INFORMIX CORP, 424B3, 1998-05-13

INFORMIX CORP
424B3, 1998-05-13
PREPACKAGED SOFTWARE

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<PAGE>

FILED PURSUANT TO RULE 424(B)(3)

REGISTRATION NO. 333-43991

PROSPECTUS

22,950,000 SHARES

[LOGO]

COMMON STOCK
-------------------

This Prospectus relates to an aggregate of 22,950,000 shares (the "Shares")
of Common Stock, $0.01 par value, of Informix Corporation ("Informix" or the
"Company") which may be offered and sold from time to time by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Selling Stockholders acquired shares of the Company's
Series B Convertible Preferred Stock (the "Series B Preferred") on November 17,
1997. The Shares are issuable upon conversion of the Series B Preferred and upon
exercise of certain warrants (the "Warrants") to purchase shares of Common Stock
to be granted upon conversion of the Series B Preferred. In general, the Series
B Preferred is not convertible prior to May 18, 1998. The number of Shares
issuable upon conversion of the Series B Preferred is presently indeterminate
and will depend on the trading price of the Common Stock in the period prior to
conversion. The number of Shares registered for sale hereunder has been
calculated based on an assumed Series B Preferred conversion price of $4.00.
Pursuant to the terms of an agreement between the Company and certain of the
Selling Stockholders, the Company is registering for resale under this
Prospectus 150% of the number of shares of Common Stock issuable upon conversion
of the Series B Preferred, based on an assumed conversion price of $4.00, and
upon exercise of the Warrants. The Shares also include 100,000 shares of Common
Stock issued to a financial advisor to the Company in connection with the sale
of the Series B Preferred and 50,000 shares of Common Stock issuable upon
exercise of a warrant to be issued to such financial advisor if the closing
sales price of the Company's Common Stock as reported on The Nasdaq Stock Market
does not exceed $12.50 on May 17, 1997. See "Description of Capital Stock."

In addition, pursuant to Rule 416 of the Securities Act of 1933, as amended
(the "Securities Act"), this Prospectus also relates to such additional number
of Shares as may become issuable upon conversion of the Series B Preferred or
exercise of the Warrants as a result of, among other things, stock splits, stock
dividends, mergers or other business combinations or reclassifications. The
conversion price of the Series B Preferred is also subject to adjustment in the
event (i) the Company makes any distributions or partial distributions of its
assets to holders of Common Stock, (ii) the Company or a potential acquiror
makes a public announcement relating to a change-of-control transaction
involving the Company or (iii) the Company fails to meet certain of its
contractual obligations concerning the registration of the Shares and the
listing of the Shares on The Nasdaq Stock Market. See "Description of Capital
Stock--Preferred Stock." Any conversion price adjustment relating to a
distribution of the Company's assets will be determined by a third-party
valuation of such distributed assets. Potential conversion price adjustments
relating to a change-of-control announcement or contractual breach will depend
upon the price of the Company's Common Stock in the period prior to such event.

The Selling Stockholders may sell the Shares from time to time in
transactions on the Nasdaq National Market, in negotiated transactions or by a
combination of these methods, at fixed prices that may be changed, or at market
prices. The Selling Stockholders may effect these transactions by selling the
Shares to or through broker-dealers, who may receive compensation in the form of
discounts or commissions from the Selling Stockholders or from the purchasers of
the Shares for whom the broker-dealers may act as an agent or to whom they may
sell as a principal, or both. See "Principal and Selling Stockholders" and "Plan
of Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Shares in respect of which this Prospectus is being
delivered and the applicable agent's commission, dealer's purchase price or
underwriter's discount, if any, will be set forth in an accompanying supplement
to this prospectus (a "Prospectus Supplement").

The Selling Stockholders will receive all of the net proceeds from the sale
of Shares held by them and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the Shares. The Company is
responsible for payment of all other expenses incident to the offer and sale of
the Shares. The Selling Stockholders and any broker/dealers, agents or
underwriters which participate in the distribution of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commissions, discounts or concessions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Company will not receive
any of the proceeds from the sale of the Shares.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "IFMX." On May 12, 1998, the last reported sale price of the Common Stock
was $8.4375 per share. See "Price Range of Common Stock."

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

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

THE DATE OF THIS PROSPECTUS IS MAY 12, 1998

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 6
Capitalization............................................................................................. 25
Selected Consolidated Financial Data....................................................................... 26
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 27
Business................................................................................................... 48
Management................................................................................................. 61
Certain Transactions....................................................................................... 78
Principal and Selling Stockholders......................................................................... 81
Description of Capital Stock............................................................................... 84
Plan of Distribution....................................................................................... 89
Legal Matters.............................................................................................. 90
Experts.................................................................................................... 90
Index to Financial Statements.............................................................................. F-1
</TABLE>

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

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. 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 THE DATE
HEREOF.
<PAGE>
ADDITIONAL INFORMATION

The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Northwestern
Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, and through the National Association of Securities Dealers, Inc. located
at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as a part thereof. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete. In each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, and each
such statement is qualified in all respects by such reference. The Registration
Statement may be inspected at the locations indicated above.

FORWARD LOOKING STATEMENTS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT.
DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE
MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS" AS WELL AS IN THE PROSPECTUS GENERALLY. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS, WHICH PROSPECTIVE INVESTORS SHOULD
REVIEW CAREFULLY.

TRADEMARKS

This Prospectus contains trademarks and trade names of Informix and other
companies.

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. DISCUSSIONS CONTAINING SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER
"PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS IN THE
PROSPECTUS GENERALLY. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.

THE COMPANY

Informix Corporation ("Informix" or the "Company") is a leading
multinational supplier of information management software. The Company designs,
develops, manufactures, markets and supports relational database management
systems ("RDBMS"), connectivity interfaces and gateways and application
development tools for graphical and character-based software applications as
part of an RDBMS. Database management software permits multiple individual
users, employing different application software, to access and manage the same
data concurrently without corrupting the underlying database. RDBMS software
extends the functionality and utility of non-relational database management
software by simplifying the data retrieval process for end-users, who do not
require specific knowledge about the structure of the database but need only to
specify the data to be retrieved. Companies commonly employ RDBMS software for
use in storing, managing and retrieving the large amounts of data necessary to
support internal management information and decision-support systems as well as
mission-critical data processing applications.

The Company believes that technological advances, including the development
and commercialization of the Internet, will lead to increasingly sophisticated
customer requirements for data storage and management beyond the functionality
offered by conventional RDBMS products. In recent years, the types and
quantities of data required to be stored and managed has grown increasingly
complex and includes, in addition to conventional character data, audio, video,
text and three dimensional graphics. In 1996, the Company focused substantial
resources in the development of object-relational database management systems
("ORDBMS") and tools for applications in multimedia and entertainment, digital
media publishing and financial services.

The Company markets its products to end-users on a worldwide basis directly
through its sales force and indirectly through application resellers, original
equipment manufacturers ("OEMs") and distributors. The principal geographic
markets for the Company's products are North America, Europe, the Asia/ Pacific
region and Latin America. In recent years, approximately half of the Company's
total revenues have been generated outside North America. The Company's
principal customers include businesses ranging from small corporations to
Fortune 1000 companies, principally in the manufacturing, financial services,
telecommunications, media, retail/wholesale, hospitality and government services
sectors.

The Company was initially incorporated in California in 1980 and
reincorporated in Delaware in August 1986. Unless the context otherwise
requires, references in this Prospectus to "Informix" and the "Company" refer to
Informix Corporation, a Delaware corporation and, except as otherwise indicated,
its subsidiaries. The Company's executive offices are located at 4100 Bohannon
Drive, Menlo Park, California 94025, and its telephone number at that address is
(650) 926-6300.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock outstanding prior to the offering................... 152,587,051 shares (1)
Common Stock offered by the Selling Stockholders related to
Series B Preferred............................................. 15,250,000 shares (3)
180,606,959 shares
Common Stock to be outstanding after the offering................ (2)(3)
Nasdaq National Market symbol.................................... IFMX
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1993
-------- 1996 1995 1994 --------
---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
<C> <C> <C> <C> <C>
STATEMENT
OF
OPERATIONS
DATA:
Net
revenues... $663,892 $734,540 $636,547 $451,969 $353,115
Operating
income
(loss)... (355,742) (61,326) 68,725 77,229 83,925
Net
income
(loss)... (356,867) (73,565) 38,600 48,293 54,989
Net
income
(loss)
per
share... $ (2.36) $ (0.49) $ 0.26 $ 0.34 $ 0.40
Weighted
average
number
of
common
and
common
equivalent
shares
outstanding... 151,907 149,310 150,627 142,782 137,827
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------
PRO FORMA
ACTUAL ADJUSTED(2)(4)
--------- ---------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........................... $ 155,465 $ 169,565
Working deficit............................................................. (140,148 (5) (126,048)(5)
Total assets................................................................ 563,244 577,344
Long-term obligations....................................................... 6,311 6,311
Stockholders' equity........................................................ 59,064 73,164
</TABLE>

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

(1) Based upon shares outstanding as of December 31, 1997. Excludes (i)
19,110,951 shares of Common Stock issuable upon exercise of options
outstanding at December 31, 1997 under the Company's 1986 Employee Stock
Option Plan, 1994 Stock Option and Award Plan, 1997 Non-Statutory Stock
Option Plan, the 1992 Illustra Stock Option Plan and 1989 Outside Director
Option Plan at a weighted average exercise price of $7.9906 (without giving
effect to the option repricing in January 1998) and (ii) 8,654,476 shares of
Common Stock reserved at December 31, 1997 for future issuance under the
1994 Stock Option and Award Plan, the 1997 Non-Statutory Stock Option Plan,
the 1989 Outside Director Option Plan and the 1997 Employee Stock Purchase
Plan. See "Management--Stock Plans," "Description of Capital Stock" and Note
7 of Notes to Consolidated Financial Statements.

