server solution that is flexible and cost-effective, but does not require
IT personnel dedicated to database administration. Dynamics is built on the same
foundation as Dynamics C/S+ and leverages leading Microsoft technologies,
including Microsoft Windows 95, Windows NT and Visual Basic. Dynamics has
received several industry awards and was one of the first client/server
financial management applications to receive Windows 95 logo compliance.

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The following table provides selected information relating to the Dynamics
C/S+ and Dynamics client/server product lines:

DYNAMICS C/S+ DYNAMICS
--------------------------- ---------------------------
<S> <C> <C>
INITIAL RELEASE DATE July 1994 February 1993
CURRENT VERSION/
RELEASE DATE 3.15/November 1996 3.2/March 1997
TARGET MARKET:
REVENUES $25 to $250 million $1 to $25 million
EMPLOYEES 250 to 2,500 10 to 250
CLIENT OPERATING SYSTEMS Windows NT Windows NT
Windows 95 Windows 95
Macintosh O/S
SERVER OPERATING SYSTEM(S) Windows NT Windows NT (Intel)
(Intel and Alpha) Novell NetWare
PRIMARY DATABASE Microsoft SQL Server Btrieve Server
TYPICAL SYSTEM
PRICE RANGE* $30,000 to $75,000 $5,000 to $20,000
- --------------
* The Dynamics C/S+ typical system price range is based on systems with eight to 24
users and three to six modules. The Dynamics typical system price range is based on
systems with one to 12 users and four to six modules. The system price is the price
paid by the customer to a Partner and does not represent sale proceeds to the
Company.
</TABLE>

CLIENT/SERVER PRODUCT FUNCTIONALITY

The Company's client/server product lines, Dynamics C/S+ and Dynamics,
consist of a suite of financial applications and a suite of development and
customization tools. These suites, which are offered across both product lines,
address similar business needs yet provide features and technologies
specifically designed for the distinct requirements of Dynamics C/S+ and
Dynamics customers.

The financial applications offered with both client/server products automate
the critical accounting and distribution functions of Corporate Market
businesses. These applications can be grouped into two categories:

ACCOUNTING APPLICATIONS deliver such essential functionality as general
ledger, accounts receivable, accounts payable, invoicing and payroll. In
addition, one of the Company's Internet applications, Dynamics.View,
provides employees across a business with access to financial information
via a Web browser.

DISTRIBUTION APPLICATIONS provide inventory management, sales order
processing and purchase order processing. In addition, Dynamics.Order, the
Company's electronic commerce application, allows customers of Corporate
Market businesses to place and track orders over the Internet.

The Company's suite of development and customization tools, DynamicTools,
allows customers and Partners to customize and extend the functionality of
Dynamics C/S+ and Dynamics. Key tools in the DynamicTools suite are Dexterity,
Modifier, Visual Basic for Applications, Report Writer, Continuum for Visual
Basic and NetTools. Dexterity enables customers and third party developers to
create applications that seamlessly integrate with, and have the same look and
feel as, the Company's client/server applications. Modifier is used to customize
windows and cursor navigation. The Company's implementation of Visual Basic for
Applications, under license from Microsoft, allows the Company's client/server
products to be integrated with customer-specific or industry-standard
applications or easily customized

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<PAGE>
to fit specific customer needs. Report Writer allows for the creation and
modification of reports. Continuum for Visual Basic facilitates integration
between the Company's client/server products and Microsoft Visual Basic
applications through the use of wizards (online instruction guides) and
point-and-click operations. NetTools facilitates the integration of the
Company's client/server products with leading Internet technologies.

GREAT PLAINS ACCOUNTING

The Company's Great Plains Accounting product is available for DOS and
Macintosh operating systems in LAN and single user environments. Great Plains
Accounting includes a suite of financial applications that provides customers
with a broad range of features and functions. The Company's most recent version
of Great Plains Accounting, Version 9.0, released in February 1997, is marketed
primarily to existing Great Plains Accounting customers. The Company is actively
promoting the migration of its Great Plains Accounting customers to its
client/server products. The Company's revenues from its Great Plains Accounting
product have been declining, and the Company expects that these revenues will
continue to decline in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Revenues."

SALES AND MARKETING

SALES. The Company sells, implements and supports its products exclusively
through its Partner network consisting of VARs, specialized software
consultants, ISVs, systems integrators and Big Six and other accounting firms.
The Company's Partners are independent organizations that perform some or all of
the following functions: sales and marketing; systems implementation and
integration; software development and customization; and ongoing consulting,
training, service and technical support. In many instances, a Partner's primary
source of income is derived from selling, implementing and supporting the
Company's products.

The Company believes that its Partners have a significant influence over
product choices by customers and that its relationships with its Partners are an
essential element in its marketing, sales and implementation efforts. Through
its Partner network, the Company is able to provide customers with trained and
knowledgeable software professionals who are available locally to implement its
systems as well as provide ongoing service and support. Many of the Company's
Partners customize the Company's systems to fit individual business needs and
develop industry-specific software applications that integrate with and extend
the functionality of the Company's products.

The Company actively recruits Partners through channel development groups
and has specialized strategies aimed at recruiting and supporting ISVs and
accounting firms. Partners are required to undergo extensive training and
certification procedures before being authorized to sell and implement the
Company's products and must maintain certain standards and sales volumes to
retain such authorization.

The Company has established cooperative relationships with several
international Partners to further the international distribution of its
products, which involves localizing and translating its products, locating and
training qualified VARs, marketing its products and providing ongoing customer
service and technical support. The Company has a subsidiary located in the
United Kingdom and plans to establish another subsidiary to conduct business in
Australasia. International Partners typically pay localization and translation
costs for the Company's software in exchange for exclusive distribution rights,
while the Company retains ownership of the localized version of the software.
The Company and its international distributors have developed localized language
versions of its client/server products, including Arabic, Polish, Russian,
German and Portuguese, with a Spanish version expected to be released in fiscal
1998. In addition, the Company has developed localized versions for the United
Kingdom, Australia, New Zealand, South Africa and French-speaking Canada. These
versions have been modified to satisfy local accounting or tax requirements and
include international features, such as compatibility with value-added-tax and
European Intrastat reporting requirements, localized charts of accounts,
multi-currency capabilities and transaction code analysis. The Company's product
architecture is designed to facilitate the translation, localization and
maintenance of multilingual, multinational versions.

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<PAGE>
MARKETING. The Company is focused on building market awareness and
acceptance of the Company and its products as well as on generating qualified
customer and Partner leads. Customer leads are pursued by Partners with
assistance from the Company's sales personnel.

The Company has a comprehensive marketing strategy with several key
components: image and awareness building, direct marketing to both prospective
and existing customers, a strong Web presence, broad-scale events with strategic
partners and local marketing with Partners. The Company's corporate image
strategy includes national advertising in key financial, business and technology
publications as well as Web-based advertising. The Company's direct marketing
includes ongoing direct mail efforts to existing and prospective customers. For
prospective customers, the Company also offers seminars and self-qualifying
tools to assist them in selecting client/server financial management systems.
Seminars are offered in conjunction with Partners in their local or
industry-specific markets. The Company's Web-based marketing is designed to
generate new leads for the Company. The Company increases product awareness by
sponsoring large scale events and seminars for prospective customers with key
industry partners, such as Microsoft, Digital and IBM. Such events have included
satellite product launch events and video-teleconference-based technical
seminars. Finally, the Company's marketing strategy is designed to take
advantage of the Company's Partner network by including cooperative marketing
programs designed for Partners' local markets.

CUSTOMERS

The Company's client/server products offer functionality and scalability to
suit a wide range of Corporate Market businesses, from fast-growing
entrepreneurial businesses to divisions of large enterprises. In addition, the
Company's client/server products, implemented alone or with an industry-specific
third party application, have been purchased by companies in a wide variety of
industry types, such as:

<TABLE>
<S> <C> <C>
Advertising Healthcare Non-Profit
Broadcasting Hospitality Professional Sports
Computer Software Information Services Publishing
Construction Insurance and Financial Services Retail
Distribution Internet Software and Services Telecommunications
Education Manufacturing Transportation
</TABLE>

CUSTOMER CASE STUDIES

The following case studies illustrate the selection, implementation and use
of Dynamics C/S+ and Dynamics by certain of the Company's customers. Not every
customer implementation of the Company's products achieves the same level of
success.

DOVER CORPORATION CANADA, LTD.

Dover Corporation Canada, Ltd. ("Dover") sells, services and installs
elevators, escalators and industrial conveyor belts throughout Canada. Dover has
approximately 500 employees in its corporate headquarters and approximately 40
branch offices across Canada. Dover's previous financial management applications
were proprietary and approximately 15 years old. Information flow between the
corporate and branch offices, including accounting and project management
reporting, suffered from a time lag of about 45 days and, as a result,
information available at branch offices often differed from information
available at headquarters.

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<PAGE>
Dover is replacing its centralized mainframe system with a Dynamics C/S+
solution that will link the financial system in its corporate headquarters with
all branch offices. The system presently has about 110 authorized users, with
more users being added monthly.

In addition to benefiting from the broad functionality inherent in Dynamics
C/S+, Dover employees across Canada are gaining online access to information in
the Dynamics C/S+ financial management system through a WAN and the Internet.
Furthermore, a Great Plains Software Partner has written an industry-specific
application using DynamicTools which allows Dover to better manage its remote
sales and service force and provide them with real-time integration with
Dynamics C/S+.

PROTECTION ONE ALARM MONITORING, INC.

Protection One Alarm Monitoring, Inc. ("Protection One"), with approximately
950 employees, provides security alarm monitoring services, and sells, installs
and services security alarm systems for residential and small business
subscribers across the western United States. The company is the largest
residential security alarm company in the western United States and ranks among
the largest in the country in terms of customer base.

Security industry software systems such as the system previously used by
Protection One are typically comprised of two or more applications--a financial
package and specialized alarm monitoring software. Protection One determined
that its existing applications were unable to accomodate its expected future
growth. In addition to broad and flexible financial management functionality,
Protection One required a system that integrated seamlessly with several
custom-developed alarm monitoring applications.

The solution now used by Protection One integrates Dynamics C/S+ with
industry-specific applications developed by a Great Plains Software Partner. In
particular, the Partner used the Great Plains Software development tool suite,
DynamicTools, to develop a specialized alarm monitoring solution that seamlessly
integrates with Dynamics C/S+ to handle the approximately 1.5 million alarm
signals a month that Protection One receives. This integrated solution allows
appropriate personnel in the organization to respond to customer inquiries and
address alarm signals, including life-threatening emergencies, that might arise
in the alarm monitoring center, and provides Protection One with a comprehensive
and seamlessly integrated financial, administrative and service management
system with a common customer database.

SBS CORPORATION

SBS Corporation ("SBS"), with approximately 40 employees, provides hardware,
software and services to financial institutions primarily serving the
southeastern United States. SBS offers products and services which enable its
customers to provide optical storage, loan document processing, telephone
banking and check imaging solutions.

The financial management system previously used by SBS was a DOS-based
solution that did not automate key processes. For example, sales proposals and
quotes were created in Microsoft Word, but information was re-entered as a sale
moved forward from proposal to order to billing. This inefficient process made
it difficult to monitor the status of a sale and was labor intensive.

SBS migrated to a Dynamics solution in July 1995 and reports that it has
streamlined processes and measurably increased productivity. SBS relies on the
"enter-data-once" design of Dynamics to automate workflow relating to the sales
process. The Dynamics Sales Order Processing application provides SBS with the
ability to enter data once and use it throughout the sales process, from the
quote stage to orders, back orders, invoices and returns. The status of an order
can be monitored by any Dynamics user. This workflow design has streamlined
processes, improved accuracy and increased staff productivity. In addition, SBS
has been able to integrate its Dynamics system with Microsoft Word and Excel.

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<PAGE>
PARTNER CASE STUDIES

The Company has made a significant investment in building an experienced,
knowledgeable and highly motivated Partner network. The following case studies
describe key characteristics and business attributes for three of the Company's
larger Partners. Not every Partner has experienced or will experience the same
level of success.

THE TAYLOR GROUP

The Taylor Group sells, implements and supports financial and manufacturing
software throughout the northeastern United States. The Taylor Group also
develops, markets and supports its own "plug and play" applications that enhance
Great Plains Software products. These applications are distributed by
approximately 172 VARs around the world that maintain relationships with both
The Taylor Group and Great Plains Software.

Founded as a single-person business in 1987, The Taylor Group had 36
employees as of December 31, 1996, including support technicians, consultants,
systems engineers, programmers and sales and marketing executives. Approximately
60% of the formal training of this staff is obtained through programs offered by
Great Plains Software.

In 1996, the Taylor Group's revenue was evenly divided among sales of Great
Plains Software products, its own software applications that enhance Great
Plains Software products and related services. It discontinued offering
competing products approximately five years ago. As of December 31, 1996, The
Taylor Group was providing service to an installed base of 90 Dynamics
customers, 13 Dynamics C/S+ customers and 129 Great Plains Accounting customers.

FINANCIAL SYSTEMS CONSULTING, INC.

Financial Systems Consulting, Inc. ("FSC") sells, implements and supports
financial management software and provides management consulting services in the
southwestern United States. In business since 1993, FSC was authorized as a
Great Plains Software VAR in November 1995 and currently focuses primarily on
Dynamics C/S+. In the year ended December 31, 1996, its first as a Great Plains
Software Partner, FSC implemented Dynamics C/S+ for 28 customers.

As of December 31, 1996, FSC had 19 employees in offices in Los Angeles, San
Diego, San Francisco and Phoenix. Prior to becoming authorized as a Great Plains
Software VAR, FSC had been a leading reseller of a competing product. During
FSC's first twelve months as a Great Plains Software Partner, approximately 45%
of its revenues were derived from the sale of Great Plains Software products,
third-party applications that enhance Great Plains Software products and related
services.

INTEGRATED ACCOUNTING SYSTEMS, INC.

Integrated Accounting Systems, Inc. ("IAS") was founded in 1989 as a
single-person firm, providing financial management system consulting and
implementation services. In 1992, IAS expanded its business to include the
resale of financial management software. As of December 31, 1996, IAS had grown
to 19 employees and was recognized as one of the fastest growing private
companies in the San Francisco Bay Area for 1996. Since its founding, IAS has
focused exclusively on Great Plains Software products.

In 1996 IAS received approximately 50% of its revenue from service and
support and 50% from software sales, of which approximately 10% was derived from
the sales of third party applications that integrate with Great Plains Software
products. As of December 31, 1996, IAS was providing service to an installed
base of 100 Dynamics customers, 6 Dynamics C/S+ customers and 360 Great Plains
Accounting customers.

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<PAGE>
CUSTOMER AND PARTNER SERVICE

The Company believes that prompt and effective service and technical support
is an important component of a complete financial management system and is
critical to the long-term satisfaction of its customers and Partners. The
Company has received numerous awards for its Partner and customer service,
including the 1996 Positive Performer Grand National Award for excellence in
customer service from Inc. magazine and MCI Communications.

The Company was one of the first personal computer software providers to
introduce fee-based support plans and guaranteed telephone response times. The
Company also maintains profiles and detailed call histories on each of its
customers and Partners. These profiles enable support personnel at the Company
to respond more effectively to service inquiries, allow the Company to better
forecast which customers are likely to purchase new products or upgraded
versions of existing products and assist the Company in developing new
applications and features that accurately address the needs of the marketplace.

The Company provides service and technical support through a service
organization consisting of 126 employees as of April 30, 1997. The Company
provides a variety of training, technical support and service programs for
customers which supplement the primary support provided by Partners. The Company
offers video, teleconference and classroom training as well as technical support
through a toll-free number, its Website and onsite consultations. Telephone
support calls are handled by professional support personnel and have various
guaranteed response times, depending on the type of support plan purchased.
Response times as short as 30 minutes are offered. In addition to its technical
support programs, customers are offered software maintenance programs for an
annual fee. These programs provide customers with product upgrades and online
information and assistance. The Company also offers comprehensive training and
product support to its Partners to ensure that they provide the necessary levels
of technical support and assistance to customers. Finally, the Company offers
its Partners a variety of consulting resources for resale to customers,
including strategic implementation planning, project management and product
customization.

RESEARCH AND DEVELOPMENT

Since its inception, the Company has made substantial investments in
research and development. During the fiscal years 1994, 1995 and 1996, software
development expenses were approximately $10.7 million, $9.3 million and $8.9
million, respectively. As of April 30, 1997, the Company had 160 employees
engaged in research and development. For the nine months ended February 29, 1996
and February 28, 1997, software development expenses were approximately $6.4
million and $6.9 million, respectively.

The Company's research and development efforts employ a standard development
process to guide software development through stages of product concept, market
requirements analysis, product definition, design specification, coding, testing
and release. These efforts are also focused on identifying, developing and
integrating leading technologies into its products to better meet customer
needs.

INTELLECTUAL PROPERTY RIGHTS AND LICENSES

The Company regards certain features of its internal operations, software
and documentation as its intellectual property. The Company relies on a
combination of contract, copyright, trademark and trade secret laws, a mandatory
software registration mechanism and other measures to protect its intellectual
property. The Company has no patents. The Company believes that, because of the
rapid pace of technological change in the computer software industry, trade
secret and copyright protection are less significant than factors such as the
knowledge, ability and experience of the Company's employees, frequent product
enhancements and the timeliness and quality of support services. It is the
Company's policy to file for protection of its basic trademarks and service
marks in countries in which the Company

38
<PAGE>
sells its products either directly or through its international Partners and in
countries in which protection is advisable. Despite these measures there can be
no assurance that the Company will be able to fully protect its intellectual
property. See "Risk Factors--Dependence on Intellectual Property Rights; Risk of
Infringement."

The Company provides its products to customers on a "right-to-use" basis
under non-exclusive licenses, which generally are nontransferable and have a
perpetual term. The Company typically licenses its products solely for the
customer's internal operations.

COMPETITION

The market for the Company's products is highly competitive and rapidly
changing. The Company's primary market consists of businesses in the Corporate
Market. The Company's current and prospective competitors offer a variety of
solutions for this market. The Company experiences significant competition and
expects substantial additional competition from established and emerging
software companies that offer products similar to the Company's products and
target the same customers as the Company. The Company believes it competes on
the basis of (i) product features, functionality, performance and price, (ii)
the capacity and capabilities of Partners, (iii) the quality of customer and
Partner service and technical support, (iv) sales and marketing efforts, (v) new
product and technology introductions, and (vi) company image and stability. The
Company believes it competes effectively on each of these factors.

In the United States, the Company faces a number of competitors both in the
Dynamics C/S+ segment of the Corporate Market, including Platinum Software
Corporation, and in the Dynamics segment of the Corporate Market, including
Solomon Software and State of the Art, Inc. In Canada, the Company's primary
competitor is Computer Associates International, Inc. (AccPac and AccPac 2000).
Outside North America, the Company also faces competition from a number of other
competitors, several of which have significant shares in their home markets. In
addition, the Company competes for Corporate Market business with companies
primarily targeting the Enterprise Market; several of these competitors, which
principally sell UNIX-based systems, offer or have announced their intention to
deliver Windows NT solutions. The Company believes that the products from these
competitors are neither designed nor priced to meet the needs of the Corporate
Market, and that the Company competes effectively against them in the Corporate
Market. The Company's products also face competition from providers of
industry-specific applications as well as indirect competition from in-house,
custom-developed financial management applications.

Certain of the Company's competitors have substantially greater financial,
marketing or technical resources than the Company. There can be no assurance
that other companies have not developed or marketed or will not develop or
market products that are superior to those of the Company, that are offered at
substantially lower prices than those of the Company, or that have or will
achieve greater market acceptance than those of the Company. In addition, there
can be no assurance that alternative methods of delivering financial management
systems will not provide increased competition.