(2) Includes 12,769,908 shares of Common Stock issued upon conversion of 220,000
shares of Series A-1 Convertible Preferred Stock (the "Series A-1
Preferred") on February 13, 1998. See "Preferred and Selling Stockholders"
and "Description of Capital Stock--Preferred Stock."

(3) Assumes 12,500,000 shares of Common Stock issued upon conversion of the
Series B Preferred and 2,700,000 shares of Common Stock issued upon exercise
of the Warrants, in each case based upon an assumed Series B Preferred
conversion price of $4.00. Also assumes payment of accrued dividends to
holders of Series B Preferred in cash and not in shares of Common Stock. If
the Company were to elect to make payment of such dividends in Common Stock,
the number of shares of Common Stock outstanding after the offering would
increase. See "Description of Capital Stock--Preferred Stock," and assumes
the exercise of a warrant to purchase up to 50,000 shares of Common Stock
issuable to Shemano in the event the closing sales price of the Company's
Common Stock as reported on The Nasdaq Stock Market on May 17, 1998 does not
exceed $12.50 (the "Shemano Warrant"). See "Certain Transactions."

(4) Pro forma adjusted to give effect to (i) the conversion of the Series B
Preferred at an assumed conversion price of $4.00 into 12,500,000 shares of
Common Stock and Warrants to acquire 2,700,000 shares of Common Stock,
assuming no exercise of the Warrants, and (ii) the assumed grant of the
Shemano Warrant, and assuming no exercise of the Shemano Warrant. See
"Description of Capital Stock--Preferred Stock," "Certain Transactions" and
Note 6 of Notes to Consolidated Financial Statements.

(5) Includes $180,048 million in advances from customers and financial
institutions. See "Risk Factors--Working Capital Deficit," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 2 of Notes to Consolidated Financial Statements.
------------------------------

EXCEPT AS OTHERWISE NOTED, ALL INFORMATION AND DATA IN THIS PROSPECTUS
RELATING TO THE COMPANY'S OUTSTANDING COMMON STOCK ASSUMES THE CONVERSION OF ALL
OUTSTANDING SERIES B PREFERRED INTO 12,500,000 SHARES OF COMMON STOCK, BASED ON
AN ASSUMED SERIES B PREFERRED CONVERSION PRICE OF $4.00, THE GRANT AND EXERCISE
OF THE WARRANTS TO PURCHASE 2,700,000 SHARES OF COMMON STOCK AND THE GRANT AND
EXERCISE OF THE SHEMANO WARRANT. SUCH INFORMATION AND DATA RELATED TO THE
COMPANY'S COMMON STOCK AT DECEMBER 31, 1997 ALSO ASSUMES THAT THE FEBRUARY 1998
CONVERSION OF 220,000 SHARES OF SERIES A-1 PREFERRED INTO 12,764,908 SHARES OF
COMMON STOCK OCCURRED ON OR PRIOR TO DECEMBER 31, 1997. SEE "DESCRIPTION OF
CAPITAL STOCK-- PREFERRED STOCK" AND "--REGISTRATION RIGHTS."

5
<PAGE>
RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN, OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS. IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION PRESENTED IN
THIS PROSPECTUS.

UNCERTAIN IMPACT OF RESTATEMENT OF FINANCIAL STATEMENTS

Subsequent to the filing with the Commission of its Quarterly Report of Form
10-Q for the quarter ended March 30, 1997, the Company became aware of errors
and irregularities that ultimately affected the timing and dollar amount of
reported earned revenues from license transactions for all annual periods in the
three years ended December 31, 1996, in particular transactions involving
unauthorized or undisclosed arrangements or agreements with resellers. As a
result of its investigation into these errors and irregularities, in August
1997, the Company announced that it would restate its financial results for
fiscal 1996 and 1995. The financial review undertaken by the Company to
determine the extent of the restatement ultimately resulted in the restatement
of the Company's financial results for fiscal 1996, 1995 and 1994 and for the
first quarter of fiscal 1997. The Company publicly disclosed the results of the
restatement in November 1997.

The errors and irregularities identified in connection with the Company's
investigation and the restatement included unauthorized and undisclosed
arrangements or agreements between Company personnel and resellers, recognition
of revenue on certain transactions in reporting periods prior to contract
acceptance, the recording of certain transactions that lacked economic substance
and the recording of maintenance revenue as license revenue. The unauthorized
and undisclosed agreements with resellers introduced acceptance contingencies,
permitted resellers to return unsold licenses for refunds, extended payment
terms or committed the Company to assist resellers in selling the licenses to
end-users. Accordingly, license revenues from these transactions that were
recorded at the time product was delivered to resellers should have instead been
recorded at the time all conditions to the sale lapsed. Because of the
pervasiveness of the unauthorized arrangements with resellers in the 1994, 1995
and 1996 accounting periods, the Company concluded that all revenue from license
agreements with resellers, except for those licenses sold and billed on a per
copy basis, should be recognized only when the licenses were resold or utilized
by resellers and all related obligations had been satisfied. In addition,
amounts received from resellers or financial institutions as prepayments of
software license fees in advance of revenue recognition should be recorded as
advances on unearned license revenue. The financial review undertaken by the
Company resulted in the restatement of the Company's financial results for
fiscal 1996, 1995 and 1994 and for the first quarter of fiscal 1997. The Company
publicly disclosed the results of the restatement in November 1997.

As a result of the restatement, total revenues were reduced from amounts
previously reported by $204.8 million from $939.3 million as originally reported
to $734.5 million, by $77.7 million from $714.2 million as originally reported
to $636.5 million and by $18.1 million from $470.1 million as originally
reported to $452.0 million for fiscal 1996, 1995, and 1994, respectively. The
restatement also resulted in an increase in revenues of $16.2 million from
$133.7 million as originally reported to $149.9 million for the first quarter of
fiscal 1997. In addition, the restatement resulted in a reduction in net income
of $171.4 million from $97.8 million as originally reported to a loss of $73.6
million for fiscal 1996; a reduction in net income of $59.0 million from $97.6
million as originally reported to $38.6 million for fiscal 1995; and a reduction
in net income of $13.6 million from $61.9 million as originally reported to
$48.3 million for fiscal 1994. The restatement had a material adverse effect on
the Company's financial condition, most notably evidenced by substantial
reductions in retained earnings and working capital. At December 31, 1996, after
giving effect to the restatement, the Company's working capital decreased $255.3
million from $258.4 million as originally reported to $3.1 million. At December
31, 1997, the Company had a working

6
<PAGE>
capital deficit of $140.2 million. The substantial reductions in working capital
at December 31, 1997 and 1996 reflect substantial operating losses and the
addition of "advances from customers and financial institutions" as a current
liability on the Company's balance sheet. Such advances totaled $180.0 million
at December 31, 1997 and $239.5 million at December 31, 1996. See "--Working
Capital Deficit" and "Management's Discussion and Analysis of Financial
Condition and Result of Operations."

In connection with the errors and irregularities discussed above, a number
of conditions which collectively represented a material weakness in the
Company's internal accounting controls were identified. These conditions
included a deterioration in the Company's accounting controls at corporate and
regional management levels, and a related failure to stress the importance of
these controls, an inappropriate level of influence, principally by the
Company's sales organization, over the revenue recognition process and an
apparent lack of clarity and consistent understanding within the Company
concerning the application of the Company's revenue recognition policies to
large, complex reseller license transactions. To address the material weakness
represented by these conditions, the Company is implementing a plan to
strengthen the Company's internal accounting controls. This plan includes
updating the Company's revenue recognition policies regarding accounting and
reporting for large, complex reseller license transactions, developing and
conducting educational programs to help implement such policies, changing the
Company's corporate and regional accounting and reporting structure and
re-establishing the internal audit function reporting to the Company's Board of
Directors. Such implementation is expected to require substantial management
attention. See "-- Dependence on Key Personnel; Personnel Changes; Ability to
Recruit Personnel."

The Company's public announcement of the pending restatement, delays in
reporting operating results for the second and third quarters of fiscal 1997
while the restatement was being compiled, threatened de-listing of the Company's
Common Stock from the Nasdaq National Market as a result of the Company's
failure to satisfy its public reporting obligations, corporate actions to
restructure operations and reduce operating expenses, and customer uncertainty
regarding the Company's financial condition adversely affected the Company's
ability to sell its products in fiscal 1997. In addition, since the beginning of
fiscal 1997, the Company and its competitors in the RDBMS industry have
experienced substantially slower growth in the market for RDBMS products. The
financial restatement has now been completed, its results have been publicly
disclosed, and the Company is current with respect to its public reporting
obligations. In addition, the Company believes that it has effectively
controlled its operating expenses and significantly improved its financial
condition. Nevertheless, adverse market conditions, including significant
competitive measures in the Company's markets and ongoing customer uncertainty
about the Company's financial condition and business prospects may continue to
have an adverse effect on the Company's ability to sell its products and results
of operations. See "--Fluctuations in Quarterly Results; Seasonality."

NEED FOR ADDITIONAL FINANCING; CUSTOMER FINANCING

During fiscal 1997, the Company experienced substantial short-term liquidity
problems as its cash, cash equivalents and short term investments declined to a
quarter-end low of $104.4 million at June 29, 1997 from $261.0 million at
December 31, 1996. The Company raised net proceeds of $37.6 million in August
1997 and $50.0 million (excluding a $1.0 million fee paid to a financial advisor
of the Company) in November 1997 in separate financing transactions in which the
Company issued newly authorized series of convertible Preferred Stock. In the
fourth quarter of 1997, the Company raised aggregate net proceeds of $59.3
million through the sale of real property it had purchased earlier in the year.
As a result of such financing activities during the second half of 1997, the
Company's cash, cash equivalents and short term investments increased to $155.5
million at December 31, 1997. In addition, in the first quarter of fiscal 1998,
the Company raised aggregate net proceeds of $14.1 million in connection with
the exercise of a warrant to acquire additional shares of the Company's
convertible Preferred Stock. The Company believes that these actions have
substantially improved its financial condition since early 1997. Nevertheless,

7
<PAGE>
adverse market conditions, including continued slower growth rates in the
markets for RDBMS products or on-going customer uncertainty about the Company's
financial condition and business prospects, could continue to have an adverse
effect on license revenues and results of operations. In addition, recent
instability in the Asian-Pacific economies and financial markets, which
accounted for approximately 12% and 13% of the Company's total revenues for the
years ended December 31, 1997 and 1996, respectively, has created further
uncertainty concerning the Company's revenues, cash flows and results of
operations.

In December 1997, Informix Software, Inc., a Delaware corporation and the
Company's principal operating subsidiary ("Informix Software"), entered into a
Senior Secured Credit Agreement with a syndicate of commercial banks, including
BankBoston, N.A. as administrative agent and Canadian Imperial Bank of Commerce
as syndication agent, providing for a revolving credit facility of up to $75
million (the "Credit Facility"). The actual amount available under the Credit
Facility, for either direct borrowings or issuances of letters of credit, is
based on 80% of the eligible domestic accounts receivable and 50% of the
eligible foreign accounts receivable, which are measured on a revolving basis.
Accounts receivable for an account debtor are ineligible for purposes of the
Credit Facility when (a) such account receivable is outstanding for longer than
60 days, (b) the account debtor or any other person obligated to make payment
thereon asserts any defense, offset, counterclaim or other right to avoid or
reduce the amount of the account receivable, but only to the extent the lenders
reasonably determine a valid defense, offset, counterclaim or other right exists
and then only to the extent of such right, (c) the account debtor or other
person required to make payment thereon is insolvent, subject to bankruptcy or
receivership proceedings or has made an assignment for the benefit of creditors
or whose credit standing is unacceptable to the lenders, and the lenders have so
notified the Company (d) the account debtor is a lender under the Credit
Facility, (e) 30% or more of the accounts receivable of any account debtor is
deemed ineligible because such accounts are outstanding for longer than 60 days
thus rendering all the accounts receivable of that debtor ineligible, and (f)
the lender reasonably deems not to qualify an account receivable as eligible and
provides a reasonably detailed written explanation to the Company. Under the
Credit Facility, foreign accounts receivable that are backed by a letter of
credit issued or confirmed by a financial institution approved by the lenders
are deemed to be domestic accounts receivable. As a result, the aggregate amount
available under the Credit Facility will vary from time to time based on the
amount and eligibility of the Company's receivables. As of December 31, 1997, no
borrowings were outstanding under the Credit Facility, the Company's accounts
receivable totalled $142.0 million and its borrowing base was approximately $47
million.

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Company's November 1997 restatement of its financial statements, capitalized
software costs, capital expenditures or cash outlays in respect of accrued
expenses arising from restructuring charges (but which income figure does take
into account depreciation and amortization expenses), (e) maintain an interest
coverage ratio of 1.25 to 1.00 in respect of quarterly operating cash flow to
interest expense plus scheduled amortization of debt, (f) refrain from making
additional investments in fixed or capital assets, in any fiscal year, in excess
of $15.0 million, plus any carry forward amount, which carry forward amount
cannot exceed $5.0 million and (g) refrain from entering into any merger,
consolidation, reorganization or other transaction resulting in a fundamental
change. At December 31, 1997, the Company was in compliance with all financial
covenants under the Credit Facility.

There can be no assurance that amounts raised in connection with the
Preferred Stock financing and real property sales transactions described above
and amounts available under the Credit Facility will be sufficient to cover the
Company's working capital needs or that the Company will not require additional
debt or equity financing in the future. In addition, there can be no assurance
that additional debt or equity financing will be available, if and when needed
or that, if available, such financing could be completed on commercially
favorable terms. Failure to obtain additional financing, if and when needed,
could have a material adverse effect on the Company's business, results of
operations and financial condition. To the extent the terms of any available
financing are materially unfavorable to the Company, such a financing could
impair the Company's ability to obtain additional financing in the future, to
implement its business plan, or to engage in various corporate transactions,
including potential acquisitions of the Company. See "--Working Capital
Deficit," "--Risks Associated with Preferred Stock Financings," "--Antitakeover
Protections" and "Description of Capital Stock--Preferred Stock."

In the normal course of its business, the Company arranges for non-recourse
financing through the sale of customer accounts receivable to third-party
financial institutions. The Company has traditionally relied on a limited number
of financial institutions for most of the customer financings it arranges. The
terms of the Credit Facility prevent the Company from selling accounts
receivable with an aggregate face value in excess of $20 million during any
twelve month period. See "--Working Capital Deficit," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 2 of
Notes to Consolidated Financial Statements.

WORKING CAPITAL DEFICIT

The restatement of the Company's financial statements has had a material
adverse effect on the Company's financial condition, most notably evidenced by
substantial reductions in retained earnings and working capital. At December 31,
1996, after giving effect to the restatement, the Company's working capital
totaled $3.1 million, compared to $258.4 million as originally reported. At
December 31, 1997, the Company had a working capital deficit of $140.2 million.
The substantial reduction in working capital, as restated, at December 31, 1996
reflects net losses in fiscal 1996 of $73.6 million and the addition of $239.5
million of "advances from customers and financial institutions" as a current
liability on the Company's balance sheet. The working capital deficit at
December 31, 1997 reflects net losses of $356.9 million for the year ended
December 31, 1997, $180.0 million in advances from customers and financial
institutions as of such date, and substantial uses of cash as a result of the
Company's internal restructuring, which commenced in the second quarter of 1997.

"Advances from customers and financial institutions" reflects amounts
previously received from customers or in connection with accounts receivable
financing transactions with third party financial institutions in advance of
revenue being recognized. Prior to the restatement, these amounts were
improperly recognized as earned but have now been designated as advances. A
substantial majority of such revenues arose in connection with license
agreements between the Company and OEMs, distributors and other resellers. In
connection with the review of its historical financial results, the Company
determined that sufficient post-contractual contingencies existed in connection
with certain reseller license arrangements so as to preclude recognizing
revenue. In addition, the Company concluded that informal or

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<PAGE>
otherwise undisclosed arrangements with a number of resellers have resulted or
could result in significant concessions or allowances that were not accounted
for when revenue was originally reported as earned. Although the Company's
license agreements provide for a non-refundable fee payable by the customer in
single or multiple installments at the beginning or over the term of the license
arrangements, amounts received by the Company under its license agreements could
be subject to refund in the event the Company fails to satisfy certain
post-signing obligations. At December 31, 1997 approximately $23 million of such
amounts received from customers were subject to commercial disputes, several of
which have proceeded to litigation. Of the $23 million subject to commercial
disputes, $6.0 million has been reflected on the balance sheet as accrued
expenses, and the Company believes that the remainder is properly booked as
advances from customers and financial institutions as the Company believes the
likelihood of refund is remote. Any such refunds, were they to occur, would not
have a material effect on the Company's results of operations as revenue has not
been recognized on such transactions. See Note 2 of Notes to Consolidated
Financial Statements.

The Company has abandoned its plans to construct a new headquarters facility
and in December 1997 sold the real property it had purchased earlier in the
year, raising aggregate net proceeds of approximately $59.3 million. In August
1997 and November 1997, the Company sold and issued newly designated series of
Preferred Stock in two separate financing transactions, raising aggregate net
proceeds of approximately $87.6 million (excluding a $1.0 million fee paid to a
financial advisor of the Company in connection with the sale of the Series B
Preferred.) In addition, in the fourth quarter of 1997, the Company entered into
the Credit Facility. Although these financing transactions have improved the
Company's working capital position, in the event the Company continues to
maintain a substantial working capital deficit, such a deficit could materially
impair the Company's ability to sell its products as a result of customer
uncertainty about the Company's financial condition. See "--Uncertain Impact of
Restatement of Financial Statements," "--Need for Additional Financing; Customer
Financing," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 1 of Notes to Consolidated Financial
Statements.

FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY

The Company's quarterly operating results have varied significantly in the
past and may vary significantly in the future depending upon a number of
factors, many of which are beyond the Company's control. These factors include,
among others, (i) customer uncertainty about the Company's financial condition
and business prospects, (ii) market demand for the Company's software, including
changes in industry growth rates for the Company's products, (iii) changes in
pricing policies by the Company or its competitors, including aggressive price
discounting to encourage volume purchases by customers, (iv) the size, timing
and contractual terms of significant orders, the effects of which may be
exacerbated by aggressive price discounting, (v) the timing of the introduction
of new products or product enhancements by the Company or its competitors, (vi)
budgeting cycles of customers and potential customers, (vii) changes in the mix
of revenues attributable to domestic and international sales, and (viii)
seasonal trends in technology purchases and other general economic conditions.
In particular, the Company's quarterly results may be adversely affected by the
industry's historical practice of aggressively discounting the price of its
products to encourage volume purchasing by customers. In the event the Company
experiences substantial pricing pressure with respect to one or more large
transactions in any given quarter, such revenue could result in a substantial
shortfall in revenues. The Company has operated historically with little or no
backlog and has generally recognized a substantial portion of its revenues in
the last weeks or days of a quarter. As a result, license revenues in any
quarter are substantially dependent on orders booked and shipped in the last
weeks or days of that quarter. In addition, the sales cycle for the Company's
products is relatively long and may vary depending on a number of factors,
including the size of the transaction and the level of competition the Company
encounters in its selling activities. Due to the foregoing factors, quarterly
revenues and operating results are not predictable with any significant degree
of accuracy. In the event of any downturn in potential customers' businesses,
the domestic economy in

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<PAGE>
general, or in international economies where the Company derives substantial
revenues, planned purchases of the Company's products may be deferred or
canceled, which could have a material adverse effect on the Company's business,
operating results, and financial condition. Because the Company's operating
expenses are based on anticipated revenue levels and because a high percentage
of the Company's expenses are relatively fixed, delays in the recognition of
revenues from even a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
cause net income to fall significantly short of anticipated levels. In the
quarters ended September 28, 1997 and June 29, 1997, costs associated with the
Company's internal restructuring, aggregating $109.4 million, had a material
adverse effect on results of operations. The total restructuring charges
decreased by $1.2 million during the fourth quarter of fiscal 1997 primarily due
to adjusting the original estimate of the loss to be incurred on the sale of
land to the actual loss. Management continues to evaluate the Company's cost
structure in light of projected revenues and cash-flows, both of which are
variable and uncertain. There can be no assurance that the Company will not be
required to undertake additional restructuring activities in the future, which
would have a material adverse effect on the Company's business, results of
operations and financial condition.