FACILITIES

The Company's principal administrative, marketing, production and product
development facilities consist of an aggregate of approximately 75,000 square
feet at two locations in Fargo, North Dakota. Great Plains Software occupies
these sites under lease agreements that expire at various times through June
1998. Total rent expense was approximately $693,000, $894,000 and $871,000
during fiscal 1994, 1995 and 1996, respectively. The Company is currently
planning to consolidate its two locations into an expanded facility that is
expected to be occupied by the Company in fiscal 1999. The Company expects to
enter into a sale and leaseback transaction with respect to the new facility,
which will be located on

39
<PAGE>
land to be acquired by the Company from a director of the Company. See "Certain
Transactions." The Company expects that the new facility will result in
increased rent expenses.

PRODUCTION

The principal physical components of the Company's software products are
computer media and manuals. The Company prepares master software disks, manuals
and packaging materials which are then duplicated by the Company and third party
vendors. To date, the Company has not experienced any material difficulties or
delays in the manufacture and assembly of its products or material returns due
to product defects.

EMPLOYEES

As of April 30, 1997, the Company had a total of 546 full time equivalent
employees ("FTEs"), including 318 FTEs in sales, marketing, technical support
and consulting services, 160 FTEs in research and development and 68 FTEs in
administration. None of the Company's employees are represented by a labor
union. Management believes that its relations with the Company's employees are
good.

LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation arising out of
operations in the normal course of business. As of the date of this Prospectus,
the Company is not a party to any legal proceedings the adverse outcome of
which, individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Company's results of operations or financial
position.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages and
positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Douglas J. Burgum.............. 40 Chairman of the Board, President and Chief Executive Officer
Raymond A. August.............. 35 Chief Technology Officer and Group Vice President, Dynamics C/S+
Terri F. Zimmerman............. 33 Chief Financial Officer and Group Vice President, Finance and
Operations
Michael J. Olsen............... 47 Group Vice President, Corporate Communications
Steven K. Sydness.............. 42 Group Vice President, Dynamics
Jodi A. Uecker-Rust............ 35 Group Vice President, Heritage Products
Brian R. Carey................. 39 Vice President, Business Development
Michael A. Slette.............. 40 Vice President, Human Resources and Legal Affairs
Bradley J. Burgum.............. 45 Director and Secretary
Frederick W. Burgum............ 51 Director
William V. Campbell............ 58 Director
Raymond F. Good................ 69 Director
Sanjeev K. Mehra............... 38 Director
J.A. Heidi Roizen.............. 39 Director
Joseph S. Tibbetts, Jr......... 44 Director
</TABLE>

DOUGLAS J. BURGUM has served as President of the Company since March 1984,
Chief Executive Officer since September 1991 and Chairman of the Board since
January 1996. Mr. Burgum was an early investor in the Company, and he initially
served as Vice President and a director from March 1983 to March 1984. Before
joining the Company, Mr. Burgum was a management consultant in the Chicago
office of McKinsey & Company, Inc. Mr. Burgum holds a B.U.S. from North Dakota
State University and an M.B.A. from the Stanford University Graduate School of
Business.

RAYMOND A. AUGUST has served as Chief Technology Officer and Group Vice
President, Dynamics C/S+ since June 1996. Previously, he served as Chief
Technology Officer and Vice President of Product Strategy from June 1995 to June
1996 and Vice President of Product Development from June 1993 to June 1995.
Prior to joining the Company in October 1992, Mr. August was a Senior Manager in
the Management Consulting Service Practice of Price Waterhouse LLP in New Jersey
and New York. He holds a B.S. in Accounting and Computer Science from the
University of South Carolina. Mr. August is a Certified Public Accountant.

TERRI F. ZIMMERMAN has served as Chief Financial Officer since February 1997
and Group Vice President, Finance and Operations since June 1996. Previously,
she held the position of Vice President of Finance and Operations from June 1995
to June 1996. Ms. Zimmerman joined the Company as Director of Finance in
September 1994. She was previously employed by Deloitte & Touche LLP in
Minneapolis as a Senior Manager. Ms. Zimmerman holds a B.A. in Business
Administration from the University of North Dakota. Ms. Zimmerman is a Certified
Public Accountant.

MICHAEL J. OLSEN has served as Group Vice President, Corporate
Communications, since June 1996. Mr. Olsen served as Vice President of Corporate
Communications from September 1995 to June 1996. From 1994 to 1995, Mr. Olsen
was Senior Vice President of Himle Horner, Inc., a Minneapolis-based public
relations agency. From 1987 to 1994, he was Vice President of Corporate
Communications for National Car Rental System, an international car rental
company. Prior to such time, he served in various Senior Public Affairs
positions in Washington, D.C. Mr. Olsen holds a B.A. in Speech and Drama from
North Dakota State University.

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<PAGE>
STEVEN K. SYDNESS has served as Group Vice President, Dynamics since June
1996. Mr. Sydness served as Vice President of Business Development from June
1995 to June 1996, Vice President of Sales from June 1994 to June 1995 and Vice
President of Strategic Planning from June 1993 to June 1994. From February to
November of 1992, Mr. Sydness took a leave of absence from the Company during
which he was a candidate for the United States Senate. Prior to joining Great
Plains Software in January 1987, he was employed by Dr. Henry Kissinger
Associates and the management consulting firm McKinsey & Company, Inc. in their
New York and Tokyo offices. Mr. Sydness holds a B.A. from Principia College and
an M.B.A. from Harvard Business School.

JODI A. UECKER-RUST has served as Group Vice President, Heritage Products
since June 1996. Ms. Uecker-Rust was Vice President of Employee Services from
June 1995 to June 1996, Vice President of Operations, and later Vice President
of Operations and Administration from July 1993 to June 1995 and Director of
Operations from October 1990 to July 1993. Ms. Uecker-Rust joined the Company in
1984 after being employed by Honeywell Inc. in Minneapolis. She holds a B.S. in
Industrial Engineering from North Dakota State University.

BRIAN R. CAREY has served as Vice President of Business Development since
July 1996. Mr. Carey was Vice President of Product Development from June 1995 to
June 1996. He was General Manager and later Vice President and General Manager
of the Small Business Systems Unit of the Company from August 1992 to June 1995.
Mr. Carey joined the Company in June 1989. Before such time, he was employed by
First Interstate Bancorp, where he was Senior Vice President and Manager of the
Retail Banking Division. Previously, Mr. Carey was employed by Xerox Corporation
in Minneapolis as a Sales Executive. He holds a B.S. in Marketing from Moorhead
State University.

MICHAEL A. SLETTE has served as Vice President of Human Resources and Legal
Affairs since June 1996. Mr. Slette was Vice President of Business Development
and Legal Affairs from June 1995 to June 1996 and Vice President of Finance from
June 1988 to June 1995. Mr. Slette joined the Company in 1982 and, prior to such
time, was employed by the Minneapolis-based accounting firm Adrian S. Helgeson &
Co. He holds a B.A. in Business Administration and Accounting from Concordia
College. Mr. Slette is a Certified Public Accountant.

BRADLEY J. BURGUM has served as a director of the Company since 1984 and as
Secretary since January 1996. Mr. Burgum has practiced law in Casselton, North
Dakota for 19 years and is currently a shareholder and President of the Burgum &
Irby Law Firm, P.C. He has served on the Board of Directors for the Arthur
Companies, Inc., a privately-held diversified agribusiness corporation, since
1974. Mr. Burgum holds a B.S. in Business Economics from North Dakota State
University and a J.D. from the University of North Dakota School of Law. Mr.
Burgum is a Certified Public Accountant.

FREDERICK W. BURGUM has served as a director of the Company since 1988. Mr.
Burgum has been Chairman of the Board of the Arthur Companies, Inc. since 1984
and has served as its Chief Executive Officer since June 1992. He has served as
Senior Vice President and a director of the First State Bank of North Dakota
since 1972. Mr. Burgum is a veteran of the United States Army and holds a B.Ph.
from the University of North Dakota.

WILLIAM V. CAMPBELL has served as a director of the Company since March
1997. Mr. Campbell has been the President and Chief Executive Officer of Intuit
Inc. since April 1994. Prior to joining Intuit Inc., Mr. Campbell was President
and Chief Executive Officer of GO Corporation, a pen-based computing software
company, from January 1991 to December 1993. He was the founder, President and
Chief Executive Officer of Claris Corporation, a software subsidiary of Apple
Computer, from 1987 to January 1991. Mr. Campbell has also held senior executive
positions at Apple Computer and senior management positions at Kodak and J.
Walter Thompson, an advertising agency in New York. Mr. Campbell also serves on
the Board of Directors of SanDisk, Inc. Mr. Campbell holds both a B.S. and a
M.S. in Economics from Columbia University. He is presently a director of the
National Football Foundation and Hall of Fame.

42
<PAGE>
RAYMOND F. GOOD has served as a director of the Company since 1988. He is an
independent executive consultant and a director of the Astrocom Corporation, a
publicly-held company based in Minneapolis. From 1986 to 1992, he was a partner
of Regis McKenna. Mr. Good has also served as Vice President of Marketing
Strategy for Control Data Corporation, President of Heinz USA, Chief Executive
Officer of The Pillsbury Consumer Group, and Chairman of the Board and Chief
Executive Officer of Munsingwear, Inc. Earlier in his career, he served as a
management consultant in the New York office of McKinsey & Company, Inc. Mr.
Good is a veteran of the United States Marine Corps. He holds a B.S. from the
University of Connecticut and an M.B.A. from Harvard Business School.

SANJEEV K. MEHRA has served as a director of the Company since June 1994. He
is a Managing Director in the Principal Investment Area of Goldman, Sachs & Co.
and serves on the Boards of Directors of several privately-held companies. Prior
to joining Goldman, Sachs & Co. in 1986, he was a Research Analyst at McKinsey &
Company, Inc. from 1982 to 1984. Mr. Mehra holds a B.A. from Harvard University
and an M.B.A. from Harvard Business School.

J.A. HEIDI ROIZEN has served as a director of the Company since February
1997. Previously, she served as Vice President of World Wide Developer Relations
for Apple Computer from 1996 to 1997 and as Chief Executive Officer of T/Maker
Company from 1983 to 1996. Ms. Roizen was a member of the Board of Directors of
the Software Publishers Association from 1987 to 1994 and served as President of
the association from 1988 to 1990. She is a member of the Stanford University
Board of Trustees Nominating Committee and a Public Governor of the Pacific
Stock Exchange. Ms. Roizen holds a B.A. in English from Stanford University and
an M.B.A. from the Stanford Graduate School of Business.

JOSEPH S. TIBBETTS, JR. has served as a director of the Company since
October 1996. He has served as Vice President, Finance and Administration, Chief
Financial Officer and Treasurer of SeaChange International, Inc., a
publicly-held company based in Maynard, Massachusetts, from June 1996 to the
present. From November 1976 to June 1996, Mr. Tibbetts was employed as a
Certified Public Accountant by Price Waterhouse LLP. He became a Partner of the
firm in 1986 and the National Director of its Software Services Group in 1991.
Mr. Tibbetts holds a B.S. in Business Administration from the University of New
Hampshire and is a graduate of the Stanford Business School Executive Program
for Growing Companies.

Douglas J. Burgum and Bradley J. Burgum are brothers, and Frederick W.
Burgum is their cousin.

CLASSES OF DIRECTORS

Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Good and Tibbetts and Ms. Roizen will serve in the class whose term
expires in 1997; Messrs. Bradley J. Burgum, Campbell and Mehra will serve in the
class whose term expires in 1998; and Messrs. Douglas J. Burgum and Frederick W.
Burgum will serve in the class whose term expires in 1999. Upon the expiration
of the term of a class of directors, directors in such class will be elected for
three-year terms at the annual meeting of shareholders in the year in which such
term expires.

EXECUTIVE OFFICERS

Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors and until their successors have been duly elected and qualified.

BOARD COMMITTEES

The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for nominating the
Company's independent accountants for approval by the Board of Directors,
reviewing the scope, results and costs of the audit with the Company's
independent accountants and reviewing the financial statements of the Company.

43
<PAGE>
Messrs. Bradley Burgum (Chairman), Good and Mehra are currently the members of
the Audit Committee. The Compensation Committee is responsible for recommending
compensation and benefits for the executive officers of the Company to the Board
of Directors and for administering the Company's stock plans. Messrs. Good
(Chairman), Frederick Burgum and Mehra are currently the members of the
Compensation Committee.

LIMITATION OF LIABILITY

The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") limit the liability of directors in their capacity as directors to
the full extent permitted by Minnesota law. Under the Restated Articles and the
Minnesota Business Corporation Act, a director of the Company is not liable to
the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
dividends, stock repurchases and other distributions made in violation of
Minnesota law or for violations of the Minnesota securities laws, (iv) for any
transaction from which the director derived an improper personal benefit or (v)
for any act or omission occurring prior to the effective date of the provision
in the Restated Articles limiting such liability. These provisions do not affect
the availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. Also, the provisions do not limit
the liability of the directors for violations of, or relieve them from the
necessity of complying with, the federal securities law.

DIRECTOR COMPENSATION

Each non-employee director of the Company will receive $1,000 for each
meeting of the Board of Directors and $500 for each committee meeting attended
and an annual $6,000 retainer paid in quarterly installments. The Company also
reimburses non-employee directors for expenses incurred in attending Board
meetings. Non-employee directors of the Company will receive stock options under
the Company's Outside Directors' Stock Option Plan (the "Directors' Plan"),
which will become effective upon consummation of this offering. The Directors'
Plan provides that each non-employee director will receive an automatic grant of
a nonqualified stock option to purchase 15,000 shares of Common Stock upon
initial election to the Board of Directors (vesting in three equal installments
on each of the three 12-month anniversaries following the date of grant). In
addition, each current non-employee director holding office upon completion of
this offering will receive a nonqualified stock option to purchase 3,000 shares
(vesting on the 12-month anniversary following the date of grant). An option to
purchase 4,000 shares of Common Stock will be granted to each incumbent
non-employee director on the date of each annual shareholder meeting beginning
with the 1997 annual meeting (vesting in two equal installments on each of the
one-month and 12-month anniversaries following the date of grant). Options
granted under the Directors' Plan expire five years from the date of grant. The
option price for options granted under the Directors' Plan is equal to the fair
market value of a share of Common Stock as of the date of grant. The Company has
reserved a total of 150,000 shares of Common Stock for issuance under the
Directors' Plan, all of which shares are currently available for future grant.

On October 29, 1996, the Company granted Joseph S. Tibbetts, Jr. a
nonqualified stock option to purchase 20,000 shares of Common Stock. The
exercise price of the option granted to Mr. Tibbetts is $6.41 per share, and
such option vests in five equal installments on each of the five 12-month
anniversaries following the date of grant and expires six years from the date of
grant. On February 27, 1997 and March 4, 1997, the Company authorized a grant of
nonqualified options to purchase 15,000 shares of Common Stock to each of J.A.
Heidi Roizen and William V. Campbell, respectively. The exercise price of such
options will be the initial public offering price of the shares offered hereby.
Each such option will vest in three equal installments on each of the 12-month
anniversaries following the date of grant and expires five years from the date
of grant. None of the options authorized to be granted to Messrs. Tibbetts and
Campbell and Ms. Roizen were issued under the Directors' Plan.

44
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the year
ended May 31, 1996 by (i) the Company's Chief Executive Officer and (ii) the
five most highly compensated other executive officers who received annual
compensation in excess of $100,000 (together, with the Company's Chief Executive
Officer, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SHARES
---------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER(1) OPTIONS COMPENSATION(2)
- ---------------------------------------------- --------- --------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Douglas J. Burgum,
Chairman of the Board, President
and Chief Executive Officer................. $ 240,000 $ 20,000 -- -- $ 5,600

Raymond A. August,
Chief Technology Officer and
Group Vice President, Dynamics
C/S+........................................ 180,000 5,000 -- 13,333 2,157

Terri F. Zimmerman,
Chief Financial Officer,
Group Vice President, Finance and
Operations.................................. 115,000 5,000 -- 26,667 13,044

Brian R. Carey,
Vice President, Business
Development................................. 115,000 6,400 -- 13,333 1,617

Steven K. Sydness,
Group Vice President, Dynamics.............. 103,000 3,920 -- -- 13,389

Robin Pederson,
Former Senior Vice President, Sales and
Marketing(3)................................ 172,000 77,156 $ 43,844 266,667 7,866
</TABLE>

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

(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), other compensation in the form of perquisites and other
personal benefits has been omitted for each of the Named Executive Officers
(except Mr. Pederson), because the aggregate amount of such perquisites and
other personal benefits constituted less than the lesser of $50,000 or 10%
of the total of annual salary and bonuses for each of such Named Executive
Officers in fiscal 1996.

(2) Such amounts include contributions made by the Company to its 401(k) Profit
Sharing Plan on behalf of the Named Executive Officers indicated in the
following amounts: Mr. Burgum, $2,800, Mr. August, $2,157; Ms. Zimmerman,
$2,044; Mr. Carey, $1,617; Mr. Sydness, $2,389; and Mr. Pederson, $3,819.
Such amounts also include the Company's payment of membership fees on behalf
of the Named Executive Officers indicated in the following amounts: Mr.
Burgum, $2,800; Ms. Zimmerman, $11,000; Mr. Sydness, $11,000; and Mr.
Pederson, $4,047.

(3) Mr. Pederson served as the Company's Senior Vice President, Sales and
Marketing from June 1995 until March 1996. The amount of other annual
compensation for Mr. Pederson represents relocation expenses. Of the options
to acquire 266,667 shares granted to Mr. Pederson, options relating to

45
<PAGE>
266,654 shares expired upon Mr. Pederson's resignation of employment with
the Company in March 1996.

OPTION GRANTS

The following table summarizes options granted during the year ended May 31,
1996 to the Named Executive Officers:

OPTION GRANTS DURING YEAR ENDED MAY 31, 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION
EMPLOYEES IN EXERCISE FOR OPTION TERM(5)
OPTIONS FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED(1)(2) YEAR(3) PER SHARE(4) DATE 5% 10%
- ------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Burgum.............. -- -- -- -- -- --

Raymond A. August.............. 13,333 2.2% $ 5.20 7/25/01 $ 23,569 $ 53,469

Terri F. Zimmerman............. 26,667 4.3 5.44 1/9/02 49,313 111,876

Brian R. Carey................. 13,333 2.2 5.20 7/25/01 23,569 53,469

Steven K. Sydness.............. -- -- -- -- -- --

Robin Pederson(6).............. 266,667 43.1 5.20 7/25/05 -- --
</TABLE>

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

(1) Each option represents the right to purchase one share of Common Stock. The
options shown in this column are all incentive stock options granted
pursuant to the Company's 1983 Incentive Stock Option Plan. The Options
shown in this table, excluding options shown for Mr. Pederson (see Note 6
below), become exercisable at a rate of 20% annually over five years from
the date of grant. To the extent not already exercisable, the options
generally become exercisable in the event of a merger in which the Company
is not the surviving corporation or a sale of substantially all of the
Company's assets.

(2) Subsequent to May 31, 1996, the Company granted options to purchase shares
of Common Stock to the Named Executive Officers indicated in the following
amounts: Mr. Burgum, 53,333 shares at an exercise price of $7.71 per share,
and 50,000 shares (conditioned upon consummation of this offering) at an
exercise price equal to the initial public offering price of the shares of
Common Stock offered hereby; Mr. August, 13,333 shares at an exercise price
of $6.41 per share; Ms. Zimmerman, 40,000 shares at an exercise price of
$6.41 per share; and Mr. Sydness, 10,000 shares at an exercise price of
$6.41 per share.