The Company's business has experienced and is expected to continue to
experience seasonality. International revenues comprise a significant percentage
of the Company's total revenues, and the Company may experience additional
variability in demand associated with seasonal buying patterns in foreign
markets. In particular, the Company's third quarter tends to reflect the effects
of summer slowing of international business activity, particularly in Europe. In
addition, variability and seasonality in the Company's business may result from
customer capital spending cycles, which tend to peak in the Company's fourth
quarter, and the Company's sales incentive plans for sales personnel, which are
measured on a calendar year basis. See "--Competition; Pricing Risks,"
"--International Operations; Currency Fluctuations" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

LITIGATION

ACTIONS ARISING UNDER FEDERAL AND STATE SECURITIES LAWS

Beginning on or about April 16, 1997, a total of 24 complaints alleging
violations of the federal securities laws were filed against the Company, Ernst
& Young LLP, the Company's independent auditors and certain Named Individual
Defendants (listed below) in the United States District Court for the Northern
District of California. Of the 24 complaints, 22 have been filed as purported
class actions by individuals who allege that they are individual investors who
purchased the Company's Common Stock during the purported class period; the
alleged class periods in the different complaints vary according to the date on
which the complaints were filed. The complaints name some or all of the
following current and former officers and directors of the Company as
defendants: Phillip E. White, Howard H. Graham, David H. Stanley, Ronald M.
Alvarez, Karen Blasing, D. Kenneth Coulter, Ira H. Dorf, Stephen E. Hill, Myron
(Mike) Saranga, Steven R. Sommer, Michael R. Stonebraker and Edwin C. Winder
(the "Named Individual Defendants"). On August 20, 1997, the District Court
entered an order consolidating all of the separately-filed class actions pending
at that time, designating the action as IN RE INFORMIX CORPORATION SECURITIES
LITIGATION, and designating as "related cases" all cases brought under the
federal securities laws then pending and any that may be filed after that date.
A consolidated amended class action complaint was filed on April 6, 1998. As
required by the provisions of the Exchange Act, as amended by the Private
Securities Litigation Reform Act of 1995, the Court has designated the lead
plaintiffs in the federal action and has appointed lead plaintiffs' counsel.

11
<PAGE>
request a total of $10.173 million in damages. An amended consolidated complaint
was filed by the LOUISIANA and FLORIDA plaintiffs on April 3, 1998.

The existing federal court complaints allege that the Company, the Named
Individual Defendants and Ernst & Young issued false or misleading statements in
the Company's filings with the Commission, press releases, statements to
securities analysts and other public statements regarding its financial results
and business prospects. The alleged class period in the amended consolidated
complaints extends from February 7, 1995 through November 18, 1997. In
particular, plaintiffs allege that defendants overstated the Company's revenue
and earnings during the time period by improperly recognizing revenue from sales
of software licenses. All of these actions allege that the defendants' false and
misleading statements violate section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder. The complaints further allege that the Named Individual
Defendants sold the Company's Common Stock while in the possession of adverse
material non-public information. The existing complaints, in general, do not
specify the amount of damages that plaintiffs seek.

On or about March 19, 1998, a complaint alleging securities and common law
fraud and misrepresentation causes of action was filed in the United States
District Court for the Northern District of California. This complaint,
captioned WILLIAMS V. INFORMIX CORPORATION, ET AL., alleges both individual and
class claims on behalf of former securities holders of Illustra Information
Technologies, Inc. ("Illustra") who exchanged their Illustra securities for
securities of the Company in February 1996 in connection with the Company's
February 1996 acquisition of Illustra pursuant to an Agreement and Plan of
Reorganization (the "Illustra Agreement"). This matter has been consolidated
with IN RE INFORMIX CORPORATION SECURITIES LITIGATION. The WILLIAMS complaint,
like the previously-filed federal complaints, alleges that the Company and
certain of its former officers and/or directors, and its independent auditors,
issued false or misleading statements regarding the Company's reported financial
results and business prospects. Defendants are scheduled to file a response to
the consolidated, amended complaint on June 16, 1998.

Three purported securities class actions containing allegations similar to
the federal actions were filed in the Superior Court of the State of California,
County of San Mateo between May 19, 1997 and August 25, 1997. Those actions,
captioned RILEY V INFORMIX CORPORATION ET AL., DAYANI V. INFORMIX CORPORATION ET
AL., AND GOLDSTEIN V. WHITE ET AL., contained factual allegations nearly
identical to the allegations set forth in the federal court complaints. The
Superior Court has consolidated these actions into the DAYANI case, and has
appointed lead plaintiffs' counsel. By stipulation, plaintiffs filed a
consolidated, amended complaint on December 23, 1997. The state court
consolidated, amended complaint names as defendants the Company, Ernst & Young
and the Named Individual Defendants. The claims in the consolidated amended
state complaint arise under California securities, fraud and unfair business
practices statutes.

The state court consolidated, amended complaint alleges that the defendants
issued false financial statements which were not prepared in conformity with
Generally Accepted Accounting Principles for fiscal years 1996, 1995 and 1994,
materially overstating the Company's revenue. Plaintiffs allege that defendants
recorded as revenue approximately $300 million from software license sales which
should not have been recorded because INTER ALIA, revenue was recognized on
sales to resellers before end-users were identified; revenue was recognized in
circumstances where customers had rights of return or cancellation; and the
Company recognized revenue from barter transactions in which the Company
allegedly exchanged software licenses for products that had no value to the
Company. Plaintiffs further allege that while the Company's stock price was
artificially inflated due to the overstatement of revenue, the defendants used
the Company's stock to make corporate acquisitions, and the Named Individual
Defendants sold stock while in possession of material adverse non-public
information. The alleged class period in the state court consolidated, amended
complaint is February 7, 1995 through November 18, 1997.

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<PAGE>
the Company did not engage in any market activity during the alleged class
period, the plaintiffs did not actually rely upon any of the alleged false and
misleading statements, the California statutory unfair business practices claims
are inapplicable to securities transactions, and the consolidated, amended
complaint fails to plead the alleged fraud with sufficient particularity. The
hearing on defendants' demurrers is set for May 29, 1998. The Company will not
file an answer in this action unless the Court overrules the pending and any
subsequent demurrers. Further, the Company is not in a position to state its
factual defenses to the consolidated, amended complaint until the Court rules
upon the pending and any subsequent demurrers.

DERIVATIVE ACTIONS

The Company also was named as a nominal defendant in eight derivative
actions, purportedly brought on its behalf, filed in the Superior Court of the
State of California, County of San Mateo. The cases have been consolidated under
the caption IN RE INFORMIX CORPORATION DERIVATIVE LITIGATION, and the Court has
appointed lead plaintiff's counsel in the consolidated actions. The
consolidated, amended complaint alleges that, based upon the facts alleged in
the federal and state securities class actions, defendants breached their
fiduciary duties to the Company, engaged in abuses of their control of the
Company, were unjustly enriched by their sales of the Company's Common Stock,
engaged in insider trading in violation of California law and published false
financial information in violation of California law. The consolidated, amended
complaint names as defendants Ernst & Young, the Named Individual Defendants and
Albert F. Knorp, Jr., James L. Koch, Thomas A. McDonnell and Cyril J. Yansouni,
non-management directors of the Company. The plaintiff seeks unspecified damages
on the Company's behalf from each of the defendants. On December 18, 1997,
plaintiffs served their first amended, consolidated derivative complaint.

The Company, on whose purported behalf the derivative action is asserted,
and the individual defendants and Ernst & Young, against whom the claims are
alleged, filed demurrers to the consolidated derivative complaint on February 6,
1998. The Company's demurrer in this action is based upon the fact that the
plaintiff did not make demand on the Company's board prior to filing the
derivative action as is required by governing Delaware law. In addition, the
Company's current and former officers and directors have brought demurrers to
the consolidated, amended complaint on the grounds that plaintiffs fail to plead
any of their claims with sufficient particularity and that certain of
plaintiffs' California statutory causes of action do not apply, by their terms,
to officers and directors of a Delaware corporation. On April 1, 1998, the Court
sustained Informix's demurrer based upon the plaintiffs' failure to make demand.
The Court has given plaintiffs leave to amend their complaint. In addition, the
Court has kept on its calendar the defendants' demurrers based upon the lack of
merit in plaintiffs' substantive claims. That hearing is set for May 29, 1998.
The Company will not file an answer in this action unless the Court overrules
the pending or any subsequent demurrers. Further, the Company is not in a
position to state its factual defenses to the consolidated, amended complaint
until the Court rules upon the pending demurrers. Because of the nature of
derivative litigation, any recovery in the action would inure to the benefit of
the Company.

INDEMNIFICATION AGREEMENTS AND LIABILITY INSURANCE

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<PAGE>
any other out-of-pocket expense) and/or liabilities of any type (including but
not limited to judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act ("ERISA"), and amounts paid in settlement)
reasonably incurred in connection with the investigation, defense, settlement or
appeal of such proceedings. The obligation to provide indemnification does not
apply if the indemnitee is adjudicated to be liable for fraudulent or criminal
conduct.