(3) In fiscal 1996, the Company granted employees options to purchase an
aggregate of 619,333 shares of Common Stock.

(4) The exercise price may be paid in cash or in shares of Common Stock with a
market value equal to the exercise price.

(5) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by rules of the Commission and do not represent the Company's estimate or
projection of the Company's future Common Stock prices. These amounts
represent certain assumed rates of appreciation in the value of the
Company's Common Stock from the fair value on the date of grant. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved.

46
<PAGE>
(6) Of the options to acquire 266,667 shares granted to Mr. Pederson, options to
acquire 266,654 shares expired upon Mr. Pederson's resignation of employment
with the Company in March 1996.

YEAR-END OPTION TABLE

The following table sets forth certain information concerning options to
purchase Common Stock exercised by the Named Executive Officers during fiscal
1996 and the number and value of unexercised stock options held by each of the
Named Executive Officers as of May 31, 1996.

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END(2) AT YEAR-END(1)
SHARES VALUE ---------------------------- ----------------------------
NAME ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- --------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Burgum............. -- -- 120,000 -- $ 535,050 --

Raymond A. August............. -- -- 34,667 45,333 127,930 $ 128,220

Terri F. Zimmerman............ -- -- 5,333 48,000 12,000 74,000

Brian R. Carey................ 4,000 $ 12,000 5,333 42,667 12,000 96,150

Steven K. Sydness............. -- -- 26,667 26,667 104,175 60,000

Robin Pederson................ 13 16 -- -- -- --
</TABLE>

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

(1) There was no public trading market for the Common Stock as of May 31, 1996.
Accordingly, as permitted by the rules of the Commission, these values have
been calculated on the basis of the fair market value of the Company's
Common Stock as of May 31, 1996, as determined by the Board of Directors,
less the applicable exercise price.

(2) Does not include options to purchase Common Stock granted to Named Executive
Officers after May 31, 1996. See "--Option Grants."

EMPLOYMENT AGREEMENT

The Company has an agreement with Ms. Zimmerman pursuant to which she will
receive a severance payment equal to her annual base salary in the event her
employment with the Company is involuntarily terminated following a merger,
acquisition or other similar event involving the Company, if such termination
occurs on or prior to September 5, 1999. Such severance payment will be reduced
by any income earned by Ms. Zimmerman from any other source during such one-year
period.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Compensation Committee of the Company's Board of
Directors are Messrs. Frederick Burgum, Good and Mehra. There are no
compensation committee interlocks which are required to be disclosed by the
rules promulgated by the Commission under the Securities Act.

BENEFIT PLANS

1997 STOCK INCENTIVE PLAN

The Company's 1997 Stock Incentive Plan (the "1997 Incentive Plan") provides
for the granting of (a) stock options, including "incentive stock options"
("Incentive Stock Options") meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and stock options that
do not meet such requirements ("Nonqualified Stock Options"), (b) stock
appreciation rights ("SARs"), (c) restricted stock and restricted stock units,
(d) performance awards, (e) dividend equivalents and (f) other stock-based
awards. The Company has reserved 1,000,000 shares of Common

47
<PAGE>
Stock for issuance under the 1997 Incentive Plan. The 1997 Incentive Plan is
administered by the Compensation Committee of the Company's Board of Directors
(the "Committee"). The Committee has the authority to establish rules for the
administration of the 1997 Incentive Plan; to select the key employees to whom
awards are granted; to determine the types of awards to be granted and the
number of shares of Common Stock covered by such awards; and to set the terms
and conditions of such awards. The Committee may also determine whether the
payment of any amounts received under any award shall or may be deferred and may
authorize payments representing cash dividends in connection with any deferred
award of shares of Common Stock. Awards may provide that upon the grant or
exercise thereof the holder will receive shares of Common Stock, cash or any
combination thereof, as the Committee shall determine.

In order to meet the requirements of Section 162(m) of the Code, the 1997
Incentive Plan contains a limitation on the number of options that may be
granted to any single optionee in any one calendar year.

The exercise price per share under any stock option or the grant price of
any SAR cannot be less than 100% of the fair market value of the Company's
Common Stock on the date of the grant of such option or SAR. Options may be
exercised by payment in full of the exercise price, either in cash or, at the
discretion of the Committee, in whole or in part by the tendering of shares of
Common Stock or other consideration having a fair market value on the date the
option is exercised equal to the exercise price. Determinations of fair market
value under the 1997 Incentive Plan are made in accordance with methods and
procedures established by the Committee.

The holder of an SAR is entitled to receive the excess of the fair market
value (calculated as of the exercise date or, if the Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.

The holder of restricted stock may have all of the rights of a shareholder
of the Company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted. Restricted stock may not be transferred by the holder until
the restrictions established by the Committee lapse. Holders of restricted stock
units have the right, subject to any restrictions imposed by the Committee, to
receive shares of Common Stock (or a cash payment equal to the fair market value
of such shares) at some future date. Upon termination of the holder's employment
during the restriction period, restricted stock and restricted stock units shall
be forfeited, unless the Committee determines otherwise.

If any shares of Common Stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards become available for future awards under the 1997 Incentive
Plan. Except as otherwise provided under procedures adopted by the Committee to
avoid double counting with respect to awards granted in tandem with or in
substitution for other awards, all shares relating to awards granted are counted
against the aggregate number of shares available for granting awards under the
1997 Incentive Plan.

The Board of Directors may amend, alter or discontinue the 1997 Incentive
Plan at any time, provided that shareholder approval must be obtained for any
change that absent such shareholder approval, (i) would violate any rules or
regulations of the National Association of Securities Dealers, Inc. or any
securities exchange applicable to the Company, or (ii) would cause the Company
to be unable, under the Code, to grant Incentive Stock Options under the 1997
Incentive Plan.

Under the 1997 Incentive Plan, the Committee may permit participants
receiving or exercising awards, subject to the discretion of the Committee and
upon such terms and conditions as it may impose, to surrender shares of Common
Stock (either shares received upon the receipt or exercise of the award or
shares previously owned by the optionee) to the Company to satisfy federal and
state withholding tax obligations. In addition, the Committee may grant, subject
to its discretion and such rules as it may adopt, a bonus to a participant in
order to provide funds to pay all or a portion of federal and state taxes due as
a result of the receipt or exercise of (or lapse of restrictions relating to) an
award.

48
<PAGE>
On February 27, 1997, an option to purchase 50,000 shares at an exercise
price equal to the initial public offering price of the shares offered hereby
was authorized to be granted under the 1997 Incentive Plan to Douglas J. Burgum,
conditioned upon consummation of this offering. See "Management-- Executive
Compensation--Option Grants." Except for such option, no options or other awards
have been granted under the 1997 Incentive Plan.

1983 STOCK OPTION PLAN

The Company's 1983 Incentive Stock Option Plan, as amended (the "1983 Stock
Option Plan"), provides for the grant of options to purchase shares of Common
Stock to any full or part-time employee of the Company. Options granted under
the 1983 Stock Option Plan may qualify as Incentive Stock Options or may be
Nonqualified Stock Options. In connection with the adoption of the Company's
1997 Incentive Plan, the Company will cease granting options under the 1983
Stock Option Plan after consummation of the offering made hereby; however, all
stock options granted prior to adoption of the 1997 Incentive Plan remain
outstanding in accordance with the 1983 Stock Option Plan. See "--1997 Incentive
Plan." The 1983 Stock Option Plan is administered by the Board of Directors or
the Committee. The Board or the Committee has the discretion to select the
optionees and to establish the terms and conditions of each stock option. The
exercise price of an option granted under the 1983 Stock Option Plan must not be
less than the fair market value of the Common Stock on the date the option is
granted, except that, for a proposed optionee who owns more than 10% of the
Company's Common Stock, any Incentive Stock Option granted to such optionee must
have an exercise price not less than 110% of the then fair market value. The
term of each option is determined by the Board or the Committee, but may not
exceed 10 years from the date of grant (or, in the case of an Incentive Stock
Option granted to an owner of more than 10% of the Common Stock, five years).
The 1983 Stock Option Plan is subject to amendment by the Board of Directors,
subject to the restriction that the Board of Directors may not increase the
number of shares which may be issued under the 1983 Stock Option Plan, decrease
the minimum exercise price of options granted under the 1983 Stock Option Plan,
or extend the maximum option term or the term of the 1983 Stock Option Plan,
without the approval of the shareholders of the Company.

As of May 9, 1997, options to purchase an aggregate of 869,533 shares of
Common Stock, with a weighted average exercise price of $5.43 per share, were
outstanding under the 1983 Stock Option Plan. On February 27, 1997, options to
purchase an aggregate of 62,020 shares, with an exercise price equal to the
initial public offering price of the shares offered hereby, were authorized to
be granted under the 1983 Stock Option Plan to employees of the Company,
conditioned upon consummation of this offering.

EMPLOYEE STOCK PURCHASE PLAN

The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan")
will become effective upon consummation of this offering and is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code. The Stock Purchase Plan covers an aggregate of 400,000 shares of
Common Stock. In order to participate in the Stock Purchase Plan, employees must
meet certain eligibility requirements. Participating employees will be able to
direct the Company to make payroll deductions of up to 10% of their compensation
during a purchase period for the purchase of shares of Common Stock. Each
purchase period, with the exception of the initial offering period, will be six
months. The Stock Purchase Plan will provide participating employees with the
right, subject to certain limitations, to purchase the Company's Common Stock at
a price equal to 85% of the lesser of the fair market value of the Company's
Common Stock on the first day or the last day of the applicable purchase period,
except that the price on the first day of the initial purchase period will be
the initial public offering price of the shares of the Common Stock offered
hereby. The Stock Purchase Plan will terminate on such date as the Board of
Directors may determine, or automatically as of the date on which

49
<PAGE>
all of the shares of Common Stock the Company has reserved for purchase under
the Stock Purchase Plan have been sold.

401(k) PLAN

Effective July 1, 1986, the Company established a 401(k) Profit Sharing Plan
(the "401(k) Plan"). The 401(k) Plan covers employees of the Company who have
reached the age of 18 and have completed six months and 1,000 hours of service.
Eligible employees may begin salary deferrals on the first day following
satisfaction of the eligibility requirements, and become eligible to participate
in the 401(k) Plan on the next January 1, April 1, July 1 or October 1
thereafter. Pursuant to the 401(k) Plan, participants may elect to reduce their
current compensation by up to the lesser of 18% of eligible compensation or the
statutorily prescribed annual limit ($9,500 in 1997), and have the amount of
such reduction (the "Employee Contribution") contributed to the 401(k) Plan. The
trustee under the 401(k) Plan, at the direction of each participant, invests the
Employee Contribution in any of six designated investment options. The 401(k)
Plan is intended to qualify under Section 401 of the Code. As a result, Employee
Contributions to the 401(k) Plan and income earned on all plan contributions are
not taxable to employees until withdrawn, and the Employee Contributions are
deductible by the Company for federal income tax purposes. The Company may make
regular annual contributions ("Regular Contributions") to the 401(k) Plan's
trust fund to be invested solely in Common Stock of the Company as determined by
the Board of Directors. The Company will also make matching contributions
("Matching Contributions") in an amount equal to 25% of the first 8% of each
participant's annual contribution to the 401(k) Plan. Participants are 100%
vested in Employee Contributions and Matching Contributions to the 401(k) Plan.
The Company's Regular Contributions to the 401(k) Plan vest over five years at a
rate of 20% for each year of service. A total of $280,488 in Regular
Contributions and Matching Contributions were made by the Company to the 401(k)
Plan during the year ended December 31, 1996.

50
<PAGE>
CERTAIN TRANSACTIONS

Since June 1994, the Company has issued in financing transactions shares of
Series B Preferred Stock as follows: in June 1994, the Company issued to certain
investment partnerships, of which affiliates of The Goldman Sachs Group, L.P.
are the general partner, managing general partner or investment manager
(collectively, the "GS Partnerships"), 888,576 shares of Series B Preferred
Stock at a price of $7.09 per share and a warrant to purchase an additional
752,234 shares of Series B Preferred Stock at a price of $5.32 per share (the
"Warrant"); in September 1994, Company issued to the GS Partnerships 282,088
shares of Series B Preferred Stock at a price of $7.09 per share; and in May
1995, the Company issued to the GS Partnerships an additional 174,556 shares of
Series B Preferred Stock in exchange for the Warrant. See "Principal
Shareholders." The Series B Preferred Stock will convert into an aggregate of
1,793,627 shares of Common Stock upon the consummation of this offering.

Pursuant to a Registration Rights Agreement entered into in June 1994 in
connection with the sale of Series B Preferred Stock to the GS Partnerships in
June 1994 (the "Series B Preferred Stock Financing"), the Company granted the GS
Partnerships certain rights to cause the Company to register for sale shares of
Common Stock acquired upon conversion of the Series B Preferred Stock. See
"Shares Eligible for Future Sale." Pursuant to a Stockholders' Agreement (the
"Stockholders' Agreement") entered into in June 1994 in connection with the
Series B Preferred Stock Financing, the GS Partnerships have the right to
designate one member of the Board of Directors of the Company for so long as the
GS Partnerships and its affiliates (including Goldman, Sachs & Co.) own at least
25% of the outstanding shares of Series B Preferred Stock. Pursuant to the
Stockholders' Agreement, Sanjeev K. Mehra, a Managing Director in the Principal
Investment Area of Goldman, Sachs & Co., an affiliate of the GS Partnerships,
currently serves as one of the Company's directors. In addition, pursuant to the
Stockholders' Agreement, the Company agreed that, so long as the GS Partnerships
beneficially own 5% or more of the outstanding shares of Series B Preferred
Stock, the Company shall, if the Board of Directors of the Company determines
that it is in the Company's best interests, endeavor to retain Goldman, Sachs &
Co. or an affiliate to perform all financial advisory and investment banking
services for the Company for which an investment banking firm is retained, on
customary terms and consistent with an arms' length transaction. The foregoing
provisions of the Stockholders' Agreement will terminate upon the consummation
of this offering.

Goldman, Sachs & Co. has entered into an agreement with the Company pursuant
to which it has provided from time to time, and expects to provide in the
future, investment banking services to the Company for customary fees and
commissions.

In June 1994, the Company issued to the Arthur Companies, Inc. ("Arthur"),
the holder of a majority of the outstanding shares of Common Stock of the
Company at such time, 225,000 shares of Series A Preferred Stock at a price of
$1.00 per share. Frederick W. Burgum and Bradley J. Burgum, directors of the
Company, are principal shareholders and directors of Arthur, and Mr. Frederick
W. Burgum is Chairman of the Board and Chief Executive Officer of Arthur.
Following the sale of the 225,000 shares of Series A Preferred Stock by the
Company to Arthur, all of such shares were transferred to Douglas J. Burgum in
exchange for his entire equity interest in Arthur. The Series A Preferred Stock
will convert into an aggregate of 54,000 shares of Common Stock upon the
consummation of this offering.

Frederick W. Burgum owns land outside of Fargo in Barnes Township, North
Dakota. The Company expects to purchase a portion of such property from Mr.
Burgum as the location for its new facility. Any such purchase, the terms of
which have not been agreed upon, would be entered into on an arms' length basis.
See "Business--Facilities."

Pursuant to an agreement between the Company and two trusts with respect to
which Frederick W. Burgum acts as trustee, the Company made total lease payments
of $70,740 to the trusts for 50 notebook computers in each of fiscal 1994, 1995
and 1996. The lease agreement relating to the computers expired in March 1997.

51
<PAGE>
Raymond F. Good, a director of the Company, was paid a total of $104,700,
$53,900 and $36,800 (plus reimbursement of expenses) in fiscal 1994, 1995 and
1996, respectively, pursuant to consulting agreements with the Company. Mr. Good
and the Company entered into a new one-year consulting agreement in February
1997. The consulting agreement provides that Mr. Good will receive a fee of $120
per hour for up to 40 hours of consulting services provided to the Company per
month. In 1996, Mr. Good exercised an option to purchase 29,333 shares of Common
Stock at an exercise price of $1.95 per share.

In June 1993, the Company loaned $1.0 million to Arthur at an interest rate
of 5% per annum. The entire balance of this loan was repaid in two installments
of $800,000 and $200,000 in August 1993 and September 1993, respectively,
together with aggregate accrued interest of $13,030.

In June 1994, Arthur loaned $1.5 million to the Company at an interest rate
of 7.5% per annum. The entire balance of this loan was repaid in June 1994,
together with accrued interest of $5,000.

During fiscal 1994 and 1995, the Company had loans outstanding from Douglas
J. Burgum, Bradley J. Burgum, Frederick W. Burgum and Katherine K. Burgum (a
director of the Company at such time) in the principal amounts of $125,000,
$125,000, $565,000 and $125,000, respectively. The interest rates on these loans
ranged from 7.25% to 8.5% per annum. The loans were repaid prior to the end of
fiscal 1995. During fiscal 1994 and 1995, Messrs. Douglas J. Burgum, Bradley J.
Burgum, Frederick W. Burgum and Ms. Burgum received total interest payments from
the Company with respect to these loans of $16,500, $16,500, $77,381 and
$16,500, respectively.

52
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 9, 1997 (after giving effect
to the conversion of the outstanding shares of Preferred Stock into Common Stock
upon the closing of the offering made hereby and as adjusted for the sale of the
shares of Common Stock offered hereby) by (i) each person who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each director
and Named Executive Officer of the Company and (iii) all directors and executive
officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES
--------------------------
NUMBER OF SHARES BEFORE AFTER
BENEFICIALLY OWNED(1) OFFERING OFFERING
--------------------- ------------ ------------
<S> <C> <C> <C>
Frederick W. Burgum(2)............................................... 2,448,168 24.7% 18.9%
Douglas J. Burgum(3)................................................. 1,935,171 19.5 15.0
The Goldman Sachs Group, L.P. and related investors(4)............... 1,793,627 18.1 13.9
Bradley J. Burgum(5)................................................. 534,125 5.4 4.1
Julie W. Barner(6)................................................... 508,576 5.1 3.9
Barbara K. Burgum.................................................... 465,385 4.7 3.6
Raymond A. August(7)................................................. 73,501 * *
Steven K. Sydness.................................................... 73,333 * *
Raymond F. Good...................................................... 36,000 * *
Brian R. Carey(8).................................................... 32,000 * *
Terri F. Zimmerman(9)................................................ 25,333 * *
Robin Pederson....................................................... 13 * *
William V. Campbell.................................................. -- -- --
Sanjeev K. Mehra(10)................................................. -- -- --
J. A. Heidi Roizen................................................... -- -- --
Joseph S. Tibbetts, Jr............................................... -- -- --
All directors and executive officers as a group (14 persons)......... 5,348,368 53.4 41.1
</TABLE>

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

* Less than 1%

(1) Beneficial ownership is determined in accordance with rules of the
Commission, and includes generally voting power and/or investment power with
respect to securities. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days of the date hereof ("Currently
Exercisable Options") are deemed outstanding for computing the percentage
beneficially owned by the person holding such options but are not deemed
outstanding for computing the percentage beneficially owned by any other
person. Except as indicated by footnote, the Company believes that the
persons named in this table, based on information provided by such persons,
have sole voting and investment power with respect to the shares of Common
Stock indicated.

(2) Includes shares held by certain members of Frederick W. Burgum's household
that are beneficially owned by Mr. Burgum. His address is 1701 S.W. 38th
Street, Fargo, North Dakota 58103.

(3) Includes shares held by certain members of Douglas J. Burgum's household
that are beneficially owned by Mr. Burgum. His address is 1701 S.W. 38th
Street, Fargo, North Dakota 58103.