The Company has purchased directors' and officers' liability insurance to
reimburse it for the costs incurred in connection with its indemnification
obligations described above. For the period from August 1996 to August 1997, the
period in which most of the claims against the Company and certain of its
directors and officers were asserted, the Company had in place three directors
and officers liability insurance policies (the "1996 and 1997 D&O Policies"),
each providing $5 million in coverage for an aggregate of $15 million. The
primary policy and first excess policy were issued by Lloyds of London. The
second excess policy was issued by Admiral Insurance Company. The insurance
carriers have taken the position that litigation filed after the policy periods
of the 1996 and 1997 D&O Policies but arising from the same facts and
circumstances as claims filed during the period from August 1996 to August 1997,
"relates back" to the 1996 and 1997 D&O Policies. Thus, the issuance carriers
assert that actions filed after August 1997 do not implicate coverage under the
Company's D&O insurance policies for the period August 1997 to August 1998 (the
"Current D&O Policies"). The Current D&O Policies provide aggregate coverage of
$20 million, subject to various exclusions, including claims relating to the
restatement of the Company's financial statements. The 1996 and 1997 D&O
Policies provide that 100 percent of the costs incurred in defending claims
asserted jointly against the Company and its current and former officers and
directors are allocable to the individuals' defense and, thus, are covered by
the policy. However, the 1996 and 1997 D&O Policies do not provide any separate
coverage for the Company. Moreover, the Company does not have separate insurance
to cover the costs of its own defense or to cover any liability for any claims
asserted against it. The Company has not currently set aside any financial
reserves relating to any of the above-referenced actions.

ILLUSTRA ESCROW

In January 1997, pursuant to the Illustra Agreement, Informix made a claim
to certain shares held in an escrow fund. In response, the Illustra shareholders
have claimed that the Company wrongfully caused these shares to be retained in
escrow, thereby harming the Illustra shareholders. The Illustra securities
holders have filed a demand for arbitration with the private arbitration service
agreed upon by the parties to the Illustra Agreement; however, at present, no
litigation or arbitration proceedings have been commenced with respect to the
Illustra escrow. In March 1998, a complaint was filed against the Company on
behalf of former Illustra shareholders alleging securities and common law fraud
and misrepresentation causes of actions. See "--Actions Arising Under Federal
and State Securities Laws."

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION

In addition, in July 1997, the Commission issued a formal order of
investigation of the Company and certain unidentified individuals associated
with the Company with respect to non-specified accounting matters, financial
reports, other public disclosures and trading activity in the Company's
securities. The Company is cooperating with the investigation and is providing
all information subpoenaed by the Commission. The Company is in the process of
producing documents and a number of current and former officers have been
testifed to appear before the Commission.

GENERAL

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<PAGE>
litigation can be expected to have an adverse impact on the Company's business.
In particular, such litigation could impair the Company's relationships with
existing customers and its ability to obtain new customers. Defending such
litigation will likely result in a diversion of management's time and attention
away from business operations, which could have a material adverse effect on the
Company's results of operations. Such litigation may also have the effect of
discouraging potential acquirors from bidding for the Company or reducing the
consideration such acquirors would otherwise be willing to pay in connection
with an acquisition.

DEPENDENCE ON KEY PERSONNEL; PERSONNEL CHANGES; ABILITY TO RECRUIT PERSONNEL

The Company's future performance will depend to a significant extent on its
ability to attract and retain highly skilled technical, sales, consulting,
marketing and management personnel. In particular, the Company is dependent upon
a number of key management and technical personnel, including Robert J.
Finocchio, Jr., the Company's Chairman, President and Chief Executive Officer,
Jean-Yves F. Dexmier, the Company's Executive Vice President and Chief Financial
Officer, and Myron (Mike) Saranga, the Company's Senior Vice President, Product
Management and Development. Mr. Finocchio and Mr. Dexmier have only recently
joined the Company, and of the officers and key employees, only Mr. Finocchio is
bound by an employment agreement, the terms of which are nonetheless at-will.
The loss of the services of one or more of the Company's executive officers or
key employees could have a material adverse effect on the Company's business,
results of operations and financial condition.

Since the beginning of 1997, a number of senior management personnel and
other key employees have departed the Company, and to date, the Company has been
able to replace only some of the positions that have been vacated. Since the
first quarter of 1997, the Company has experienced a significant number of
voluntary resignations and has taken selective actions to reduce the number of
employees in certain functional areas. The Company had approximately 3,489
regular employees at December 31, 1997, compared to approximately 4,491 at
December 31, 1996. Voluntary attrition has remained high across all functional
areas. In particular, in fiscal 1997, the Company experienced high attrition
rates in its product development group and has had difficulty attracting
replacement development personnel. The competition for employees in the software
industry is intense, and the Company expects that such competition will continue
for the foreseeable future. The Company has experienced difficulty in locating
candidates with appropriate qualifications and believes that recent financial
and business developments at the Company have made recruitment more difficult.
In November 1997, the Company implemented an option repricing program in an
effort to retain existing employees and, following further declines in the price
of its Common Stock, announced a second repricing in December 1997, which was
effective in January 1998. There can be no assurance that such programs will be
effective in retaining existing employees. There can be no assurance that the
Company will be successful in attracting, training and retaining qualified
personnel, and the failure to do so, particularly in key functional areas such
as product development and sales, could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
new employees hired by the Company generally require substantial training in the
use and implementation of the Company's products and in the Company's
procedures. As a result, substantial employee turnover could have an adverse
effect on results of operations in future quarters.

RISKS ASSOCIATED WITH PREFERRED STOCK FINANCINGS

In August 1997, the Company raised net proceeds of $37.6 million through the
issuance of a newly designated Series A Convertible Preferred Stock (the "Series
A Preferred"). In November 1997, the Company raised an additional $50.0 million
in net proceeds (excluding a $1.0 million fee paid to a financial advisor of the
Company) through the issuance of the Series B Preferred. Simultaneously with the
closing of the Series B Preferred, the holders of the Series A Preferred
exchanged all their outstanding shares of Series A Preferred for the Series A-1
Preferred, having substantially similar rights, preferences and privileges as
the Series A Preferred with the exception of certain amendments, including
revisions to the terms under which such shares become mandatorily redeemable.

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<PAGE>
While the issuance of the Preferred Stock in these transactions provided the
Company with additional working capital required to fund the Company's
continuing operations, the Company's agreements with the purchasers of the
Series A-1 Preferred and the Series B Preferred contain covenants that could
impair the Company's ability to engage in various corporate transactions in the
future, including financing transactions and certain transactions involving a
change-in-control or acquisition of the Company, or that could otherwise
disadvantage the Company and the holders of its Common Stock. In particular,
acquisitions of the Company may not be affected without the consent of the
holders of the outstanding Preferred Stock or without requiring the acquiring
entity to assume the Preferred Stock or cause such Preferred Stock to be
redeemed. These provisions are likely to make an acquisition of the Company more
difficult and expensive and could discourage potential acquirors. Certain
covenants of the Company, made in connection with the issuance of the Preferred
Stock, may also have the effect of limiting the Company's ability to obtain
additional financing by, for example, providing the holders of Preferred Stock
certain rights of first offer and prohibiting the Company from issuing
additional Preferred Stock without the consent of such holders.

The terms of the financing agreements pursuant to which the Preferred Stock
was issued also include certain penalty provisions that are triggered in the
event the Company fails to satisfy certain obligations. In particular, based on
the 160,000 shares of Series A-1 Preferred outstanding as of December 31, 1997,
all of which was converted into Common Stock in February 1998, the holders of
the Series A-1 Preferred would have become entitled to an annual dividend of
$6.0 million, payable quarterly in cash, in the event the Company failed to
satisfy certain covenants, including the failure to have a registration
statement covering the Common Stock issuable upon conversion of the Series A-1
Preferred declared effective by the Commission within 180 days of a registration
request from the holders of Series A-1 Preferred; the failure to obtain
stockholder approval of the issuance of the Common Stock issuable upon
conversion of the Series A-1 Preferred in the event that such approval becomes
required by the rules of the Nasdaq National Market; and the failure to redeem
any shares of Series A-1 Preferred held by a holder of Series A-1 Preferred who
objects to a change-in-control transaction, if the transaction does not satisfy
certain financial thresholds relating to the market capitalization and trading
volume of any acquiring entity. As described below, in February 1998, the Series
A-1 Warrant was partially exercised with respect to 60,000 shares of Series A-1
Preferred, and all then outstanding shares of Series A-1 Preferred were
converted into shares of Common Stock of the Company. At March 31, 1998, the
Series A-1 Warrant remained exercisable for up to 80,000 shares of Series A-1
Preferred. Assuming the Series A-1 Warrant is exercised for 80,000 shares of
Series A-1 Preferred, dividends would accrue at a rate of approximately $3.0
million per year in the event the Company did not satisfy the contractual
covenants which are generally described above. In the event the Company becomes
obligated to pay such dividends, the holders of the Series A-1 Preferred will
become immediately entitled to designate a number of members of the Company's
Board of Directors corresponding, as a percentage of the total number of
members, to the percentage of the Company's outstanding Common Stock held by
such holders (assuming the conversion into Common Stock of the outstanding
Series A-1 Preferred). The holders of the Series B Preferred are entitled to
receive a cumulative dividend at an annual rate of 5% of the face value of each
share of Series B Preferred, resulting in an aggregate annual dividend of $2.5
million. The dividend is generally payable upon the conversion of the Series B
Preferred or redemption of the Series B Preferred and may be paid in cash or, at
the Company's election and subject to certain conditions, in shares of Common
Stock. In the event the holders of Preferred Stock become entitled to receive
cash dividends or to have their Preferred Stock redeemed, there can be no
assurances that the Company will be able to fund such a payment or redemption,
and even if funding is available, substantial dividend payments could have a
material adverse effect on the Company's business and financial condition. See
"--Need for Additional Financing; Customer Financing," "--Antitakeover
Protection," and "Description of Capital Stock--Preferred Stock."