(4) Represents shares owned by certain investment partnerships, of which
affiliates of The Goldman Sachs Group, L.P. are the general partner,
managing general partner or investment manager. Includes 1,577,523 shares
held of record by GS Capital Partners, L.P.; 109,900 shares held of record
by Bridge Street Fund 1994, L.P.; and 106,204 shares held of record by Stone
Street Fund 1994, L.P. The Goldman Sachs Group, L.P. disclaims beneficial
ownership of the shares owned by such investment partnerships to the extent
attributable to partnership interests therein held by persons other than The

53
<PAGE>
Goldman Sachs Group, L.P. and its affiliates. Each of such investment
partnerships shares voting and investment power with certain of its
respective affiliates. The address of The Goldman Sachs Group, L.P. is 85
Broad Street, New York, New York 10004.

(5) Includes shares held by certain members of Bradley J. Burgum's household
that are beneficially owned by Mr. Burgum. His address is 1701 S.W 38th
Street, Fargo, North Dakota 58103.

(6) Ms. Barner's address is 1701 S.W. 38th Street, Fargo, North Dakota 58103.

(7) Includes 50,660 shares issuable pursuant to Currently Exercisable Options.

(8) Includes 2,667 shares issuable pursuant to Currently Exercisable Options.

(9) Includes 22,000 shares issuable pursuant to Currently Exercisable Options.

(10) Does not include 1,793,627 shares held by the GS Partnerships.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Effective upon the filing of the Amended and Restated Articles of
Incorporation upon closing of the offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, $.01 par value per
share, and 30,000,000 shares of preferred stock, $.01 par value per share (the
"preferred stock"), which may be issued in one or more classes.

COMMON STOCK

As of May 9, 1997, there were 9,927,961 shares of Common Stock outstanding
and held of record by 238 shareholders, assuming the conversion of all shares of
the Preferred Stock into an aggregate of 1,847,627 shares of Common Stock upon
the closing of the offering made hereby. Based upon the number of shares
outstanding as of that date and after giving effect to the issuance of the
3,000,000 shares of Common Stock offered by the Company hereby, there will be
12,927,961 shares of Common Stock outstanding upon the closing of this offering.

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. Upon the closing of this offering, there will
be no shares of preferred stock outstanding.

54
<PAGE>
PREFERRED STOCK

Upon filing of the Restated Articles, the Board of Directors will be
authorized, subject to certain limitations prescribed by law, without further
shareholder approval, to issue from time to time up to an aggregate of
30,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change of control of the Company. The Company has no
present plans to issue any shares of Preferred Stock. See "Risk
Factors--Significant Shareholders; Anti-Takeover Considerations."

STOCK OPTIONS

As of May 9, 1997, options to purchase a total of 869,533 shares of Common
Stock at a weighted average exercise price of $5.43 per share were outstanding
under the 1983 Stock Option Plan and a total of 30,000 shares were issuable upon
exercise of options to be granted to two nonemployee directors of the Company,
with an exercise price equal to the initial public offering price of the shares
offered hereby. In addition, a total of 1,212,020 shares were reserved for
future option grants under the 1983 Stock Option Plan, the 1997 Incentive Plan
and the Directors' Plan. See "Management--Director Compensation" and "-- Benefit
Plans." All options granted under the 1983 Stock Option Plan, the 1997 Incentive
Plan and the Directors' Plan provide for antidilution adjustments in the event
of certain mergers, consolidations, reorganizations, recapitalizations, stock
dividends, stock splits or other changes in the corporate structure of the
Company.

PROVISIONS OF THE COMPANY'S RESTATED ARTICLES AND BYLAWS AND THE MINNESOTA
BUSINESS CORPORATION ACT

The existence of authorized but unissued preferred stock described above,
and certain provisions of the Restated Articles, the Company's Bylaws and
Minnesota law described below, could have an anti-takeover effect. These
provisions are intended to provide management flexibility, to enhance the
likelihood of continuity and stability in the composition of the Company's Board
of Directors and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of Directors
determines that such a takeover is not in the best interests of the Company and
its shareholders. However, these provisions could have the effect of
discouraging certain attempts to acquire the Company which could deprive the
Company's shareholders of opportunities to sell their shares of Common Stock at
prices higher than prevailing market prices.

Pursuant to the Company's Bylaws, the Board of Directors of the Company is
divided into three classes serving staggered three-year terms. As a result, at
least two shareholders' meetings will generally be required for shareholders to
effect a change in control of the Board of Directors. In addition, the Company's
Bylaws contain provisions that establish specific procedures for calling
meetings of shareholders and appointing and removing members of the Board of
Directors.

Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by the Company, or any subsidiary of the
Company, with any shareholder which purchases 10% or more of the Company's
voting shares (an "interested shareholder") within four years following such
interested shareholder's share acquisition date, unless the business combination
is approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, National Association.

55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of this offering, the Company will have an aggregate of
12,927,961 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options to
purchase Common Stock. Of these shares, the 3,000,000 shares sold in this
offering are freely tradable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), except (i) for
shares purchased by Partners pursuant to the directed share program and (ii)
that any shares held by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act ("Rule 144"), may generally only be sold in
compliance with the limitations of Rule 144 described below.

The remaining 9,927,961 shares of Common Stock are deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rules 144, 144(k) and 701, additional
shares will be available for sale in the public market (subject in the case of
shares held by affiliates to compliance with certain volume restrictions) as
follows: (i) 759,340 shares will be available for immediate sale in the public
market on the date of this Prospectus, (ii) 464,446 shares will be eligible for
sale 90 days after the date of this Prospectus and (iii) 8,211,304 shares will
be eligible for sale upon the expiration of lock-up agreements 180 days after
the date of this Prospectus.

In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 129,279 shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such affiliates' holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.

Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to written plans such as the 1983 Stock Option Plan may
be resold by persons other than affiliates, beginning 90 days after the date of
this Prospectus, subject only to the manner of sale provisions of Rule 144, and
by affiliates, beginning 90 days after the date of this Prospectus, subject to
all provisions of Rule 144 except its one-year minimum holding period.

Shortly after the date of this Prospectus, the Company intends to file a
Form S-8 registration statements under the Securities Act to register all shares
of Common Stock issuable under the 1983 Stock Option Plan, the 1997 Incentive
Plan, the Directors' Plan and the Stock Purchase Plan (collectively, the "Stock
Plans"). See "Management--Director Compensation" and "--Benefit Plans." Such
registration statement is expected to become effective immediately upon filing,
and shares covered by that registration statement will thereupon be eligible for
sale in the public markets, subject to Rule 144 limitations applicable to
affiliates.

Prior to this offering, there has not been any public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of shares for
sale will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock in the public
market could

56
<PAGE>
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities.

All directors and officers and certain shareholders of the Company (holding
an aggregate of 8,704,175 shares of Common Stock) have agreed, and all Partners
purchasing directed shares in this offering will be required to agree, that they
will not, without the prior written consent of the representatives of the
Underwriters, sell or otherwise dispose of any shares of Common Stock or options
to acquire shares of Common Stock during the 180-day period following the date
of this Prospectus. See "Underwriting."

The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock during the 180-day period following the date of the Prospectus,
except the Company may issue, and grant options to purchase, shares of Common
Stock under the Stock Plans. In addition, the Company may issue shares of Common
Stock in connection with any acquisition of another company if the terms of such
issuance provide that such Common Stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. See "Risk
Factors--Shares Eligible for Future Sale; Registration Rights."

REGISTRATION RIGHTS

Following the closing of the offering made hereby, the GS Partnerships will
be entitled to certain rights with respect to the registration of the shares of
Common Stock held by them under the Securities Act. See "Principal
Shareholders." Under the terms of the agreement between the Company and the GS
Partnerships, beginning three months after this offering, the GS Partnerships
have the right, subject to certain conditions and limitations, to require the
Company to file a registration statement under the Securities Act in order to
register all or part of their shares of Common Stock. The Company may in certain
circumstances defer such registrations and the underwriters have the right,
subject to certain limitations, to limit the number of shares included in such
registrations. In the event that the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders, the GS Partnerships are entitled to include
their shares of Common Stock in such registration, subject to certain marketing
and other limitations. Generally, the Company is required to bear the expense of
all such registrations.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.

EXPERTS

The consolidated balance sheet and the related consolidated statements of
operations, of stockholders' deficit and of cash flows of the Company at May 31,
1995 and 1996 and February 28, 1997, and for each of the two years in the period
ended May 31, 1996 and for the nine months ended February 28, 1997 included in
this prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

The statements of operations, of stockholders' deficit and of cash flows of
the Company for the year ended May 31, 1994 appearing in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

57
<PAGE>
On December 15, 1994, the Company, with the approval of the Audit Committee
of its Board of Directors, engaged Price Waterhouse LLP as its independent
accountants and in February 1995 dismissed Ernst & Young LLP. Prior to the
engagement of Price Waterhouse LLP, Ernst & Young LLP had served as the
principal independent accountants for the Company. During the periods presented
prior to the engagement of Price Waterhouse LLP by the Company, there were no
consultations between Price Waterhouse LLP and the Company regarding the
treatment of accounting, auditing or financial reporting issues. Ernst & Young
LLP performed an audit for the Company's fiscal year ended May 31, 1994 and
issued an audit report dated July 22, 1994 that contained no adverse opinion or
disclaimer of opinion and that was not qualified or modified as to uncertainty,
audit scope or accounting principles. There have been no disagreements between
the Company and Ernst & Young LLP, in connection with the audit of the Company's
Financial Statements for the fiscal year ended May 31, 1994, and in the
subsequent interim period, on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would
have caused Ernst & Young LLP to make reference to the subject matter of the
disagreements in its report on the Company's financial statements for the fiscal
year ended May 31, 1994.

58
<PAGE>
GREAT PLAINS SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Price Waterhouse LLP............................................ F-2

Report of Ernst & Young LLP............................................... F-3

Consolidated Balance Sheets as of May 31, 1995 and 1996 and as of February
28, 1997................................................................ F-4

Consolidated Statement of Operations for the years ended May 31, 1994,
1995 and 1996 and for the nine months ended February 29, 1996
(unaudited) and February 28, 1997....................................... F-5

Consolidated Statement of Stockholders' Deficit for the years ended May
31, 1994, 1995 and 1996 and for the nine months ended February 28,
1997.................................................................... F-6

Consolidated Statement of Cash Flows for the years ended May 31, 1994,
1995 and 1996 and for the nine months ended February 29, 1996
(unaudited) and February 28, 1997....................................... F-7

Notes to Consolidated Financial Statements................................ F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Great Plains Software, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of Great
Plains Software, Inc. and its subsidiary at May 31, 1995 and 1996 and February
28, 1997, and the results of their operations and their cash flows for the years
ended May 31, 1995 and 1996 and the nine months ended February 28, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
March 21, 1997, except
as to Note 13, which
is as of June 19, 1997

F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
and Stockholders of
Great Plains Software, Inc.

We have audited the accompanying statements of operations, stockholders'
deficit and cash flows of Great Plains Software, Inc. for the year ended May 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of Great Plains Software,
Inc. and its cash flows for the year ended May 31, 1994.

ERNST & YOUNG LLP

Minneapolis, Minnesota
July 22, 1994

F-3
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28, 1997
-------------------------- ----------------------------
1995 1996 ACTUAL
------------ ------------ ------------ PRO FORMA
STOCKHOLDERS'
EQUITY
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 2,891,749 $ 8,256,393 $ 10,122,738 --
Investments................................................. -- -- 2,102,406 --
Accounts receivable, net.................................... 5,722,292 5,263,588 4,669,370 --
Inventories................................................. 796,339 454,595 622,304 --
Prepaid expenses and other assets........................... 940,324 538,555 1,038,952 --
Deferred income taxes....................................... -- 4,150,000 4,004,000 --
------------ ------------ ------------ --------------
Total current assets...................................... 10,350,704 18,663,131 22,559,770 --

Property and equipment, net................................... 4,976,146 5,143,075 5,696,477 --
Goodwill, net................................................. -- 555,051 467,411 --
------------ ------------ ------------ --------------
Total assets.............................................. $ 15,326,850 $ 24,361,257 $ 28,723,658 --
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------

LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable............................................ $ 1,264,983 $ 1,827,509 $ 2,254,954 --
Accrued expenses............................................ 4,362,813 4,798,977 4,851,662 --
Salaries and wages payable.................................. 357,692 415,169 489,727 --
Commissions payable......................................... 421,587 764,514 468,570 --
Deferred revenue............................................ 8,027,560 9,018,094 9,745,051 --
Current portion of long-term debt and capital lease
obligations............................................... 863,405 827,238 -- --
Income taxes payable........................................ 45,000 -- -- --
------------ ------------ ------------ --------------
Total current liabilities................................. 15,343,040 17,651,501 17,809,964 --

Deferred income taxes......................................... -- -- 477,000 --
Long-term debt and capital lease obligations, less current
portion..................................................... 749,757 19,652 -- --
------------ ------------ ------------ --------------
Total liabilities......................................... 16,092,797 17,671,153 18,286,964 --

Commitments and contingencies (Note 8)

Mandatorily redeemable convertible preferred stock: 10,000,000
authorized preferred shares, Series B, at redemption value
of $6.17, $8.55 and $9.35, 1,345,220 shares issued and
outstanding; pro forma-none outstanding..................... 8,300,007 11,501,631 12,577,807 --

Stockholders' equity (deficit):
Convertible preferred stock: 10,000,000 authorized preferred
shares; Series A, par value $.01, 225,000 shares issued
and outstanding; pro forma-none outstanding............... 198,800 198,800 198,800 --
Pro forma preferred stock; $0.01 par value; 30,000,000
shares authorized, no shares issued or outstanding........ -- -- -- --
Common stock, par value $.01 per share: 40,000,000 shares
authorized; issued and outstanding shares--7,346,552,
7,359,765 and 7,922,201, respectively: 100,000,000 shares
authorized pro forma; 9,769,828 shares issued and
outstanding............................................... 73,465 73,597 79,222 97,698
Additional paid-in capital.................................. 4,479,782 1,273,414 1,942,936 14,701,067
Accumulated deficit......................................... (13,818,001) (6,357,338) (4,362,071) (4,362,071)
------------ ------------ ------------ --------------
Total stockholders' equity (deficit)...................... (9,065,954) (4,811,527) (2,141,113) 10,436,694
------------ ------------ ------------ --------------
Total liabilities and stockholders' equity (deficit)...... $ 15,326,850 $ 24,361,257 $ 28,723,658
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-4
<PAGE>
GREAT PLAINS SOFTWARE, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
YEAR ENDED MAY 31, --------------------------
---------------------------------------- FEBRUARY 28,
1994 1995 1996 1997
------------ ------------ ------------ FEBRUARY 29, ------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
License......................................... $ 19,164,990 $ 25,050,021 $ 27,077,689 $17,791,332 $24,356,700
Service......................................... 9,949,444 12,847,061 15,193,666 11,416,696 15,095,919
------------ ------------ ------------ ------------ ------------
29,114,434 37,897,082 42,271,355 29,208,028 39,452,619
------------ ------------ ------------ ------------ ------------
Cost of revenues:
License......................................... 4,997,118 4,438,875 4,913,431 3,018,531 4,551,544
Service......................................... 5,479,344 5,621,969 5,979,858 4,361,085 5,699,109
------------ ------------ ------------ ------------ ------------
10,476,462 10,060,844 10,893,289 7,379,616 10,250,653
------------ ------------ ------------ ------------ ------------
Gross profit.................................. 18,637,972 27,836,238 31,378,066 21,828,412 29,201,966
------------ ------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing............................. 14,331,752 14,013,041 14,477,354 10,126,009 15,415,999
Research and development........................ 10,675,811 9,308,431 8,876,114 6,350,830 6,903,367
General and administrative...................... 3,606,772 3,886,134 4,762,994 3,396,449 3,972,811
------------ ------------ ------------ ------------ ------------
Total operating expenses...................... 28,614,335 27,207,606 28,116,462 19,873,288 26,292,177
------------ ------------ ------------ ------------ ------------
Operating income (loss)........................... (9,976,363) 628,632 3,261,604 1,955,124 2,909,789
Interest expense.................................. 274,051 290,368 197,203 141,214 83,629
Related party interest expense.................... 90,842 36,039 -- -- --
Other (income) expense, net....................... 15,938 (66,982) (297,262) (189,428) (389,107)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes............. (10,357,194) 369,207 3,361,663 2,003,338 3,215,267
Income tax provision (benefit).................... (26,813) 45,000 (4,099,000) 3,433 1,220,000
------------ ------------ ------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle.............. (10,330,381) 324,207 7,460,663 1,999,905 1,995,267
Cumulative effect of change in accounting
principle....................................... -- (200,000) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss)............................. $(10,330,381) $ 124,207 $ 7,460,663 $1,999,905 $1,995,267
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Unaudited pro forma net income per share.......... $ 0.74 $ 0.20
------------ ------------
------------ ------------
Shares used in computing unaudited pro forma net
income per share................................ 10,017,269 10,100,140
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-5
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A PREFERRED COMMON STOCK
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance May 31, 1993.............................. -- -- 6,769,315 $ 67,693
Exercise of stock options....................... -- -- 21,120 211
Repurchase and retirement of common stock....... -- -- (531) (5)
Net loss........................................ -- -- -- --
-------------- -------------- -------------- --------------
Balance May 31, 1994.............................. -- -- 6,789,904 67,899
Exercise of stock options....................... -- -- 77,333 773
Repurchase and retirement of common stock....... -- -- (7,832) (79)
Sale of common stock, less offering costs of
$50,137....................................... -- -- 487,147 4,872
Sale of Series A preferred stock net of issuance
costs of $26,200.............................. 225,000 $ 198,800 -- --
Increase to carrying value of mandatorily
redeemable preferred stock.................... -- -- -- --
Net income...................................... -- -- -- --
-------------- -------------- -------------- --------------
Balance May 31, 1995.............................. 225,000 198,800 7,346,552 73,465
Exercise of stock options....................... -- -- 32,013 320
Repurchase and retirement of common stock....... -- -- (18,800) (188)
Increase to carrying value of mandatorily
redeemable preferred stock.................... -- -- -- --
Net income...................................... -- -- -- --
-------------- -------------- -------------- --------------
Balance May 31, 1996.............................. 225,000 198,800 7,359,765 73,597
Exercise of stock options....................... -- -- 574,313 5,743
Net repurchases of common stock................. -- -- (11,877) (118)
Increase in carrying value of mandatorily
redeemable preferred.......................... -- -- -- --
Tax benefit from stockholder transaction........ -- -- -- --
Net income...................................... -- -- -- --
-------------- -------------- -------------- --------------
Balance February 28, 1997......................... 225,000 $ 198,800 7,922,201 $ 79,222
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------

<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
Balance May 31, 1993.............................. $ 2,532,953 $ (3,611,827) $ (1,011,181)
Exercise of stock options....................... 42,262 -- 42,473
Repurchase and retirement of common stock....... (3,609) -- (3,614)
Net loss........................................ -- (10,330,381) (10,330,381)
-------------- -------------- --------------
Balance May 31, 1994.............................. 2,571,606 (13,942,208) (11,302,703)
Exercise of stock options....................... 136,222 -- 136,995
Repurchase and retirement of common stock....... (32,522) -- (32,601)
Sale of common stock, less offering costs of
$50,137....................................... 1,961,115 -- 1,965,987
Sale of Series A preferred stock net of issuance
costs of $26,200.............................. -- -- 198,800
Increase to carrying value of mandatorily
redeemable preferred stock.................... (156,639) -- (156,639)
Net income...................................... -- 124,207 124,207
-------------- -------------- --------------
Balance May 31, 1995.............................. 4,479,782 (13,818,001) (9,065,954)
Exercise of stock options....................... 73,324 -- 73,644
Repurchase and retirement of common stock....... (78,068) -- (78,256)
Increase to carrying value of mandatorily
redeemable preferred stock.................... (3,201,624) -- (3,201,624)
Net income...................................... -- 7,460,663 7,460,663
-------------- -------------- --------------
Balance May 31, 1996.............................. 1,273,414 (6,357,338) (4,811,527)
Exercise of stock options....................... 1,209,156 -- 1,214,899
Net repurchases of common stock................. (53,458) -- (53,576)
Increase in carrying value of mandatorily
redeemable preferred.......................... (1,076,176) -- (1,076,176)
Tax benefit from stockholder transaction........ 590,000 -- 590,000
Net income...................................... -- 1,995,267 1,995,267
-------------- -------------- --------------
Balance February 28, 1997......................... $ 1,942,936 $ (4,362,071) $ (2,141,113)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-6
<PAGE>
GREAT PLAINS SOFTWARE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
YEAR ENDED MAY 31, --------------------------
-------------------------------------- FEBRUARY 28,
1994 1995 1996 1997
------------ ----------- ----------- FEBRUARY 29, ------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $(10,330,381) $ 124,207 $ 7,460,663 $1,999,905 $1,995,267
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Cumulative effect of change in accounting
principle..................................... -- 200,000 -- -- --
Depreciation and amortization................... 2,450,735 1,861,185 1,921,175 1,367,218 1,565,234
Deferred income taxes........................... -- -- (4,150,000) -- 1,213,000
Changes in operating assets and liabilities:
Accounts receivable........................... 2,337,144 (3,666,099) 458,704 2,284,774 594,218
Inventories................................... (293,465) 9,806 341,744 398,409 (167,709)
Prepaid expenses and other assets............. (13,795) (540,448) 401,769 76,555 (500,397)
Income tax receivable......................... (85,642) 85,642 -- -- --
Accounts payable and accrued expenses......... 3,287,789 (1,975,187) 498,690 514,228 480,130
Salaries, wages and commissions payable....... (872,782) 335,942 388,679 (246,231) (221,386)
Deferred revenue.............................. 1,945,224 1,130,293 990,534 (51,802) 726,957
Income taxes payable.......................... (93,359) 45,000 (45,000) -- --
------------ ----------- ----------- ------------ ------------
Net cash provided (used) by operating
activities................................ (1,668,532) (2,389,659) 8,266,958 6,343,056 5,685,314
------------ ----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment................. (1,744,262) (1,154,608) (1,990,284) (2,366,667) (2,030,995)
Purchase of foreign subsidiary, net of cash......... -- -- (122,539) -- --
Purchase of investments............................. -- -- -- -- (2,102,406)
------------ ----------- ----------- ------------ ------------
Net cash used by investment activities........ (1,744,262) (1,154,608) (2,112,823) (2,366,667) (4,133,402)
------------ ----------- ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable and long-
term debt......................................... 1,159,108 132,424 -- -- --
Principal payments on notes payable and long term
debt.............................................. (987,076) (1,560,925) (197,264) (146,764) (599,336)
Net borrowings (payments) on line of credit......... 2,250,000 (2,250,000) -- -- --
Principal payments on capital lease obligations..... (279,305) (417,475) (587,615) (505,719) (247,554)
Repurchases of common stock......................... (3,614) (32,601) (78,256) (67,710) (53,576)
Proceeds from the sale of preferred stock........... -- 8,342,168 -- -- --
Proceeds from issuance of common stock.............. 42,473 2,102,982 73,644 22,125 1,214,899
------------ ----------- ----------- ------------ ------------
Net cash (used) provided by financing
activities.................................. 2,181,586 6,316,573 (789,491) (698,068) 314,433
------------ ----------- ----------- ------------ ------------
Increase (decrease) in cash........................... (1,231,208) 2,772,306 5,364,644 3,278,321 1,866,345
Cash and cash equivalents at beginning of period...... 1,350,651 119,443 2,891,749 2,891,749 8,256,393
------------ ----------- ----------- ------------ ------------
Cash and cash equivalents at end of period............ $ 119,443 $ 2,891,749 $ 8,256,393 $6,170,070 $10,122,738
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
Schedule of noncash investing and financing
activities:
Property and equipment acquired under capital lease
agreements........................................ $ 356,164 $ 304,805 $ 18,607 $ 18,607 --
Interest paid....................................... $ 360,153 $ 329,871 $ 196,675 $ 144,665 $ 59,862
Tax benefit from stockholder transaction............ -- -- -- -- $ 590,000
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-7
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS INFORMATION

Great Plains Software, Inc. is a leading provider of Microsoft Windows NT
client/server financial management software for mid-sized businesses. Its
products and services automate essential accounting functions and enhance the
strategic value of financial information. The Company's products and services
are sold and implemented exclusively by its network of independent sales and
support organizations throughout the United States, Canada and select
international markets.

SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY AND FOREIGN CURRENCY TRANSLATIONS

The consolidated financial statements include the accounts of the Company
and its subsidiary in the United Kingdom. All significant intercompany accounts
and transactions have been eliminated in consolidation. The functional currency
of the subsidiary has been determined to be the U.S. dollar. Therefore, all
transaction gains and losses resulting from fluctuations in currency exchange
rates are included in operating results.

EXPORT SALES

Export sales represent 10.8%, 10.4% and 14.1% of total revenues for the
years ended May 31, 1995 and 1996 and the nine months ended February 28,1997,
respectively. All export sales are denominated in US dollars.

INTERIM FINANCIAL INFORMATION

In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and cash flows for the nine months
ended February 29, 1996, as presented in the accompanying unaudited consolidated
financial statements. All data for such period included herein are unaudited.

RECLASSIFICATIONS

Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995, 1996, and 1997 presentation.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid investments with
original maturities of three months or less and which are readily convertible to
cash.

F-8
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES

Investments in debt securities that are not cash equivalents and marketable
equity securities have been designated as available for sale. Those securities,
which consist of U.S. Treasury Bills, are reported at fair value, with net
unrealized gains and losses included in equity. However, as of February 28,
1997, investments were carried at cost because unrealized gains were immaterial.
The maturities of the debt securities range from 1997 to 1999.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to credit risk
consist primarily of cash, cash equivalents, investments and accounts
receivable. The Company grants credit to customers in the ordinary course of
business. The Company invests its cash with high quality financial institutions.
No single customer or region represents a significant concentration of credit
risk.

CHANGE IN ACCOUNTING PRINCIPLE

The Company adopted Statement of Accounting Standards No. 112 requiring
accrual accounting for the expected cost of providing certain disability
benefits. The cumulative effect of this change in accounting principle at the
beginning of fiscal 1995 was $200,000 and is shown in the consolidated statement
of operations.

REVENUE RECOGNITION AND DEFERRED REVENUE

Software license fees are recognized upon shipment less a reserve for
estimated future returns. Revenue from support and maintenance service contracts
are recorded as deferred revenue when billed and recognized ratably over the
contract period. Other service revenue such as training and consulting services
are recognized as the services are performed. Prior to 1996 the Company provided
credits or coupons in association with the sale of one product as an inducement
to customers to purchase future products or releases. Revenue equal to the
coupon value was deferred until used or expired. The Company in its discretion
may allow customers to return products for a short period of time following the
sale. The Company provides an allowance for these anticipated returns based upon
its historical experience of returns for similar products. These amounts are
recorded as an offset to license revenues.

FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, investments, short-term
receivables, long-term debt, capital lease obligations and payables for which
their current carrying amounts approximate fair market value. Additionally,
based upon the borrowing rates currently available to the Company for debt
agreements with similar terms and average maturities, the carrying amount of
debt approximates its fair market value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Major improvements are
capitalized while maintenance and repairs are expensed currently. Depreciation
is computed using the straight-line method based on the estimated useful lives
of 3 to 5 years for computer equipment and 5 to 10 years for furniture, fixtures
and equipment. Leasehold improvements are amortized over the lesser of the terms
of the related leases or estimated useful life. Purchased computer software,
which is used internally, is amortized over a five

F-9
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
year period using the straight-line method. Amortization expense is included
with depreciation expense in the cash flow statement.

INCOME TAXES

Income taxes are accounted for under the liability method in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." Under the liability method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities reduced by valuation
allowances as necessary.

ADVERTISING

The Company accrues, at the time of sales, an estimated liability for
qualified advertising expenses incurred by value added resellers and independent
sales support organizations for which the Company has agreed to reimburse such
parties. Advertising costs are expensed as incurred. Advertising expense was
approximately $2,354,000, $2,061,000, $1,487,000 and $1,512,000 for the years
ended May 31, 1994, 1995 and 1996 and the nine months ended February 28, 1997,
respectively.

RESEARCH AND DEVELOPMENT

Expenditures for software development costs and research are expensed as
incurred. Such costs are required to be expensed until the point that
technological feasibility product is established. The period between achieving
technological feasibility and the general availability of such software has been
short. Consequently costs otherwise capitalizable after technological
feasibility is achieved are generally expensed because they are insignificant to
both total assets and pre-tax results of operations.

UNAUDITED PRO FORMA NET INCOME PER SHARE

Unaudited pro forma net income per share is based on the unaudited pro forma
weighted average number of shares of common stock and common equivalent shares
outstanding for the period. The unaudited pro forma weighted average number of
shares assumes the conversion of the Company's Series A Convertible Preferred
Stock and the Series B Mandatorily Redeemable Convertible Preferred Stock into
1,847,627 shares of common stock effective June 1, 1995. Because of the
significant impact of the assumed conversion on the Company's capital structure
and earnings per share, historical earnings per share has been excluded from the
financial statements as they are not considered meaningful. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, options
granted with exercise prices below the initial public offering price during the
12-month period preceding the date of the initial filing of the Registration
Statement have been included in the calculation of pro forma net income per
share, using the treasury stock method based on the initial public offering
price, as if the options were outstanding for all periods presented.

INVENTORIES

Inventories consisting of media, training materials and packaging supplies
are stated at lower of cost or market, with cost determined on a first-in,
first-out ("FIFO") basis.

F-10
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)

If the offering contemplated by this Prospectus is consummated, all of the
Series A Convertible Preferred Stock and the Series B Mandatorily Redeemable
Convertible Preferred Stock outstanding at the closing date will be converted
into shares of common stock. The unaudited pro forma stockholders' equity as of
February 28, 1997, reflects the conversion of all outstanding convertible
preferred stock at February 28, 1997 into 1,847,627 shares of common stock.

RECENTLY ISSUED ACCOUNTING STANDARDS

Effective June 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The adoption of this standard had no material effect on the Company's
financial statements. In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued. Management has adopted this standard effective June
1, 1996 by means of disclosure of the pro forma effect of the compensation
components of stock-based compensation in Note 10.

In March 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. Under
SFAS No. 128 the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
Management believes the adoption of SFAS No. 128 will not have a material effect
on the financial statements.

NOTE 2--BUSINESS COMBINATION

During fiscal 1996, the Company acquired a division of Kewill Systems PLC, a
United Kingdom software sales and service provider, for $634,264 consisting of
cash and the assumption of certain liabilities in a transaction accounted for as
a purchase. Accordingly, the results of operations of this division have been
consolidated with those of the Company from its date of acquisition. The net
assets acquired were recorded at their estimated fair market values with the
excess allocated to goodwill, as follows:

<TABLE>
<S> <C>
Software rights acquired......................................... $ 50,000
Goodwill......................................................... 584,264
---------
$ 634,264
---------
---------
</TABLE>

The goodwill associated with this transaction is being amortized on a
straight line basis over five years. The recoverability of unamortized goodwill
is assessed on an ongoing basis by comparing anticipated undiscounted cash flows
to net book value. Goodwill is presented net of accumulated amortization of
$29,213 and $116,853 at May 31, 1996 and February 28, 1997, respectively. Pro
forma operating results are not presented as the effect is immaterial.

F-11
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances, consist of the following:

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
------------------------------ --------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Gross accounts receivable..................... $ 7,073,073 $ 7,121,386 $ 7,039,225
Less allowance for doubtful accounts.......... (254,841) (666,551) (667,199)
Less allowance for returns.................... (1,095,940) (1,191,247) (1,702,656)
-------------- -------------- --------------
$ 5,722,292 $ 5,263,588 $ 4,669,370
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

NOTE 4--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
------------------------------ --------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Furniture and fixtures...................... $ 1,440,086 $ 1,443,427 $ 1,543,403
Computers and equipment..................... 9,833,777 10,784,823 12,418,957
Leasehold improvements...................... 322,727 331,392 369,302
Purchased software for internal use......... 782,501 1,094,280 1,254,266
-------------- -------------- --------------
12,379,091 13,653,922 15,585,928
Less accumulated depreciation and
amortization.............................. (7,402,945) (8,510,847) (9,889,451)
-------------- -------------- --------------
$ 4,976,146 $ 5,143,075 $ 5,696,477
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

Depreciation expense for the years ended May 31, 1994, 1995, 1996, and the
nine months ended February 28, 1997 was $1,382,220, $1,512,782, $1,892,310 and
$1,477,593, respectively.

The Company leases equipment under long-term lease agreements which are
classified as capital leases. Property and equipment includes the following
leased property:

<TABLE>
<CAPTION>
MAY 31,
----------------------------
1995 1996
-------------- ------------
<S> <C> <C>
Property and equipment.......................................... $ 1,814,484 $ 350,521
Less accumulated amortization................................... (1,139,615) (149,613)
-------------- ------------
$ 674,869 $ 200,908
-------------- ------------
-------------- ------------
</TABLE>

All capital leases were paid in full as of February 28, 1997.

F-12
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
---------------------------- -------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Accrued vacation payable........................ $ 839,873 $ 904,498 $ 1,069,910
Co-op advertising accrual....................... 1,092,502 855,907 1,115,794
Other........................................... 2,430,438 3,038,572 2,665,958
------------- ------------- -------------
$ 4,362,813 $ 4,798,977 $ 4,851,662
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

NOTE 6--LINE OF CREDIT

The Company has a $5,000,000 revolving line of credit facility with a bank
which provides for interest at prime. Substantially all of the Company's assets
are pledged as collateral on the line of credit which expires on November 15,
1997 and is subject to certain covenants, all of which had been complied with at
February 28, 1997. There were no amounts outstanding at May 31, 1995 and 1996 or
February 28, 1997.

NOTE 7--LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

<TABLE>
<CAPTION>
MAY 31,
--------------------------
1995 1996
------------- -----------
<S> <C> <C>
Various capital lease obligations with interest rates varying from
4.8% to 11.9%, at May 31, 1996, maturities through October 1997,
repayable in monthly installments and secured by the related
equipment....................................................... $ 816,562 $ 247,554
Term loans bearing interest ranging from 8.0% to 9.5%, at May 31,
1996, repayable in monthly installments ranging from $4,500 to
$6,500 plus accrued interest through December 1996, secured by
various assets and guaranteed by certain stockholders........... 273,087 82,600
Note payable to a third party bearing interest at 1.25% over the
prime rate (9.5% as of May 31, 1996). The principal amount is
due in four quarterly installments to commence upon demand...... 500,000 500,000
Other notes....................................................... 23,513 16,736
------------- -----------
1,613,162 846,890
Current portion of long-term debt................................. 863,405 827,238
------------- -----------
$ 749,757 $ 19,652
------------- -----------
------------- -----------
</TABLE>

All long-term debt and capital lease obligations have been paid in full as
of February 28, 1997.

F-13
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

Rental expense incurred for operating leases of office facilities and office
equipment was approximately $693,000 in 1994, $894,000 in 1995, $871,000 in 1996
and $647,323 for the nine months ended February 28, 1997. The rent expense for
the years ended May 31 1994, 1995 and 1996 include $70,740 and the nine months
ended February 28, 1997 includes $53,000 for computer equipment leased from
stockholders. Future minimum rental payments as of February 28, 1997 for
noncancelable operating leases with initial or remaining terms in excess of one
year are payable as follows: balance of fiscal 1997--$219,992 and fiscal
1998--$630,644.

EMPLOYEE STOCK--RIGHT TO REPURCHASE

The Company has a right to repurchase shares of common stock from
stockholder employees who leave the Company or violate certain terms of
agreements with the Company. The price per share is determined based on a
defined calculation. Upon the closing of an initial public offering, the
Company's contractual right will be terminated.

LITIGATION

The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of this litigation will
have a material adverse effect on the financial position or results of
operations or cash flows of the Company.

F-14
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES

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

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
----------------------------- -------------
1995 1996 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of financial reporting....... $ 500,000 $ 470,000 $ 477,000
-------------- ------------- -------------
Total deferred tax liabilities........................ 500,000 470,000 477,000
-------------- ------------- -------------
Deferred tax assets:
Accounts receivable allowances.......................... 511,000 687,000 917,000
Deferred revenue........................................ 2,002,000 1,342,000 847,000
Cooperative advertising accrual......................... 404,000 317,000 394,000
Sales tax accrual....................................... 259,000 211,000 133,000
Net operating loss carryforward......................... 1,542,000 950,000 691,000
Research and development credit carryforward............ 572,000 573,000 583,000
Alternative minimum tax credit carryforward............. 133,000 160,000 133,000
Investment tax credit carryforward...................... 63,000 63,000 63,000
Vacation and other...................................... 506,000 317,000 243,000
-------------- ------------- -------------
Total deferred tax assets............................. 5,992,000 4,620,000 4,004,000

Valuation allowance....................................... (5,492,000) -- --
-------------- ------------- -------------
Net deferred tax assets............................... 500,000 4,620,000 4,004,000
-------------- ------------- -------------
Total net deferred income taxes........................... $ -- $ 4,150,000 $ 3,527,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>

The provision (benefit) for income taxes is summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MAY 31, FEBRUARY 28,
---------------------------------------------- -------------
1994 1995 1996 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Current income taxes:
Federal......................................... $ (2,536,000) $ 1,261,000 $ 595,000 $ 806,000
State........................................... (281,813) 110,000 48,000 50,000
Net operating loss carry forward................ 2,791,000 (1,326,000) (592,000) (849,000)
-------------- -------------- -------------- -------------
(26,813) 45,000 51,000 7,000
Deferred income taxes:
Federal......................................... (3,460,000) 157,000 1,233,000 1,116,000
State........................................... (305,000) 20,000 109,000 97,000
-------------- -------------- -------------- -------------
(3,765,000) 177,000 1,342,000 1,213,000
Increase (decrease) in valuation allowance........ 3,765,000 (177,000) (5,492,000) --
-------------- -------------- -------------- -------------
$ (26,813) $ 45,000 $ (4,099,000) $ 1,220,000
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>

F-15
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)
The differences between the expected tax provision based on the federal
income tax statutory rate and the actual provision for the years presented are
summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MAY 31, FEBRUARY 28,
-------------------------------------------- -------------
1994 1995 1996 1997
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Expected tax provision (benefit) at statutory
rate............................................ $ (3,521,000) $ 126,000 $ 1,143,000 $ 1,093,000
State income taxes, net of federal tax effect..... (342,000) 12,000 111,000 97,000
Change in valuation allowance..................... 3,765,000 (177,000) (5,492,000) --
Other............................................. 71,187 84,000 139,000 30,000
-------------- ------------ -------------- -------------
Total......................................... $ (26,813) $ 45,000 $ (4,099,000) $ 1,220,000
-------------- ------------ -------------- -------------
-------------- ------------ -------------- -------------
</TABLE>

At February 28, 1997, the Company had available for tax purposes net
operating loss carryforwards of approximately $1,868,000 which could be used to
offset taxable income through May 2010. Income tax credit carryforwards included
in deferred tax assets generally expire through May 2010.