Both the Series A-1 Preferred and the Series B Preferred are convertible
into shares of the Company's Common Stock based on the trading prices of the
Common Stock during future periods that are described in the respective
financing agreements. The number of shares of Common Stock that may ultimately
be

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<PAGE>
issued upon conversion is therefore presently indeterminate. If, in accordance
with the terms of the financing agreements, the conversion price of the
Preferred Stock is determined during a period when the trading price of the
Common Stock is low, the resulting number of shares of Common Stock issuable
upon conversion of the Preferred Stock could result in substantial dilution to
the holders of Common Stock. In addition, the Company issued to the holders of
the Series A-1 Preferred a warrant to acquire up to an additional 140,000 shares
of Series A-1 Preferred for an aggregate purchase price of $35.0 million (the
"Series A-1 Warrant"). The Series A-1 Warrant was exercised in part in February
1998 for 60,000 shares of Series A-1 Preferred, resulting in $14.1 million in
net proceeds to the Company. In February 1998, all 220,000 shares of Series A-1
Preferred which were then outstanding were converted into 12,769,208 shares of
Common Stock. The Company is also obligated to issue upon conversion of the
Series B Preferred additional warrants to acquire shares of Common Stock equal
to 20% of the total number of shares of Common Stock into which the Series B
Preferred converts; together with an additional increment of warrants to
purchase 200,000 shares of Common Stock (collectively, the "Warrants"). The
Series A-1 Warrant and the Warrants, to the extent exercised, will have a
further dilutive effect. See "Description of Capital Stock--Preferred Stock."

COMPETITION; PRICING RISKS

The Company faces intense competition in the market for RDBMS software
products. The market for the Company's products is subject to rapid
technological change and frequent new product introductions and enhancements,
and the Company's competitors in the market include several large vendors that
develop and market databases, applications, development tools or decision
support products. The Company's principal competitors include Computers
Associates International, Inc., International Business Machines Corporation
("IBM"), Microsoft Corporation, NCR Corporation/Teradata ("NCR/Teradata"),
Oracle Corporation ("Oracle") and Sybase, Inc. ("Sybase"). Several of the
Company's competitors have significantly greater financial, technical, marketing
and other resources than the Company. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their products than the Company. Any failure by the Company to compete
successfully with its existing competitors or future competitors could have a
material adverse effect on the Company's business, results of operations and
financial condition.

Several of the Company's competitors have announced the development of
enhanced versions of their principal database products that are intended to
improve the performance or expand the capabilities of their existing products.
New or enhanced products by existing competitors or new competitors could result
in greater price pressure on the Company's products. In addition, the industry
movement to new operating systems, like Windows NT, access through low-end
desktop computers, and access to data through the Internet may cause downward
pressure on prices of database software and related products. The bundling of
software products for promotional purposes or as a long-term pricing strategy by
certain of the Company's competitors could also result in reductions in the
price the Company may charge for its products. In addition, the Company's own
practices of bundling its software products for enterprise licenses or for
promotional purposes with the Company's partners also could result in reduction
in the price the Company may charge for its products. In particular, the pricing
strategies of competitors in the industry have historically been characterized
by aggressive price discounting to encourage volume purchasing by customers. If
such downward pressure on prices were to occur, the Company's operating margins
would be adversely affected. Existing and future competition or changes in the
Company's product or service pricing structure or product or service offerings
could result in an immediate reduction in the prices of the Company's products
or services. If significant price reductions in the Company's products or
services were to occur and not be offset by increases in sales volume, the
Company's business, results of operations and financial condition would be
adversely affected. There can be no assurance that the Company will continue to
compete successfully with its existing competitors or will be able to compete
successfully with new competitors.

17
<PAGE>
UNCERTAIN GROWTH RATES; TECHNOLOGICAL CHANGE AND NEW PRODUCTS

Over the last several years, the RDBMS industry has expanded at significant
growth rates, due in part to the continuing development of new technologies and
products responsive to customer requirements. Recently, however, both industry
analysts and competitors have predicted that such high growth rates will not be
maintained in future periods. Recent instability in the Asian-Pacific economies
and financial markets, which had previously been cited as a potentially strong
source of revenue growth for relational database software companies, has
introduced additional uncertainty concerning industry growth rates. In the event
industry growth rates should decline for any reason, the markets for the
Company's products would likely be adversely affected, which would have a
negative impact on the Company's business, results of operations, financial
condition and cash flows. See "--Fluctuations in Quarterly Results; Seasonality"
and "International Operations; Currency Fluctuations."

In addition, the market for the Company's products and services is
characterized by rapidly changing technology, changing customer needs, frequent
new product introductions and evolving industry standards that may render
existing products and services obsolete. The life cycles of the Company's
products are difficult to estimate. The Company's growth and future financial
performance will depend upon its ability to enhance its existing products and to
introduce new products on a timely and cost-effective basis that meet dynamic
customer requirements. There can be no assurance that the Company will be
successful in developing new products or enhancing its existing products or that
such new or enhanced products will receive market acceptance or be delivered
timely to the market. The Company's product development efforts are expected to
continue to require substantial investments by the Company, and there can be no
assurance that the Company will have sufficient resources to make the necessary
investments. The Company has experienced product development delays in the past
and may experience delays in the future. In particular, the Company has
experienced high attrition in its product development group in recent months and
has had difficulty attracting qualified replacement development personnel, which
could have an adverse effect on the Company's ability to develop new products or
product enhancements that respond to changing market requirements. Delays in the
scheduled availability or a lack of market acceptance of its products or failure
to accurately anticipate customer demand and meet customer performance
requirements could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, products as complex
as those offered by the Company may contain undetected errors or bugs when first
introduced or as new versions are released. There can be no assurance that,
despite testing, new products or new versions of existing products will not
contain undetected errors or bugs that will delay the introduction or commercial
acceptance of such products. A key determinative factor in the Company's success
will continue to be the ability of the Company's products to operate and perform
well with existing and future leading, industry-standard application software
products intended to be used in connection with RDBMS. Failure to meet in a
timely manner existing or future interoperability and performance requirements
of certain independent vendors could adversely affect the market for the
Company's products. Commercial acceptance of the Company's products and services
could also be adversely affected by critical or negative statements or reports
by brokerage firms, industry and financial analysts and industry periodicals
concerning the Company, its products, business or competitors or by the
advertising or marketing efforts of competitors, or other factors that could
affect consumer perception. See "Uncertain Impact of Restatement of Financial
Statements," "--Need for Additional Financing; Customer Financing," "--Working
Capital Deficit" and "--Dependence on Key Personnel; Personnel Changes; Ability
to Recruit Personnel."

In recent years, the types and quantities of data required to be stored and
managed has grown increasingly complex and includes, in addition to conventional
character data, audio, video, text, and three-dimensional graphics in a
high-performance scalable environment. During 1996, the Company invested
substantial resources in developing its ORDBMS product line. The market for
products offering object-relational database functionality is new and evolving,
and its growth depends upon a growing need to store and manage complex data and
on broader market acceptance of the Company's products as a solution for

18
<PAGE>
this need. As a result, there can be no assurance that organizations will choose
to make the transition from conventional RDBMS to ORDBMS. Delays in market
acceptance of object-relational database management products offered by the
Company could have an adverse effect on the Company's results of operations and
financial condition. See "Business--Products" and "--Product Development."

INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS

International sales represented approximately 54% of total revenues for both
the years ended December 31, 1997 and 1996. The Company's international
operations and financial results could be significantly affected by factors
associated with international operations such as changes in foreign currency
exchange rates and uncertainties relative to regional, political and economic
circumstances, as well as by other factors associated with international
activities. In particular, recent instability in the Asian-Pacific economies and
financial markets, which accounted for approximately 12% and 13% of the
Company's total revenues in the years ended December 31, 1997 and 1996,
respectively, could have an adverse effect on the Company's operating results in
future quarters. Most of the Company's international revenue and expenses are
denominated in local currencies. Due to the substantial volatility of currency
exchange rates, among other factors, the Company cannot predict the effect of
exchange rate fluctuations on future operating results. Although the Company
takes into account changes in exchange rates over time in its pricing strategy,
it does so only on an annual basis, resulting in substantial pricing exposure as
a result of foreign exchange volatility during the period between annual pricing
reviews. In addition, the sales cycles for the Company's products is relatively
long, depending on a number of factors including the level of competition and
the size of the transaction. Foreign currency fluctuations could, therefore,
result in substantial changes in the financial impact of a specific transaction
between the time of initial customer contact and revenue recognition. As a
result of the foregoing factors, the Company's business, results of operations
and financial condition could be materially and adversely affected by
fluctuations in foreign currency exchange rates. See "--Fluctuations in
Quarterly Results; Seasonality."

The Company has implemented a foreign exchange hedging program consisting
principally of the purchase of forward foreign exchange contracts, which is
intended to hedge the value of accounts receivable or accounts payable
denominated in foreign currencies against fluctuations in exchange rates until
such receivables are collected or payables are disbursed. This program involves
the use of forward contracts in the primary European and Asian currencies. The
Company has limited unhedged transaction exposures in certain secondary
currencies in Latin America, Eastern Europe and Asia because there are limited
forward currency exchange markets in these currencies. The Company does not
attempt to hedge the translation to United States dollars of foreign denominated
revenues and expenses not yet earned or incurred. Notwithstanding the Company's
efforts to manage foreign exchange risk, there can be no assurances that the
Company's hedging activities will adequately protect the Company against the
risks associated with foreign currency fluctuations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

YEAR 2000 RISKS

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.

The Company has recently commenced a program, to be substantially completed
by the Fall of 1999, to review the Year 2000 compliance status of the software
and systems used in its internal business processes, to obtain appropriate
assurances of compliance from the manufacturers of these products and agreement
to modify or replace all non-compliant products. In addition, the Company is
considering

19
<PAGE>
converting certain of its software and systems to commercial products that are
known to be Year 2000 compliant. Implementation of software products of third
parties, however, will require the dedication of substantial administrative and
management information resources, the assistance of consulting personnel from
third party software vendors and the training of the Company's personnel using
such systems. Based on the information available to date, the Company believes
it will be able to complete its Year 2000 compliance review and make necessary
modifications prior to the end of 1999. Software or systems which are deemed
critical to the Company's business are scheduled to be Year 2000 compliant by
the end of 1998. Nevertheless, particularly to the extent the Company is relying
on the products of other vendors to resolve Year 2000 issues, there can be no
assurances that the Company will not experience delays in implementing such
products. If key systems, or a significant number of systems were to fail as a
result of Year 2000 problems or the Company were to experience delays
implementing Year 2000 compliant software products, the Company could incur
substantial costs and disruption of its business, which would potentially have a
material adverse effect on the Company's business and results of operations.