At May 31, 1994 and 1995, the Company had determined that the realization of
the net operating loss carryforward and other deferred tax assets did not meet
the recognition criteria under SFAS No. 109, and, accordingly, a valuation
allowance was established for the tax benefit of these items. The valuation
allowance was reversed during 1996 due primarily to the utilization of a portion
of the net operating loss carryforwards, and on the basis of an analysis
performed by management which considered all available evidence, both positive
and negative, as well as the weight and importance of such evidence. As a result
of this analysis, management believed it was more likely than not that these tax
benefits would be realized in the future, and, accordingly, reversed the
remaining valuation allowance in the fourth quarter of fiscal 1996.

NOTE 10--INCENTIVE STOCK OPTION PLAN

The Company adopted an Employee Incentive Stock Option Plan for certain key
employees in 1983. At February 28, 1997, 2,066,667 shares of common stock had
been reserved for issuance or grant under this plan. The options are granted to
employees at 100% of the fair market value on the date of grant. The fair market
value, rate of exercisability and expiration dates of the options granted are
determined by the Board of Directors at the time of grant. Options generally
vest ratably over five years from date of grant and expire six years after
grant.

F-16
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--INCENTIVE STOCK OPTION PLAN (CONTINUED)

The following summary of outstanding options and shares reserved under the
Plan is as follows:

<TABLE>
<CAPTION>
WEIGHTED
OPTION PRICE EXPIRATION AVERAGE
OPTIONS RANGE DATE EXERCISE
OUTSTANDING PER SHARE (FISCAL YEAR) PRICE
------------ ------------------ -------------- -----------
<S> <C> <C> <C> <C>
Outstanding at May 31, 1993...... 1,040,000 $1.70 to $2.72 1995 - 1999 $ 2.05

Granted........................ 52,000 $3.41 $ 3.41
Exercised...................... (21,120) $1.96 to $2.42 $ 2.01
Canceled/expired............... (97,333) $2.42 to $2.55 $ 2.23
------------

Outstanding at May 31, 1994...... 973,547 $1.70 to $3.41 1995 - 1999 $ 2.11

Granted........................ 187,433 $4.16 $ 4.16
Exercised...................... (77,333) $1.70 to $2.55 $ 1.77
Canceled/expired............... (20,000) $1.96 to $4.16 $ 3.08
------------

Outstanding May 31, 1995......... 1,063,647 $1.96 to $4.16 1997 - 2001 $ 2.48

Granted........................ 619,333 $5.20 to $6.41 $ 5.42
Exercised...................... (32,013) $1.96 to $2.57 $ 2.30
Canceled/expired............... (321,320) $2.57 to $5.20 $ 4.89
------------

Outstanding May 31, 1996......... 1,329,647 $1.96 to $6.41 1997 - 2002 $ 3.27

Granted........................ 361,000 $6.41 to $7.71 $ 6.87
Exercised...................... (574,313) $1.95 to $5.44 $ 2.12
Canceled/expired............... (88,667) $4.16 to $6.41 $ 5.36
------------

Outstanding February 28, 1997.... 1,027,667 $1.96 to $7.71 1997 - 2003 $ 5.02
------------
------------
</TABLE>

As of February 28, 1997 there were currently exercisable options outstanding
covering 298,740 shares, exercisable at prices ranging from $1.95 to $6.41 per
share.

In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation."
As permitted by SFAS No. 123, the Company has elected to continue following the
guidance of APB 25 for measurement and recognition of stock based transactions
with employees and adopt the disclosure only provisions of SFAS No. 123. As a
result, no compensation expense has been recognized for the awards made in the
form of stock options. If the Company had elected to recognize compensation
costs for stock based compensation plans based on the fair value at the grant
dates for awards under those plans consistent with the method

F-17
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--INCENTIVE STOCK OPTION PLAN (CONTINUED)
prescribed by SFAS No. 123, net income and earnings per share would have been
changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MAY 31, 1996 FEBRUARY 28, 1997
------------- -------------------
<S> <C> <C> <C>
Net income As reported $7,460,663 $1,995,267
Pro forma $7,396,755 $1,884,649

Earnings per share As reported $0.74 $0.20
Pro forma $0.74 $0.19
</TABLE>

The fair value of the stock options used to compute pro forma net income and
earnings per share disclosures is the present value at grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and the nine months ended February 28, 1997: no dividend
yield, expected volatility of 44.5%, risk free interest rate of 6.46%, and an
expected holding period of 6 years.

The following table summarizes the status of the Company's stock options
outstanding as of February 28, 1997:

<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED STOCK OPTIONS EXERCISABLE
AVERAGE WEIGHTED ------------------------------
RANGE OF REMAINING AVERAGE EXERCISE WEIGHTED AVERAGE
EXERCISE PRICE SHARES CONTRACTUAL LIFE PRICE SHARES EXERCISE PRICE
- --------------- ----------- ---------------- ------------------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$1.95-$2.93 242,267 0.8 years $ 2.17 209,467 $ 2.12
$2.94-$4.40 160,000 3.4 years $ 4.00 44,073 $ 3.89
$4.41-$6.60 543,400 5.2 years $ 6.04 45,200 $ 5.52
$6.61-$9.90 82,000 5.3 years $ 7.47 -- --
----------- ---------
Total 1,027,667 298,740
----------- ---------
----------- ---------
</TABLE>

NOTE 11--EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution 401(k) Profit Sharing Plan
covering substantially all employees. The Company currently matches 25% of each
participants' contribution up to 8% of their annual salary and can make
discretionary profit sharing contributions to the plan. The Company's
contribution to this plan for the years ended May 31, 1994, 1995 and 1996 and
the nine months ended February 28, 1997 was approximately $186,000, $230,000,
$251,000, and $229,000 respectively.

NOTE 12--RELATED PARTY TRANSACTIONS

NOTE PAYABLE TO STOCKHOLDER

In June 1994, the Company received a $1,500,000 loan from a stockholder
bearing interest at 7.25%. The entire balance plus accrued interest of $5,000
was repaid in June 1994.

As of May 31, 1994, the Company had outstanding a series of unsecured notes
aggregating $940,000 with stockholders of the Company. These notes had interest
rates ranging from 7.25% to 8.5%

F-18
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--RELATED PARTY TRANSACTIONS (CONTINUED)
during 1995 and were paid off as of May 31, 1995. Interest expense of $90,842
and $36,039 was recorded on these notes during fiscal 1994 and 1995,
respectively.

A director of the Company was paid $104,700, $53,900, $36,800 and $24,525 in
1994, 1995, 1996 and the nine months ended February 28, 1997 (plus reimbursement
of expenses), respectively, for consulting services rendered to the Company
pursuant to consulting agreements with the Company.

STOCK OPTION GRANT BY PRINCIPAL STOCKHOLDERS

In April 1995, certain principal common stockholders granted to an
officer/director of the Company an option to purchase 711,156 shares of common
stock directly from them at an exercise price of $4.16 per share (fair market
value at date of grant). Certain events, including a decision by the Board of
Directors to initiate an initial public offering, accelerate the vesting period.
These options were exercised on January 2, 1997.

NOTE 13--STOCKHOLDERS' EQUITY

The Board of Directors met on February 20, 1997 and took the following
actions in connection with the initial public offering of shares of the
Company's common stock: (a) authorized a four-for-three stock split of the
issued and outstanding common stock of the Company, in the form of a stock
dividend, to be effective immediately prior to the public offering (all
references to common stock amounts, shares, per share data and preferred stock
conversion rights included in the financial statements and these notes have been
adjusted to give retroactive effect to the stock split); (b) authorized an
increase in capital stock to 100,000,000 shares of $0.01 par value common stock
and 30,000,000 shares of $0.01 par value preferred stock to be both contingent
and effective upon stockholder approval and the first closing of the initial
public offering of common stock; (c) waived, subject to the closing of an
initial public offering, the Company's contractual rights to repurchase shares
of common stock from employees of the Company; and (d) authorized certain
incentive stock plans contingent and effective upon stockholder approval and
consummation of the initial public offering. These incentive plans include (i)
the 1997 Employee Stock Purchase Plan providing for the purchase of common stock
at a discounted price, (ii) the 1997 Stock Incentive Plan providing for the
grant of stock based compensation to eligible persons and (iii) the Outside
Directors' Stock Option Plan providing for the grant of nonqualified stock
options to nonemployee directors of the Company.

SERIES A CONVERTIBLE PREFERRED STOCK

In June 1994, the Company sold 225,000 shares of $.01 par value Series A
Convertible Preferred Stock (the "Series A Preferred Stock") at $1.00 per share
to an officer/director who may convert these shares into 54,000 shares of common
stock at any time after June 15, 1997 at a rate of .24 shares of common stock
for each share of Series A Preferred Stock. In the event of a public offering (a
"Qualified Public Offering") with aggregate proceeds of at least $10,000,000 and
the issuance of 15% of the resulting outstanding shares of the Company, the
Series A Preferred Stock shall be automatically converted to shares of common
stock. The holder of the Series A Preferred Stock is not entitled to dividends
or other distributions, has preference over common stock upon liquidation and
has the right to elect one director.

F-19
<PAGE>
GREAT PLAINS SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Also in June 1994, the Company entered into an agreement for the sale of
Series B Mandatorily Redeemable Convertible Preferred Stock (the "Series B
Preferred Stock") and warrants. On June 24, 1994, at the first closing, the
Company sold 888,576 of $.01 par value Series B Preferred Stock and contingent
warrants to purchase an additional 752,234 shares of Series B Preferred Stock
for an aggregate purchase price of $6,300,004. On September 22, 1994, the second
closing, the Company sold an additional 282,088 shares of Series B Preferred
Stock for an aggregate purchase price of $2,000,004.

During May 1995, the Company and the holders of the Series B Preferred Stock
agreed to reprice the previously issued shares of Series B Preferred Stock and
eliminate the warrants. The Company issued an additional 174,556 shares of
Series B Preferred Stock in return for the cancellation of the warrants. Thus,
the total Series B Preferred Stock sold in the three transactions was 1,345,220
shares at an average price of $6.17.

Holders of the Series B Preferred Stock may convert their shares into
1,793,627 shares of common stock at any time after the date of issuance. In the
event of a Qualified Public Offering, the Series B Preferred Stock shall be
automatically converted to such number of shares of common stock. The holders of
Series B Preferred Stock also have the right to require the Company to redeem
their shares at any time after June 24, 1998 at a price of $6.17 per share or,
if higher, the fair market value of such shares if the Company has not
undertaken a Qualified Public Offering. The Company carries this Series B
Preferred Stock at fair value which management considers to equal $6.17, $8.55
and $9.35 per share at May 31, 1995 and 1996 and February 28, 1997,
respectively.

The holders of the Series B Preferred Stock are not entitled to dividends or
other distributions but have preference over common stock upon liquidation.

F-20
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., Hambrecht & Quist LLC and
Piper Jaffray Inc. are acting as representatives, has severally agreed to
purchase from the Company the respective number of shares of Common Stock set
forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Goldman, Sachs & Co.......................................................... 712,000
Hambrecht & Quist LLC........................................................ 712,000
Piper Jaffray Inc............................................................ 712,000
Alex. Brown & Sons Incorporated.............................................. 108,000
Dain Bosworth Incorporated................................................... 108,000
A.G. Edwards & Sons, Inc..................................................... 108,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................... 108,000
Morgan Stanley & Co. Incorporated............................................ 108,000
Robertson, Stephens & Company, LLC........................................... 108,000
Smith Barney Inc............................................................. 108,000
Wessels, Arnold & Henderson, L.L.C........................................... 108,000
---------------
Total................................................................ 3,000,000
---------------
---------------
</TABLE>

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

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $0.65 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 450,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,000,000 shares of Common
Stock offered.

The Company, its directors and officers, and certain of its shareholders
have agreed that, subject to certain exceptions, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of the Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or of any other
securities of the Company (other than, in the case of the Company, pursuant to
stock incentive plans existing on the date of this Prospectus) which are
substantially similar to the shares of Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
Common Stock without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the offering. In
addition, the Company may issue shares of Common Stock in connection with any
acquisition of another company if the terms of such issuance provide that such
Common Stock shall not be resold prior to the expiration of the 180-day period
referenced in the preceding sentence.

U-1
<PAGE>
Prior to the offering, there has been no public market for the shares of
Common Stock. The initial public offering price was negotiated among the Company
and the representatives. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, were the Company's historical performance, estimates of business
potential and earnings prospects for the Company, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.

Certain of Goldman, Sachs & Co.'s affiliated investment limited partnerships
own 1,793,627 shares of Common Stock, representing 18.1% of the outstanding
Common Stock of the Company and, upon completion of the offering, will own
approximately 13.9% of the outstanding Common Stock. See "Principal
Shareholders." Such affiliates are subject to the 180-day lock-up that applies
to other shareholders as described above. Goldman, Sachs & Co. and their
affiliates (other than such investment limited partnerships) will be permitted
to engage in stabilization, brokerage and ordinary course of business
transactions and will be permitted, pursuant to a registration statement under
the Securities Act maintained by the Company, to sell Common Stock and related
securities in connection with market-making transactions from time to time, both
during and after the 180-day period. See "Shares Eligible for Future Sale."

The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make a
market in the Common Stock following completion of the offering. However, they
are not obligated to do so and any market-making may be discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained following
the completion of the offering. See "Risk Factors-- No Prior Market; Possible
Volatility of Stock Price".

In addition, the Underwriting Agreement contains certain provisions with
respect to such market-making activities. Because of the affiliation of Goldman,
Sachs & Co. with the Company, Goldman, Sachs & Co. will be required to deliver a
current prospectus to any purchaser in connection with any such market-making
transactions. The Company has agreed to make from time to time certain
amendments or supplements to the Prospectus and to pay certain expenses relating
to such amendments or supplements.

A representative of certain affiliates of Goldman, Sachs & Co. serves as a
member of the Board of Directors of the Company. See "Certain Transactions."

At the request of the Company, the Underwriters have reserved shares of the
Common Stock offered hereby for sale at the public offering price to Partners,
directors, officers and employees of the Company and certain other persons. Such
Partners, directors, officers, employees and other persons will purchase, in the
aggregate, less than 15% of the Common Stock offered hereby, of which
approximately 10% are expected to be purchased by Partners. The number of shares
available to the general public will be reduced to the extent that such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same terms as the other
shares offered by this Prospectus. Partners who purchase such reserved shares
will be required to execute a lock-up agreement with the representatives of the
Underwriters pursuant to which they will agree that, without the prior written
consent of the representatives of the Underwriters, they will not sell or
otherwise dispose of any shares of Common Stock during the 180-day period
following the date of this Prospectus.

U-2
<PAGE>
Under Rule 2720 of the National Association of Securities Dealers, Inc. (the
"NASD"), the Company may be deemed to be an affiliate of Goldman, Sachs & Co.
For a description of certain relationships between Goldman, Sachs & Co. and its
affiliates and the Company, see "Management," "Certain Transactions" and
"Principal Shareholders." The offering is being conducted in accordance with
Rule 2720, which provides that, among other things, when an NASD member
participates in the underwriting of an affiliate's equity securities, the
initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Hambrecht & Quist LLC will serve in such role and will
recommend a price in compliance with the requirements of Rule 2720. Hambrecht &
Quist LLC will receive compensation from the Company in the amount of $10,000
for serving in such role. In connection with the offering, Hambrecht & Quist LLC
in its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
In addition, the Underwriters may not confirm sales to any accounts over which
they exercise discretionary authority without the prior specific written
approval by the customer.

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

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

U-3
<PAGE>
APPENDIX A

GREAT PLAINS SOFTWARE, INC.
INITIAL PUBLIC OFFERING
WORLD WIDE WEB SITE

The Company has established a dedicated World Wide Web site (the "website")
relating to this offering at the address http://www.ipo-greatplains.com. The
user name for access to the website is "greatplains," and the password for
access to the website is "arthur." The website contains the preceding portion of
this Prospectus, as well as demonstrations of certain of the Company's products
and comments from members of the Company's management. A transcript of the
contents of the website, other than the preceding text, is set forth in this
Appendix.

A-1
<PAGE>

VISUAL: THIS PAGE CONTAINS THE GREAT PLAINS SOFTWARE LOGO IN THE UPPER LEFT-HAND
CORNER AND THE REALAUDIO LOGO AT THE BEGINNING OF THE SENTENCE THAT BEGINS,
"TEST YOUR SYSTEM NOW..."

Great Plains Software, Inc. Prospectus dated June 19, 1997.

Welcome to the Great Plains Software, Inc. Initial Public Offering Website.
This website is accessible only to those persons who have received a printed
Prospectus dated June 19, 1997 relating to the initial public offering of
Great Plains Software, Inc., and who have correctly entered the password
taken from the Paper Prospectus.

Before you complete this form, please note that this website requires use of
RealAudio, which is freely available from Progressive Networks. Note: For
best results, choose the RealAudio Player 3.0. If you are using Microsoft
Internet Explorer 3.0 or above, this software may already be installed on
your system.

Test your system now to determine if you need to install the RealAudio.

The Product Demonstration portion of this Website Prospectus may be
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Please ensure that you review the textual portion of the Prospectus as set
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VISUAL: THIS PAGE CONTAINS THE GREAT PLAINS SOFTWARE LOGO AT THE TOP CENTER.

Prospectus dated June 19, 1997

IMPORTANT INFORMATION

There can be no assurance that any of the shares offered will be available for
purchase by any prospective purchaser.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized. The Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer to sell is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.

This website may not be copied or further distributed at any time.

Continue to Prospectus

Please ensure that you review the textual portion of the Prospectus as set
forth in the Paper Prospectus. You can also review the text of the Paper
Prospectus at this Website Prospectus.

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VISUAL: THIS PAGE CONTAINS THE GREAT PLAINS SOFTWARE LOGO AT THE TOP CENTER.

3,000,000 Shares

Common Stock
(par value $.01 per share)
TABLE OF CONTENTS
Cover
Additional Information
Prospectus Summary
Risk Factors
Use of Proceeds
Dividend Policy
Dilution
Capitalization
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Business
Management
Certain Transactions
Principal Shareholders
Description of Capital Stock
Shares Eligible for Future Sale
Legal Matters
Experts
Index to Consolidated Financial Statements
Underwriting

Continue

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.

Through and including July 14, 1997 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the Common Stock, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

Goldman, Sachs & Co.
Hambrecht & Quist
Piper Jaffray Inc.
Representatives of the Underwriters

[Next Section]

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VISUAL: AT THE TOP OF THE PAGE ARE THREE IMAGES INDICATING LINKS TO THREE
SEPARATE AREAS OF THE WEBSITE.

ON THE LEFT IS AN IMAGE INDICATING A LINK TO THE "PRODUCT DEMONSTRATION"
SECTION. THIS IMAGE IS COMPRISED OF A HUMAN HAND WITH AN EXTENDED FOREFINGER
APPEARING TO TOUCH WATER. THE RIPPLES EMANATING FROM THE FINGER TIP RANDOMLY
CONTAIN THE WORDS "WINDOWS NT," "CLIENT/SERVER," "LEADING TECHNOLOGIES,"
"WINDOWS 95" CUSTOMER SERVICE," "INTERNET," "SQL SERVER," "EASE OF USE,"
"PARTNER NETWORK," "OPENNESS" AND "GLOBAL MARKETS."

IN THE CENTER IS AN IMAGE INDICATING A LINK TO THE "PRODUCT OVERVIEW" SECTION.
THIS IMAGE IS COMPRISED OF A COMPUTER SCREEN SHOWING THE COMPANY'S DYNAMICS
ILLUSTRATION, WHICH ABSTRACTLY DEPICTS A GROUP OF MEN AND WOMEN ASSEMBLING A
GLOBE.

TO THE RIGHT IS THE IMAGE OF THE COVER OF THE PAPER PROSPECTUS INDICATING A LINK
BACK TO THE TABLE OF CONTENTS OF THE PAPER PROSPECTUS.

THIS PAGE ALSO CONTAINS A PHOTOGRAPH OF GREAT PLAINS SOFTWARE CHAIRMAN AND CEO
DOUGLAS J. BURGUM, AS WELL AS THE COMPANY'S LOGO.

Mission Statement:
To improve the life and business success of Partners and Customers by providing
superior financial management software, services and tools.

Hello, I'm Doug Burgum. As Chairman and CEO of Great Plains Software I want to
welcome you to our Website Prospectus. We've created this site to present our
Prospectus in an electronic format so that, in addition to reading about our
products and technologies, you can see them demonstrated here. All portions of
this Website are part of the printed Prospectus. You'll see our Dynamics C/S+
and Dynamics client/server financial management product lines, including our new
Internet applications, our DynamicTools suite and, finally, some of the
technologies behind these products. You'll be able to download product
demonstrations from this Website Prospectus. Enjoy yourself and thank you for
visiting our Website Prospectus.

Douglas J. Burgum
Chairman & CEO

Home | Product Overview | Product Demonstrations | Table of Contents

Please ensure that you review the textual portion of the Prospectus as set
forth in the Paper Prospectus. You can also review the text of the Paper
Prospectus at this Website Prospectus.

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Product Overview

VISUAL: THIS PAGE CONTAINS A PHOTOGRAPH OF STEVE SYDNESS. IT ALSO INCLUDES THE
LOGOTYPES OF GREAT PLAINS' CLIENT/SERVER PRODUCTS DYNAMICS AND DYNAMICS C/S+.

Steve Sydness
Group Vice President Dynamics

Hi, my name is Steve Sydness. Welcome to the product overview section of our
Website Prospectus. Here you will learn more about our products and
technologies. First we'll talk about Great Plains' client/server products,
Dynamics C/S+ and Dynamics. In particular, you'll have a chance to see some of
the features that make these products easy to learn and use.

VISUAL: THIS PAGE CONTAINS THE LOGOTYPES OF GREAT PLAINS' CLIENT/SERVER PRODUCTS
DYNAMICS AND DYNAMICS C/S+.

Dynamics C/S+ and Dynamics have similar broad accounting functionality, user
interfaces and basic navigational features, but they are designed for different
business sizes and types within the segment referred to as the Corporate Market.
The Corporate Market generally consists of businesses with $1 million to $250
million in revenues and 10 to 2500 employees.

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VISUAL: THIS PAGE CONTAINS THE COMPANY'S DYNAMICS ILLUSTRATION, WHICH
ABSTRACTLY DEPICTS A GROUP OF MEN AND WOMEN ASSEMBLING A GLOBE.

Dynamics C/S+ is Great Plains' client/server financial management system for
Corporate Market businesses that have high volume processing requirements,
complex financial management needs and formal IT departments.

Dynamics is Great Plains' client/server financial management solution for
Corporate Market businesses that need a Windows client/server solution that is
flexible and cost-effective, but does not require IT personnel dedicated to
database administration.

VISUAL: THIS PAGE CONTAINS A VIEW OF THE GREAT PLAINS DYNAMICS MENU BAR.

The Dynamics C/S+ and Dynamics user interfaces adhere closely to Windows design
standards, making them easy to learn and easy to use.

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VISUAL: THIS PAGE CONTAINS A GREAT PLAINS DYNAMICS CHECKLIST SCREEN AND A
CLOSEUP OF THE DYNAMICS WORK BUTTON DROP-DOWN MENU.

We have built in navigational features to enhance their ease of use. For
example, on-line to-do lists guide users through often-repeated processes and
ensure all steps are completed.

A Work button can be customized by individual users to allow direct navigation
to all Dynamics applications as well as certain external applications.

VISUAL: THIS PAGE CONTAINS AN IMAGE OF THREE DYNAMICS WINDOWS OPEN AT THE SAME
TIME.

Dynamics' 32-bit, native Windows 95 and Windows NT implementation allows
multiple windows to be open at once, letting users easily change tasks or find
necessary information without leaving a current task.

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VISUAL: THIS PAGE CONTAINS AN IMAGE OF THREE DYNAMICS WINDOWS THAT TRACE THE
ACTIVITY OF A TRANSACTION.

Dynamics' cross-application drilldown capabilities allow users to quickly and
easily access information.

Providing a real-time, on-line audit trail that lets users trace transactions
throughout the system, back to the original entry if desired.

VISUAL: THIS PAGE CONTAINS A DYNAMICS WINDOW AND A MICROSOFT EXCEL WINDOW,
ILLUSTRATING THE SHARING OF INFORMATION BETWEEN THE APPLICATIONS.

In addition, customers can easily transfer information to desktop applications,
such as Microsoft Word or Excel, for analysis and dissemination.

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VISUAL: THIS PAGE CONTAINS A PHOTOGRAPH OF NITA MORLOCK.

Nita Morlock
Director of
Marketing

My name is Nita Morlock. I want to tell you some more about Dynamics C/S+.
Dynamics C/S+ is a leading Windows NT client/server solution for Corporate
Market businesses that require the distributed processing and increased
throughput delivered by Windows NT, Microsoft SQL Server and the multi-tier
architecture of Dynamics C/S+.

VISUAL: THIS PAGE CONTAINS THE LOGOS OF FOUR MICROSOFT PRODUCTS: WINDOWS,
BACKOFFICE, WINDOWS NT AND SQL SERVER.

Dynamics C/S+ was one of the first client/server financial management systems to
receive BackOffice logo compliance certification from Microsoft. BackOffice is
the Microsoft suite of products that includes Windows NT and SQL Server.

Dynamics C/S+ is a 32-bit application optimized for Windows NT and for the
latest releases of Microsoft SQL Server.

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VISUAL: THIS PAGE CONTAINS THE SCHEMATIC ILLUSTRATION OF A MULTI-TIERED
CLIENT/SERVER IMPLEMENTATION, INCLUDING CLIENTS, A DATABASE SERVER AND SEVERAL
APPLICATION SERVERS.

The multi-tier client/server architecture of Dynamics C/S+ enhances processing
flexibility and efficiency by allowing processing to occur on different tiers.

On the desktop computer_

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On the application server_

Or on the database server.

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VISUAL: THIS PAGE CONTAINS THE SCHEMATIC ILLUSTRATION OF A MULTI-TIERED
CLIENT/SERVER IMPLEMENTATION, INCLUDING CLIENTS, A DATABASE SERVER AND SEVERAL
APPLICATION SERVERS, WITH THE ADDITION OF THE DEPICTION OF A WIDE AREA NETWORK
THAT INCLUDES THE USE OF AN INTERNET INFORMATION SERVER AND A CITRIX WINFRAME
SERVER,

In addition, this architecture also enhances scalability and deployment
capabilities over Wide Area Networks and the Internet. Clients can access
Dynamics C/S+ using Internet Information Server and Citrix Winframe Server.

VISUAL: THIS PAGE INCLUDES THE DYNAMICS AND DYNAMICS C/S+ LOGOTYPES.

Both Dynamics and Dynamics C/S+ are sold, implemented and supported by Great
Plains' extensive network of independent Partner organizations throughout the
United States, Canada and select international markets.

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VISUAL: THIS PAGE CONTAINS A PHOTOGRAPH OF CECIL BORDAGES. IT ALSO INCLUDES AN
ABSTRACT ILLUSTRATION DEPICTING THE INTERNET, CONSISTING OF AN EARTH-COLORED
GLOBE SURROUNDED BY A LARGER SPHERE WITH A COMET-SHAPED OBJECT CIRCLING THE
GLOBE.

Cecil Bordages
General Manager
Internet Product Group

I'm Cecil Bordages. I want to show you Great Plains' new Internet applications.
These applications can extend the financial system to employees across the
company and key customers and suppliers through a common Web browser. Here are
the two applications that are available today.

Dynamics.View lets decision makers across an organization view specific
information in the accounting system.

VISUAL: THIS PAGE CONTAINS A DYNAMICS.VIEW CUSTOMER DEMOGRAPHICS INFORMATION
REQUEST WINDOW.

For example, this Customer Demographics Information screen displays relevant
demographic information a sales manager might need for...

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VISUAL: THIS PAGE CONTAINS A CUSTOMER DEMOGRAPHICS INFORMATION WINDOW.

...say, a quick contact person check.

All Dynamics.View pages are built using Internet-standard HTML, making them easy
to support and customize.

VISUAL: THIS PAGE CONTAINS THE DYNAMICS.ORDER LOGOTYPE.

The other Internet application, Dynamics.Order, is a business-to-business order
processing system that allows a company to accept orders from regular customers
over the Internet.

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VISUAL: THIS PAGE CONTAINS A DYNAMICS.ORDER CUSTOMER ID AND PASSWORD WINDOW.

To place an order, the customer enters an ID and password.

VISUAL: THIS PAGE CONTAINS A DYNAMICS.ORDER ORDER ENTRY WINDOW.

When the password is accepted, an Order Entry screen allows the customer to
select items from inventory, edit the shipping address and even enter a comment
about the order for future reference.

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VISUAL: THIS PAGE CONTAINS A DYNAMICS.ORDER CONFIRMATION WINDOW AND A
DYNAMICS.ORDER ORDER STATUS WINDOW.

When the customer clicks on "Send Order," the order is entered directly into the
Sales Order Processing application of the Dynamics or Dynamics C/S+ accounting
system, and a confirmation screen appears, showing an order number, order status
and the invoice total.

Once the order has been accepted, the customer can use Dynamics.Order to monitor
its status and see, for example, when it was shipped and if any items were
backordered.

VISUAL: THIS PAGE CONTAINS A PHOTOGRAPH OF TIM BROOKINS. IT ALSO CONTAINS THE
DYNAMICTOOLS LOGOTYPE.

Tim Brookins
Chief Architect
DynamicTools

I'm Tim Brookins and I'd like to talk about DynamicTools and how they can extend
the functionality of Dynamics C/S+ and Dynamics through customization,
integration with third-party applications and even the development of
applications unique to a specific customer

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VISUAL: THIS PAGE CONTAINS A BULLET-POINT LISTING OF THE DYNAMICTOOLS SUITE.

There are several tools in the DynamicTools suite...
- - Dexterity
- - Continuum for Visual Basic
- - Visual Basic for Applications
- - Report Writer
- - Modifier
- - NetTools

VISUAL: THIS PAGE CONTAINS A BULLET-POINT LISTING OF THE DYNAMICTOOLS SUITE WITH
CONTINUUM FOR VISUAL BASIC AND MODIFIER HIGHLIGHTED.

Here's a brief look at two of them, Continuum for Visual Basic and the Modifier.
- - Dexterity
- - Continuum for Visual Basic
- - Visual Basic for Applications
- - Report Writer
- - Modifier
- - NetTools

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VISUAL: THIS PAGE CONTAINS THE CONTINUUM FOR VISUAL BASIC LOGO AND A CONTINUUM
WIZARD WINDOW.

Continuum for Visual Basic facilitates integration between Dynamics and
Microsoft Visual Basic applications.

Using point and click Wizards you quickly create an integration with any Visual
Basic application.

VISUAL: THIS PAGE CONTAINS A DYNAMICS WINDOW AND A VISUAL BASIC APPLICATION
WINDOW WITH A BI-DIRECTIONAL ARROW POINTING BETWEEN THEM, ILLUSTRATING HOW
CONTINUUM ALLOWS THE TWO TO BE SEAMLESSLY SYNCHRONIZED.

By using OLE Automation, Continuum for Visual Basic completely synchronizes data
fields and buttons between the financial system and the Visual Basic
application.

When text is entered in an integrated Visual Basic field, the same text now
appears in Dynamics.

And when a record is selected in Dynamics, the record is also selected in the
Visual Basic application. As you can see, the financial system and the Visual
Basic application are completely synchronized.

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VISUAL: THIS PAGE CONTAINS A DYNAMICS MODIFIER WINDOW.

The Dynamics Modifier is used to customize Dynamics and Dynamics C/S+ windows
without affecting the underlying logic or software code. The Modifier lets you
make many different kinds of changes.

VISUAL: THIS PAGE CONTAINS A STANDARD DYNAMICS PAYABLES DATA ENTRY WINDOW AND
MODIFIED PAYABLES DATA ENTRY WINDOW.

For example, on the left is a standard payables data entry screen. The Modifier
was used to simplify that screen for a single use--in this case COD payables
entry--which you see on the right. Customized windows can be assigned to
individual users, while other users continue to use the original window

The Modifier also lets you add and rearrange fields within windows, customize
windows with graphics and color, add logos, change the names of toolbar
selections to fit business practices, limit access to sensitive information and
much more.

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VISUAL: THIS PAGE CONTAINS A PHOTOGRAPH OF RAY AUGUST. IT ALSO INCLUDES THE
LOGOS OF MICROSOFT WINDOWS, BACKOFFICE AND WINDOWS NT.

Ray August
Group Vice President
& Chief Technology
Officer

I'm Ray August and I want to tell you about Great Plains Software's record of
technical innovation and leadership, and our investment in the development of
new technologies and products.
We have standardized our client/server products on Microsoft technologies.
That's why Dynamics and Dynamics C/S+ were among the first financial management
applications to receive Windows 95 and BackOffice logo compliance certification
from Microsoft.

VISUAL: THIS PAGE CONTAINS THE LOGOTYPES OF GREAT PLAINS DYNAMICS, DYNAMICS C/S+
AND MICROSOFT SQL SERVER.

Dynamics and Dynamics C/S+ are built on a 32-bit architecture that is optimized
for Windows NT and Windows 95.

In addition, Dynamics C/S+ is optimized for the latest releases of Microsoft SQL
Server and includes more than 4,000 stored procedures to enhance distributed
processing, overall performance and data integrity. Our implementation of
Microsoft SQL Server and Windows NT also enhances data accessibility and system
scalability.
We believe that our open, componentized, multi-tier, client/server architecture
is well-suited for the ongoing integration of new technologies.

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<PAGE>

VISUAL: THIS PAGE CONTAINS A PHOTOGRAPH OF DOUGLAS J. BURGUM.

Douglas J. Burgum
Chairman & CEO

I hope this brief overview has given you additional insight into the products
offered by Great Plains Software and the technologies behind them. As I
mentioned at the beginning of this presentation, for more information you can
download specific product demonstrations from this Website Prospectus.
On behalf of everyone at Great Plains Software, thanks for your time and
attention.

System-Wide Features | Dynamics C/S+ | Internet Products
Customization and Integration | Key Technologies | Closing

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<PAGE>

VISUAL: THIS PAGE INCLUDES THE LOTUS SCREENCAM FOR WINDOWS AND MACINTOSH
QUICKTIME LOGOS AT THE TOP OF THEIR RESPECTIVE COLUMNS.

PRODUCT DEMONSTRATIONS

TO DOWNLOAD A DESKTOP MOVIE:
1. Download the compressed file by double clicking on the file's icon. A "Save
File" window will appear.
2. Save the compressed file to your hard drive.
3. Open your Windows Explorer, locate the compressed file, and expand the file
by double clicking on the compressed file's icon.
4. When the file expansion is finished, close the self extract utility window
and locate the expanded file. To view the contents of the expanded file, open
the file by double clicking on the file's icon.

Prior to downloading these product demonstrations, please ensure that you
review the textual version of the Prospectus as set forth in the Paper
Prospectus. You can also review the text of the Paper Prospectus at this
Website Prospectus.

Windows Macintosh
ScreenCam QuickTime
NAVIGATION
Dynamics' flexible navigation makes it easy 602k 2.4m
for users to complete tasks quickly. 2.8 minutes 1.1 minutes
(Text-only version)

CUSTOMIZATION
Dynamics can be customized for preferred 985k n/a
business practices. 4-6 minutes
(Text-only version)

ACCESS TO INFORMATION
Dynamics provides on-demand access to 993k 1.6m
real-time information. 4-6 minutes 7.5 minutes
(Text-only version)

GENERAL LEDGER
Dynamics General Ledger provides on-line, 779k 1.1m
electronic audit trails. 3.6 minutes 5 minutes
(Text-only version)

PAYABLES MANAGEMENT
Dynamics Payables Management handles 849k n/a
complex transactions 4 minutes
with ease.
(Text-only version)

SALES ORDER PROCESSING
Dynamics Sales Order Processing increases 654k 864k
efficiency. 3 minutes 4 minutes
(Text-only version)

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<PAGE>

VISUAL: THE DEMONSTRATION CONSISTS OF AN AUDIO-VIDEO DEMONSTRATION OF
THE COMPANY'S DYNAMICS PRODUCT. THE VIDEO COMPONENT OF THE DEMONSTRATION
CONSISTS OF AN ARROW CURSOR THAT MOVES AROUND THE SCREEN TO HIGHLIGHT ASPECTS OF
THE PARTICULAR DYNAMICS WINDOW THAT IS BEING DISCUSSED BY THE NARRATOR. THE
WINDOWS CHANGE THROUGHOUT THE PRESENTATION TO COINCIDE WITH THE MATTER BEING
DISCUSSED.

NAVIGATION

Dynamics navigation makes it easy for users to complete tasks quickly and
provides a great deal of flexibility so your business can define the way
Dynamics works for you. First, Dynamics is organized by tasks, so if your job is
to enter transactions, click the transactions button. The same goes for
Inquiries, Reports and Cards, or Master Records. Routines and the Work button
are two alternative ways to navigate and we'll cover those in a moment.

VISUAL: THE DYNAMICS TOOL BAR WITH THE TRANSACTIONS MENU OPEN.
CAPTION IN PAPER PROSPECTUS: DYNAMICS IS ORGANIZED BY TASK FOR EASE OF
NAVIGATION.

Let's say your job is to enter General Ledger adjustments. Click the
Transactions button and choose Financials. This is called a palette and it
contains all the transaction tasks for General Ledger. Palettes are handy
because you can move them around the desktop. You can pin them down so they stay
open after you choose a task. You can open multiple palettes so you can see all
the tasks you might need. You can also remove and reorder tasks on the palette
to customize the way you use Dynamics. Once you are inside a task, there is also
another level of navigation available.

VISUAL: THREE DYNAMICS TASK PALETTES, PINNED IN PLACE.
CAPTION IN PAPER PROSPECTUS: TASK PALETTES CAN BE PINNED IN PLACE, AND CAN BE
MODIFIED TO MATCH YOUR BUSINESS PRACTICES.

Let's pick general ledger transaction entry. Click one of the browse buttons to
pull up an existing transaction. These buttons are what we call visual cues and
they let you know that underlying information is available. The note button
attaches a "sticky note." The lookup button means there is a lookup list, and
the expansion button indicates an underlying data entry window. These buttons
are available throughout Dynamics and they help you instantly review the
information you need to complete the task you are on. In other words, you don't
need to return to the palette unless you want to start a task that is not
directly related to what you are doing right now.

VISUAL: A DYNAMICS WINDOW HIGHLIGHTING VISUAL CUES, INCLUDING BROWSE BUTTONS,
STICKY NOTES AND A LOOKUP BUTTON.
CAPTION IN PAPER PROSPECTUS: VISUAL CUES MAKE IT EASY TO LOCATE AND REVIEW
RELATED INFORMATION THROUGHOUT DYNAMICS.

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Another powerful navigation tool is called the drilldown. Drilldowns explode the
kind of information you have at your fingertips by opening related windows
throughout the system. Let's highlight a distribution account and move the
pointer up to the account field. Notice that the pointer turns into a magnifying
glass. That means you can drill down to underlying information.

VISUAL: A DYNAMICS TRANSACTION ENTRY WINDOW WITH A DISTRIBUTION ACCOUNT
HIGHLIGHTED.
CAPTION IN PAPER PROSPECTUS: DRILLDOWNS PROVIDE AN ELECTRONIC AUDIT TRAIL IN
SECONDS.