The Company in its ordinary course of business tests and evaluates its own
software products. The Company believes that its software products are generally
Year 2000 compliant, meaning that the use or occurrence of dates on or after
January 1, 2000 will not materially affect the performance of the Company's
software products with respect to four digit date dependent data or the ability
of such products to correctly create, store, process and output information
related to such date data. However, there can be no assurance that the Company
will not subsequently learn that certain of its software products do not contain
all necessary software routines and codes necessary for the accurate
calculation, display, storage and manipulation of data involving dates. In
addition, in certain circumstances, the Company has warranted that the use or
occurrence of dates on or after January 1, 2000 will not adversely affect the
performance of the Company's products with respect to four digit date dependent
data or the ability to create, store, process and output information related to
such data. If any of the Company's licensees experience Year 2000 problems, such
licensees could assert claims for damages against the Company. The Company's
license agreements in most cases limit liability to prevent unlimited exposure
from such claims.

The Company has identified a separate budget of approximately $1.7 million
for investigating and remedying issues related to Year 2000 compliance involving
software or systems used in its internal operations. However, the Company has
only recently initiated its Year 2000 compliance program and there can be no
assurances that the program will be completed on a timely basis and within the
current projected budget. To the extent the costs of implementing the program
greatly exceed the budget, such costs will have a material adverse effect on the
Company's business, financial condition and results of operations.

In addition, the purchasing patterns of customers and potential customers
may be affected by Year 2000 issues. Many companies are expending significant
resources to correct their current software systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase software
products such as those offered by the Company, which could have an adverse
effect on the Company's business, results of operations and financial condition.

DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT

The Company's success depends on proprietary technology. To protect its
proprietary rights, the Company relies primarily on a combination of patent,
copyright and trademark laws, trade secrets, confidentiality procedures,
contractual provisions contained in its license agreements and technical
measures. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which provide only
limited protection. The Company holds one United States patent and several
pending applications. There can be no assurance that any other patents covering
the Company's inventions will issue or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringers.

20
<PAGE>
The Company's products are generally licensed to end-users on a
"right-to-use" basis pursuant to a license that restricts the use of the
products for the customer's internal business purposes. The Company also relies
on "shrink wrap" licenses, which include a notice informing the end-user that,
by opening the product packaging, the end-user agrees to be bound by the
Company's license agreement printed on the package. Despite such precautions, it
may be possible for unauthorized third parties to copy aspects of its current or
future products or to obtain and use information that the Company regards as
proprietary. In particular, the Company has licensed the source code of its
products to certain customers under certain circumstances and for restricted
uses. The Company has also entered source code escrow agreements with a number
of its customers that generally require release of source code to the customer
in the event of the Company's bankruptcy, liquidation or otherwise ceasing to
conduct business. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar or superior technology.
Policing unauthorized use of the Company's software is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States, and
"shrink-wrap" licenses may be wholly or partially unenforceable under the laws
of certain jurisdictions. Litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and mangement attention and could have a material adverse effect on
the Company's business, results of operations and financial condition.

The Company is not aware that any of its software product offerings
infringes the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim infringement by the Company with
respect to its current or future products. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Intellectual Property."

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. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company 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. A
product liability claim brought against the Company could have a material
adverse effect on the Company's business, operating results and financial
condition.

ANTITAKEOVER PROTECTIONS

The Company is authorized to issue 5,000,000 shares of undesignated
Preferred Stock, of which 440,000 shares have been designated Series A
Preferred, none of which is outstanding; of which 440,000 shares have been
designated Series A-1 Preferred, of which 220,000 shares were previously
outstanding (including 60,000 shares of Series A-1 Preferred which were issued
upon partial exercise of the Series A-1 Warrant) and converted into 12,769,908
shares of Common Stock in February 1998 and of which 80,000 shares remain
issuable upon exercise of the Series A-1 Warrant; and of which 50,000 shares
have

21
<PAGE>
been designated Series B Preferred, of which 50,000 shares are outstanding.
Subject to the prior consent of the holders of the Series A-1 Preferred and the
Series B Preferred, the Board of Directors has the authority to issue additional
shares of Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
a series or the designation of such series, without any further vote or action
by the Company's stockholders. To date, the Company has used its ability to
designate and issue new series of Preferred Stock in transactions intended to
raise additional capital for the Company. The ability to issue additional shares
of Preferred Stock, however, also provides desirable flexibility in connection
with possible acquisitions and other corporate purposes but could also have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders and may adversely affect the market
price of the Common Stock and the voting and other rights of the holders of
Common Stock. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. In particular, certain rights, preferences
and privileges of the Series A-1 Preferred and Series B Preferred could have the
effect of preventing or discouraging potential bids to acquire the Company
unless the terms of such acquisition are approved by such stockholders. See
"--Risks Associated with Convertible Preferred Stock Financings" and
"Description of Capital Stock--Preferred Stock."

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws eliminate the right of stockholders to act by written
consent without a meeting and specify certain procedures for nominating
directors and submitting proposals for consideration at stockholder meetings.
The Board of Directors of the Company is divided into three classes, with each
class standing for election once every three years. Such provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions which may involve an actual or
threatened change of control of the Company. Such provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and, accordingly, could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions are also
intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for the Company's shares and, consequently, may also inhibit fluctuations in the
market price of the Company's Common Stock that could result from actual or
rumored takeover attempts. These provisions may also have the effect of
preventing changes in the management of the Company. In addition, the Company
has adopted a Rights Agreement (the "Rights Agreement"), commonly referred to as
a "poison pill," which could also discourage potential acquirors. See
"Description of Capital Stock-- Antitakeover Effects of Provision of Certificate
of Incorporation and Bylaws; Rights Agreement."

The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from engaging,
under certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of the Antitakeover Law, a "business
combination" includes, among other things, a merger or consolidation involving
the Company and the interested stockholder and the sale of more than 10% of the
Company's assets. In general, the Antitakeover Law defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the Company and any entity or person affiliated with
or controlling or controlled by such entity or person. A Delaware corporation
may "opt out" of the Antitakeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from amendments approved by the holders of at
least a majority of the company's outstanding voting shares. The Company has not
"opted out" of the provisions of the Antitakeover Law. See "Description of
Capital Stock."

22
<PAGE>
STOCK PRICE VOLATILITY

The market price of the Company's Common Stock has in the past been highly
volatile and is expected to continue to be subject to significant price and
volume fluctuations in the future based on a number of factors, including market
uncertainty about the Company's financial condition or business prospects or the
prospects for the RDBMS market in general; shortfalls in the revenues or results
of operations of the Company or its principal competitors from revenues or
results of operations expected by securities analysts; announcements of new
products by the Company or its competitors; quarterly fluctuations in the
Company's financial results or the results of other software companies,
including those of direct competitors of the Company; changes in analysts'
estimates of the Company's financial performance, the financial performance of
competitors, or the financial performance of software companies in general; the
introduction of new products or product enhancements by the Company or its
competitors; general conditions in the software industry; changes in prices for
the Company's products or competitors' products; changes in revenue growth rates
for the Company, its competitors or the RDBMS market in general; changes in the
mix of revenues attributable to domestic and international sales; and seasonal
trends in technology purchases and other general economic conditions. In
addition, the stock market may from time to time experience extreme price and
volume fluctuations, which particularly affect the market for the securities of
many technology companies and which have often been unrelated to the operating
performance of the specific companies. There can be no assurance that the market
price of the Company's Common Stock will not experience significant fluctuations
in the future. See "--Uncertain Impact of Restatement of Financial Statements,"
"--Need for Additional Financing; Customer Financing," and "--Fluctuations in
Quarterly Results; Seasonality."

23
<PAGE>
USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Stockholders.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company expects to retain future earnings, if any, for use in the operation
of its business and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The holders of the Series B Preferred are
entitled to receive a cumulative dividend at an annual rate of 5% of the face
value of each share of Series B Preferred, resulting in an aggregate annual
dividend accrual of $2.5 million. As of December 31, 1997, aggregate accrued but
unpaid dividends of approximately $301,000 were owed to the holders of Series B
Preferred. The dividend is generally payable upon the conversion or redemption
of the Series B Preferred and may be paid in cash or, at the Company's election
and subject to certain conditions, in shares of Common Stock. In addition, the
Certificate of Designation of the Series B Preferred prohibits the Company from
paying any dividend or other distribution on any security ranking junior to the
Series B Preferred. The Series A-1 Preferred is senior to Series B Preferred. In
the event the Company fails to satisfy certain contractual obligations under the
agreements pursuant to which the Series A-1 Preferred was issued, the holders of
the Series A-1 Preferred are entitled to a 15% annual dividend on the face value
of each share of Series A-1 Preferred which would, based on 160,000 shares of
Series A-1 Preferred outstanding as of December 31, 1997, result in an aggregate
annual dividend of $6.0 million, payable quarterly in cash for so long as the
Company is in breach of such obligations. In February 1998, Fletcher exercised
the Series A-1 Warrant in part for 60,000 shares of Series A-1 Preferred and
simultaneously converted such shares, in addition to all previously outstanding
shares of Series A-1 Preferred, into 12,769,908 shares of Common Stock. As a
result, no shares of Series A-1 Preferred were outstanding as of the date of
this Prospectus although the Series A-1 Warrant remains exercisable for 80,000
shares of Series A-1 Preferred. See "Risk Factors--Risks Associated with
Convertible Preferred Stock Financings," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Subsequent Events" and
"Description of Capital Stock--Preferred Stock."