We click and the account maintenance window appears. From here, you can get the
account and financial information that will lead you to the answers you need. As
you can see, navigating from within task windows is extremely powerful. Let's
close these windows and return to the desktop.

VISUAL: THE DYNAMICS ACCOUNT MAINTENANCE WINDOW IS NOW IN FRONT OF THE
TRANSACTION ENTRY WINDOW.
CAPTION IN PAPER PROSPECTUS: DEEPER LEVELS OF INFORMATION ARE JUST A CLICK AWAY.

Two other buttons help you personalize your navigation, the Routines, and the
Work buttons. Routines allows you to create on-line to-do lists that users can
follow to accomplish a string of tasks. They list the tasks in the order they
are to be completed, and they open the exact window the user needs to complete
the task. They even record the date, time and user for each task. Tasks can be
added, modified, deleted or reprioritized on a checklist, and you can include
outside applications for keystroke macros you have created.

VISUAL: A DYNAMICS CHECKLIST WINDOW.
CAPTION IN PAPER PROSPECTUS: ROUTINE CHECKLISTS PROVIDE ONLINE WORKFLOW
MANAGEMENT.

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The Work button can be defined for each user and can include the most frequently
used tasks each user needs. The work button is a terrific navigation tool if you
have users who may only access a few tasks, and you can add tasks to the Work
button as their responsibilities increase. That's navigation Dynamics style.
That is a powerful advantage to your business.

VISUAL: A PERSONALIZED DYNAMICS WORK BUTTON MENU.
CAPTION IN PAPER PROSPECTUS: THE WORK BUTTON CAN BE PERSONALIZED FOR EACH
INDIVIDUAL, SIMPLIFYING NAVIGATION BY KEEPING ALL THE MOST IMPORTANT TASKS
TOGETHER UNDER ON MENU.

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CUSTOMIZATION
Great Plains Dynamics is inherently customizable so it can work the way you do
instead of the other way around. Let's take a look at some of the customization
capabilities within Dynamics. First I will show you how you can customize
palettes for streamlined navigation.

VISUAL: THE DYNAMICS COMPANY SETUP MENU.
CAPTION IN PAPER PROSPECTUS: DYNAMICS' PALETTES CAN BE CUSTOMIZED TO MIRROR YOUR
BUSINESS PRACTICES.

All palettes can be modified to contain the selections you wish to see, in the
order you wish to see them. You can remove selections your company doesn't use,
and reorder selections, reducing the time it takes you to navigate from one task
to the next.

VISUAL: THE DYNAMICS PALETTE SETUP WINDOW.
CAPTION IN PAPER PROSPECTUS: TASKS CAN BE REMOVED AND REORDERED ON PALETTES,
MAKING IT EASY TO FIND THE MOST IMPORTANT PROCESSES.

You can rename existing selections to fit your specific business. You can even
add external applications such as spreadsheets or word processing programs,
making it easy for you to quickly switch to a different application.

VISUAL: THE DYNAMICS ADD-MODIFY PALETTES WINDOW.
CAPTION IN PAPER PROSPECTUS: EXTERNAL TASKS CAN BE ADDED TO PALETTES TO KEEP
RELATED TASKS TOGETHER.

Now, I'll save all the changes we have made to the palette. Notice the changes
and see how easy it is to access your word processor application directly from
Dynamics.

VISUAL: THE DYNAMICS PALETTE MODIFIED IN THE ABOVE PROCESS.
CAPTION IN PAPER PROSPECTUS: THE MODIFIED PALETTE.

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<PAGE>

In most businesses, individuals within the accounting department are usually
responsible for different functions, such as processing checks or recording
daily invoices. With Dynamics every user can have a menu of their own.
User-defined Work buttons include only the most frequently used tasks and
external applications for each individual.

VISUAL: THE DYNAMICS WORK BUTTON MENU WITHOUT A CALCULATOR.
CAPTION IN PAPER PROSPECTUS: THE WORK BUTTON MAKES IT EASY TO GROUP FREQUENTLY
USED TASKS UNDER ONE MENU.

It is easy to add a task to a Work button. Just select user preferences.

VISUAL: THE DYNAMICS USER PREFERENCES WINDOW.
CAPTION IN PAPER PROSPECTUS: EACH USER CAN HAVE HIS OR HER OWN PERSONALIZED WORK
BUTTON.

Click on the Work button, and select to Add a new task. Name the item, select
external task and locate the task.

VISUAL: THE DYNAMICS ADD-MODIFY WORK MENU WINDOW.
CAPTION IN PAPER PROSPECTUS: BOTH DYNAMICS WINDOWS AND EXTERNAL TASKS CAN BE
INCLUDED UNDER THE WORK BUTTON.

Save your changes and there it is. The calculator has been added to your
personal Work button.

VISUAL: THE DYNAMICS WORK BUTTON MENU WITH THE CALCULATOR.
CAPTION IN PAPER PROSPECTUS: THE PERSONALIZED WORK BUTTON.

A-28

<PAGE>

ACCESS TO INFORMATION

Dynamics gives you on-demand access to information, so you can get at the exact
information you need, when you need it. Let's see how a data entry person can
view multiple levels of detail while helping a customer. All the windows you
will see are linked together, but you can also get at any of these windows by
using the conventional menus and palettes. Here's the transaction entry window
for Sales Order Processing. By using the browse buttons, we can look at all the
transactions that have been entered into the system.

VISUAL: A DYNAMICS SALES TRANSACTION ENTRY WINDOW.
CAPTION IN PAPER PROSPECTUS: RELATED INFORMATION IS JUST A CLICK AWAY THROUGHOUT
DYNAMICS.

Let's select the transaction for a backorder for Leisure Travel to demonstrate a
few ways you can get at the information. By looking at the customer field, we
can click on the expansion button and see more detailed information about that
customer. The buttons at the bottom allow us to look at more detailed
information about that customer, such as their current activity.

VISUAL: THE DYNAMICS SALES CUSTOMER DETAIL ENTRY WINDOW.
CAPTION IN PAPER PROSPECTUS: DETAILED CUSTOMER INFORMATION IN INSTANTLY
AVAILABLE IN SALES ENTRY.

By clicking on the activity button we can look at the detailed transactions that
have been entered in for that customer. We also have various ways to restrict
looking at the transactions, such as by date. If we only want to look at the
transactions that occurred on January 30, we would simply restrict the two
dates, or "from" and "to" dates to the January 30 date. We would display the
transaction and we would see the payments and the sales orders that have been
entered for that customer.

VISUAL: THE DYNAMICS RECEIVABLES TRANSACTION INQUIRY WINDOW.
CAPTION IN PAPER PROSPECTUS: IT'S EASY TO REVIEW CURRENT ACTIVITY FOR A
CUSTOMER, TO ANSWER QUESTIONS OR TO CHECK CREDIT HISTORY.

A-29

<PAGE>

The two-line expansion button allows us to look at more information about that
transaction. By highlighting the transaction, we also have another way to look
at more information about that particular transaction. By going to the document
number field, we can drill down in Dynamics and look at the actual data entry
screen that the data entry operator used to enter that transaction.

VISUAL: THE DYNAMICS RECEIVABLES TRANSACTION INQUIRY WINDOW WITH A TRANSACTION
HIGHLIGHTED.
CAPTION IN PAPER PROSPECTUS: DRILLING DOWN TO DEEPER LEVELS OF DETAIL PROVIDES
COMPLETE, ACCURATE INFORMATION IN SECONDS.

This provides you with detailed level information about that transaction that
was entered in by the data entry operator and provides you information you
need, when you need it. This drilldown concept is available throughout
Dynamics providing you with the power of access to information you need when
you need it.

VISUAL: THE DYNAMICS RECEIVABLES TRANSACTION INQUIRY WINDOW SHOWING THE ORIGINAL
TRANSACTION AS IT WAS ENTERED.
CAPTION IN PAPER PROSPECTUS: IN DYNAMICS, YOU CAN INSTANTLY DRILL DOWN TO THE
ORIGINATING TRANSACTION FOR COMPLETE DETAIL AT ANY TIME.

A-30

<PAGE>

VISUAL: THE DEMONSTRATION CONSISTS OF A REAL-TIME AUDIO-VIDEO DEMONSTRATION OF
THE COMPANY'S DYNAMICS PRODUCT. THE VIDEO COMPONENT OF THE DEMONSTRATION
CONSISTS OF AN ARROW CURSOR THAT MOVES AROUND THE SCREEN TO HIGHLIGHT ASPECTS OF
THE PARTICULAR DYNAMICS WINDOW THAT IS BEING DISCUSSED BY THE NARRATOR. THE
WINDOWS CHANGE THROUGHOUT THE PRESENTATION TO COINCIDE WITH THE MATTER BEING
DISCUSSED.

GENERAL LEDGER

On-demand access to information is especially important to general ledger audit
trails. This demonstration will show you how Great Plains Dynamics provides an
electronic audit trail that instantly and easily leads you to the answers you
are looking for. For example, let's drill down on this sales account.

VISUAL: THE DYNAMICS GENERAL LEDGER ACCOUNT MAINTENANCE WINDOW.
CAPTION IN PAPER PROSPECTUS: THE GENERAL LEDGER ACCOUNT MAINTENANCE WINDOW.

Looking at the account record, you can click on the summary button, pick a year
to review, and instantly see the period balances or the net change. You can
choose a period, then drill down on the balance for more information. Did you
notice the pointer change to a magnifying glass? That means there is more
information available for that field.

VISUAL: A DYNAMICS ACCOUNT SUMMARY WINDOW.
CAPTION IN PAPER PROSPECTUS: THE ACCOUNT SUMMARY WINDOW SHOWS PERIOD BALANCES
FOR THIS ACCOUNT.

This underlying window shows the general ledger transactions that make up the
balance we saw on the summary window. But sometimes you need to see further into
the transaction, before the transaction was posted to general ledger. This
Dynamics capability can be a crucial advantage during audit type inquiries.

VISUAL: A DYNAMICS DETAIL INQUIRY WINDOW.
CAPTION IN PAPER PROSPECTUS: DETAIL INQUIRY DISPLAYS EACH JOURNAL ENTRY THAT
MAKES UP THE PERIOD BALANCE.

A-31

<PAGE>

First, we drill down on the journal entry, and we see all of the other posting
accounts in this transaction. Now we want to show the source document, so we
click here and there it is.

VISUAL: A DYNAMICS TRANSACTION ENTRY WINDOW.
CAPTION IN PAPER PROSPECTUS: AN INDIVIDUAL JOURNAL ENTRY SHOWS HOW THE
TRANSACTION APPEARED AS IT WAS POSTED TO GENERAL LEDGER.

An entire audit trail search. Instant, easy, without referring to a single piece
of paper. That's the power of on-demand access to information.

VISUAL: A DYNAMICS SALES TRANSACTION INQUIRY WINDOW SHOWING THE ORIGINATING
SALES TRANSACTION.
CAPTION IN PAPER PROSPECTUS: THE ORIGINATING SALES TRANSACTION COMPLETES THE
ELECTRONIC AUDIT TRAIL.

A-32

<PAGE>

PAYABLES MANAGEMENT

Dynamics Payables Management handles all the payables functionality you'd
expect. For example, if your business occasionally uses a company credit card to
pay off vendor balances, payables management can greatly simplify the process
for tracking this type of transaction. To do this, we begin in manual payments.
Select the vendor, choose credit card as the payment method, select the credit
card from the lookup window and enter the vendor's balance and a comment for
later reference.

VISUAL: THE DYNAMICS PAYABLES MANUAL PAYMENT ENTRY WINDOW.
CAPTION IN PAPER PROSPECTUS: CREDIT CARD PAYMENTS ARE EASY THROUGH MANUAL
PAYMENT ENTRY.

We then apply the payment by selecting the vendor's outstanding voucher. When
the transaction is posted, the invoice for Burnett Travel will be paid off and a
new invoice will automatically be created on your American Express.

VISUAL: THE DYNAMICS PAYABLES MANUAL PAYMENT ENTRY WINDOW SHOWING THE PAYMENT
BEING APPLIED.
CAPTION IN PAPER PROSPECTUS: SIMPLY APPLY THE PAYMENT TO THE OUTSTANDING
INVOICE(S).

Let me show you how that transaction would look in one of the many payables
management inquiry windows you can use. You can immediately view online the new
transaction for American Express.

VISUAL: THE DYNAMICS PAYABLES TRANSACTION INQUIRY WINDOW.
CAPTION IN PAPER PROSPECTUS: PAYABLES TRANSACTION INQUIRY MAKES IT EASY TO
REVIEW TRANSACTIONS AFTER THEY'VE BEEN ENTERED.

A-33

<PAGE>

Another example of Payables Management flexibility is the ability to hold
payment for individual vendors or transactions. This is valuable whenever you
question a charge or if you wish to hold a payment from a vendor. You can still
post transactions that don't involve payment; however, the hold status prevents
payment until the hold is removed.

VISUAL: THE DYNAMICS VENDOR MAINTENANCE WINDOW SHOWING A SINGLE VENDOR.
CAPTION IN PAPER PROSPECTUS: DYNAMICS ENABLES YOU TO HOLD PROCESSING FOR ANY
VENDOR...

Here's an example of how you can place an individual transaction on hold. As you
can see, Dynamics Payables Management handles even complicated transactions.

VISUAL: THE DYNAMICS HOLD PAYABLES WINDOW SHOWING A SPECIFIC TRANSACTION PLACED
ON HOLD.
CAPTION IN PAPER PROSPECTUS: ...OR ANY SPECIFIC TRANSACTION, FOR COMPLETE
PAYABLES CONTROL.

A-34

<PAGE>

SALES ORDER PROCESSING

Dynamics Sales Order Processing increases efficiency by allowing you to create
quotes and orders that can be used many times. These repeating orders are
particularly useful for customers who routinely order the same items, allowing
you to process orders faster and more consistently.

VISUAL: THE DYNAMICS SALES TRANSACTION ENTRY WINDOW.
CAPTION IN PAPER PROSPECTUS: SALES TRANSACTION ENTRY MAKES IT EASY TO SET UP
REPEATING ORDERS.

For example, let's assume you have a customer who has purchased an annual
service plan and you have agreed to bill them across twelve months for the total
of the plan. Rather than creating a new invoice each month for the customer, you
can create a repeating quote.

VISUAL: THE DYNAMICS SALES TRANSACTION ENTRY WINDOW SORTED BY DOCUMENT NUMBER.
CAPTION IN PAPER PROSPECTUS: REPEATING QUOTES CAN BE TRANSFERRED TO ORDERS AT
ANY TIME.

Sales Order Processing allows you to define the number of times you'll use this
quote and how often. The system automatically tracks for you the number of times
the quote has been repeated.

VISUAL: THE DYNAMICS SALES DOCUMENT ENTRY WINDOW WITH "MONTHLY" HIGHLIGHTED.
CAPTION IN PAPER PROSPECTUS: DYNAMICS TRACKS THE REPEATING DETAILS.

A-35

<PAGE>

As you transfer the quote to an order or invoice each month, the quote will
remain in the system so that you can use it over and over again. This is just
one of the many ways Dynamics will increase your efficiency and productivity.

VISUAL: THE DYNAMICS SALES TRANSACTION ENTRY WINDOW SHOWING THE REPEATING ORDER.
CAPTION IN PAPER PROSPECTUS: THE REPEATING ORDER.

A-36

<PAGE>

VISUAL: THE GREAT PLAINS SOFTWARE LOGO APPEARS AT THE TOP LEFT OF THE PAGE.

Great Plains Software
P.O. Box 9739
Fargo, ND 58109-9739

Copyright Great Plains Software, Inc. 1997. All rights reserved. All
trademarks mentioned herein belong to their respective owners. Unless
identified with the designation "Copy Freely", the contents of this website
is copyrighted by Great Plains Software, Inc. Great Plains Software hereby
authorizes you to copy documents published by Great Plains Software on the
World Wide Web for non-commercial use within your organization only. In
consideration of this authorization, you agree that any copy of these
documents you make shall retain all copyright and other proprietary notices
contained herein.

You may not otherwise copy or transmit the contents of this website either
electronically or in hard copies. You may not alter the content of this
website in any manner.

Individual documents published by Great Plains Software on the World Wide Web
may contain other proprietary notices and copyright information specific to
that individual document. Nothing contained herein shall be construed as
conferring by implication, estoppel or otherwise any license or right under
any patent, trademark or other property right of Great Plains Software or any
third party. Except as expressly provided above nothing contained herein
shall be construed as conferring any license or right under any copyright or
other property right of Great Plains Software or any third party. Note that
any product, process, or technology in this document may be the subject of
other intellectual property rights reserved by Great Plains Software and may
not be licensed here under.

A-37

<PAGE>
Graphic and Text Appearing on Inside Back Cover of Prospectus:

This page contains a picture of a hand with the index finger pointing
upward. In circular patterns, emanating from the point of the index finger
are the following words and phrases: Windows NT; Client/Server; Leading
Technologies; Windows 95; Customer Service; Internet; SQL Server; Ease of
Use; Partner Network; Openness; Global Markets. Also, in rows across the
page, are repeating patterns of 0 1 0 1.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................................... 3
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 27
Management................................................................ 41
Certain Transactions...................................................... 51
Principal Shareholders.................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Legal Matters............................................................. 57
Experts................................................................... 57
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
Appendix A--World Wide Web Site........................................... A-1
</TABLE>

THROUGH AND INCLUDING JULY 14, 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

3,000,000 SHARES

GREAT PLAINS SOFTWARE, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
--------------

[LOGO]
--------------

GOLDMAN, SACHS & CO.

HAMBRECHT & QUIST

PIPER JAFFRAY INC.

REPRESENTATIVES OF THE UNDERWRITERS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE COVER PAGE]

[LOGO]

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The Common Stock is quoted on the Nasdaq National Market under the symbol
"GPSI."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales of the shares of Common Stock related to
market-making transactions, at prevailing prices, related prices or negotiated
prices. The Company will not receive any of the proceeds of such sales. Goldman,
Sachs & Co. may act as a principal or agent in such transactions. The closing of
the Offering referred to herein, which constituted the initial public offering
of the shares of Common Stock of the Company, occurred on , 1997.
See "Plan of Distribution".

GOLDMAN, SACHS & CO.

---------

The date of this Prospectus is , 1997.
<PAGE>
[ALTERNATE PAGE--REPLACES UNDERWRITING PAGES]

PLAN OF DISTRIBUTION

This Prospectus may be used by Goldman, Sachs & Co. in connection with
offers and sales related to market-making transactions in shares of Common Stock
effected from time to time after the commencement of the offering. Goldman,
Sachs & Co. may act as principal or agent in such transactions, including as
agent for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.

For a description of certain relationships and transactions between Goldman,
Sachs & Co. and their affiliates and the Company, see "Management," "Certain
Transactions" and "Principal Shareholders".

The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make a
market in the Common Stock following completion of the offering. However, they
are not obligated to do so and any market-making may be discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained. See "Risk
Factors--No Prior Market; Possible Volatility of Stock Price".

Goldman, Sachs & Co. have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority
without the prior specific written approval of such transactions by the
customer.

The Company has agreed to indemnify Goldman, Sachs & Co. with respect to
certain liabilities in connection with this Prospectus, including liabilities
under the Securities Act.

U-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

[ALTERNATE BACK COVER]

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................................... 3
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 27
Management................................................................ 41
Certain Transactions...................................................... 51
Principal Shareholders.................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Legal Matters............................................................. 57
Experts................................................................... 57
Index to Consolidated Financial Statements................................ F-1
Plan of Distribution...................................................... U-1
</TABLE>

GREAT PLAINS SOFTWARE, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

[LOGO]
--------------

GOLDMAN, SACHS & CO.

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