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "IFMX." The following table lists the high and low closing sales prices
of the Company's Common Stock for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1998:
Second Quarter (through May 12)........................................................... $ 10.06 $ 8.13
First Quarter............................................................................. 8.84 5.28
FISCAL YEAR ENDING DECEMBER 31, 1997:
Fourth Quarter............................................................................ $ 8.03 $ 4.06
Third Quarter............................................................................. 12.20 6.28
Second Quarter............................................................................ 15.13 6.78
First Quarter............................................................................. 24.00 15.13
FISCAL YEAR ENDED DECEMBER 31, 1996:
Fourth Quarter............................................................................ $ 28.63 $ 17.63
Third Quarter............................................................................. 30.25 20.31
Second Quarter............................................................................ 26.88 18.38
First Quarter............................................................................. 35.88 26.38
</TABLE>

On May 12, 1998, the closing price of the Company's Common Stock as reported
by the Nasdaq National Market was $8.4375 per share. There were approximately
3,800 holders of record of the Company's Common Stock as of December 31, 1997.

24
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at December
31, 1997. The capitalization information set forth in the table below is
qualified by, and should be read in conjunction with, the more detailed
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA(2) ADJUSTED(3)
----------- ------------- -----------
<S> <C> <C> <C>
Capital lease obligations, net of current portion......................... $ 5,817 $ 5,817 $ 5,817
----------- ------------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share--5,000,000 shares authorized
Series A-1 convertible preferred stock, 160,000 shares issued and
outstanding, aggregate liquidation preference of $40,000............ 2 -- --
Series B convertible preferred stock, 50,000 shares issued and
outstanding, aggregate liquidation preference of $50,301............ 1 1 --
Common stock, par value $.01 per share--500,000,000 shares authorized,
152,587,000 shares issued and outstanding in 1997 and pro forma
165,357,000 for conversion of Series A-1 and 177,857,000 for
conversion of Series B................................................ 1,526 1,654 1,779
Additional paid-in capital.............................................. 347,582 361,556 361,432
Retained earnings (accumulated deficit)................................. (278,144) (278,144) (278,144)
Unrealized gain (loss) on available-for-sale securities, net of tax..... (767) (767) (767)
Foreign currency translation adjustment................................. (11,136) (11,136) (11,136)
----------- ------------- -----------
Total stockholders' equity................................................ 59,064 73,164 73,164
----------- ------------- -----------
Total capitalization.................................................... $ 64,881 $ 78,981 $ 78,981
----------- ------------- -----------
----------- ------------- -----------
</TABLE>

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

(1) Based upon shares outstanding as of December 31, 1997. Excludes (i)
19,110,951 shares of Common Stock issuable upon exercise of options
outstanding at December 31, 1997 under the Company's 1986 Employee Stock
Option Plan, 1994 Stock Option and Award Plan, 1997 Non-Statutory Stock
Option Plan, the 1992 Illustra Stock Option Plan and 1989 Outside Director
Option Plan at a weighted average exercise price of $7.9906 (without giving
effect to an option repricing in January 1998) and (ii) 8,654,476 shares of
Common Stock reserved at December 31, 1997 for future issuance under the
1994 Stock Option and Award Plan, the 1989 Outside Director Option Plan, and
the 1997 Employee Stock Purchase Plan. See "Management--Stock Plans,"
"Description of Capital Stock" and Note 7 of Notes to Consolidated Financial
Statements.

(2) Includes 12,769,908 shares of Common Stock issued upon conversion of 220,000
shares of Series A-1 Preferred on February 13, 1998. See "Preferred and
Selling Stockholders," "Description of Capital Stock--Preferred Stock" and
Note 6 of Notes to Consolidated Financial Statements.

(3) Pro forma adjusted to give effect to (i) the assumed conversion of the
Series B Preferred at an assumed conversion price of $4.00 per share into
12,500,000 shares of Common Stock and Warrants to acquire 2,700,000 shares
of Common Stock, assuming no exercise of the Warrants and (ii) the assumed
grant of the Shemano Warrant, and assuming no exercise of the Shemano
Warrant. See "Description of Capital Stock--Preferred Stock," "Certain
Transactions" and Note 6 of Notes to Consolidated Financial Statements.

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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of the Company presented
below as of December 31, 1997, 1996, 1995, 1994 and 1993, and for each of the
years in the five-year period ended December 31, 1996, are derived from the
consolidated financial statements of Informix Corporation and its subsidiaries,
which financial statements have been audited by Ernst & Young LLP, independent
auditors. The Consolidated Financial Statements as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997 and
the report thereon of Ernst & Young LLP, independent auditors, are included
elsewhere in this Registration Statement. The selected consolidated financial
data set forth below is qualified in its entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
--------- ----------- ----------- ----------- ---------
(RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Licenses..................................................... $ 378,164 $ 502,730 $ 462,061 $ 346,518 $ 284,338
Services..................................................... 285,728 231,810 174,486 105,451 68,577
--------- ----------- ----------- ----------- ---------
Total net revenues....................................... 663,892 734,540 636,547 451,969 353,115
Costs and expenses:
Costs of software distribution................................. 63,027 46,786 37,593 24,494 20,077
Cost of services............................................... 166,916 144,850 91,540 46,798 33,094
Sales and marketing............................................ 417,162 413,689 301,932 203,815 137,772
Research and development....................................... 139,310 120,211 85,643 64,264 44,503
General and administrative..................................... 87,498 64,416 51,114 35,369 33,744
Write-off of goodwill and other
long-term assets............................................. 30,473 -- -- -- --
Write-off of acquired research and development................. 7,000 -- -- -- --
Restructuring charges.......................................... 108,248 -- -- -- --
Expenses related to Illustra merger............................ -- 5,914 -- -- --
--------- ----------- ----------- ----------- ---------
Total costs and expenses................................. 1,019,634 795,866 567,822 374,740 269,190
--------- ----------- ----------- ----------- ---------
Operating income (loss).......................................... (355,742) (61,326) 68,725 77,229 83,925
Interest income................................................ 5,623 9,868 8,148 3,970 3,967
Interest expense............................................... (9,405) (12,475) (6,299) (551) (371)
Other income (expense), net.................................... 10,474 2,899 120 (3,105) (1,282)
--------- ----------- ----------- ----------- ---------
Income (loss) before income taxes.............................. (349,050) (61,034) 70,694 77,543 86,239
Income taxes................................................... 7,817 12,531 32,094 29,250 31,250
--------- ----------- ----------- ----------- ---------
Net income (loss).............................................. (356,867) (73,565) 38,600 48,293 54,989
Preferred stock dividend....................................... (301) -- -- -- --
Value assigned to warrants..................................... (1,601) -- -- -- --
--------- ----------- ----------- ----------- ---------
Net income (loss) applicable to common stockholders............ $(358,769) $ (73,565) $ 38,600 $ 48,293 $ 54,989
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Net income (loss) per common share:
Basic........................................................ $ (2.36) $ (0.49) $ 0.27 $ 0.35 $ 0.42
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Diluted...................................................... $ (2.36) $ (0.49) $ 0.26 $ 0.34 $ 0.40
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Shares used in per share calculations:
Basic........................................................ 151,907 149,310 145,062 137,742 130,534
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Diluted...................................................... 151,907 149,310 150,627 142,782 137,827
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1993
--------- ---------
1994
-----------
(RESTATED)
1995
-----------
(RESTATED)
1996
-----------
(RESTATED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments............... $ 155,465 $ 261,020 $ 253,209 $ 194,153 $ 144,383
Working capital (deficit)....................................... (140,148) 3,137 163,594 184,867 157,017
Total assets.................................................... 563,244 881,998 682,445 447,769 328,001
Stockholders' equity............................................ 59,064 325,304 357,747 269,400 207,581
</TABLE>

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company is a leading multinational supplier of information management
software. It derives license revenues principally from licensing its RDBMS
software and derives service revenues from providing technical product support
and product updates and consulting and training services to customers. The
Company's products are sold directly to end-users and indirectly through
application resellers, OEM's and distributors.

In the first quarter of fiscal 1997, the Company experienced a substantial
shortfall in license revenues compared to forecasts, resulting in a substantial
net loss for the quarter. The shortfall in revenue was due to slow growth in
demand for RDBMS products as well as the Company's inability to close a number
of sales transactions that management anticipated would close, by quarter's end,
particularly in Europe.

As a result of the shortfall in license revenues for the first quarter of
fiscal 1997, the Company, in the second quarter and again in the third quarter
of 1997, initiated an internal restructuring of its operations intended to
reduce operating expenses and improve the Company's financial condition. These
restructurings included selective reductions in headcount and leased facilities
and the downsizing, elimination or conversion into solution labs of the
Company's planned "Information SuperStores." Costs associated with the
restructurings totaled approximately $108.2 million and had a material adverse
effect on the Company's results of operations for fiscal 1997. In addition, the
Company issued newly designated series of Preferred Stock in two financing
transactions which resulted in aggregate net proceeds of $87.6 million to the
Company (excluding a $1.0 million fee paid to a financial advisor of the Company
in connection with the sale of the Series B Preferred) and entered into a senior
secured credit facility agreement with available proceeds of up to $75.0
million, of which the Company was eligible to borrow $47.0 million at December
31, 1997, based on certain eligibility criteria. See and "--Liquidity and
Capital Resources."

In August 1997, the Company announced that it had become aware of errors and
irregularities that affected the timing and the dollar amount of reported earned
revenues from license transactions for all annual periods in the three years
ended December 31, 1996. These errors and irregularities included unauthorized
and undisclosed arrangements or agreements between Company personnel and
resellers, recognition of revenue on certain transactions in reporting periods
prior to contract acceptance, the recording of certain transactions that lacked
economic substance and the recording of maintenance revenue as license revenue.
The unauthorized and undisclosed agreements with resellers introduced acceptance
contingencies, permitted resellers to return unsold licenses for refunds,
extended payment terms or committed the Company to assist resellers in selling
the licenses to end-users. Accordingly, license revenues from these transactions
that were recorded at the time product was delivered to resellers should have
instead been recorded at the time all conditions to the sale lapsed. Because of
the pervasiveness of the unauthorized arrangements with resellers in the 1994,
1995 and 1996 accounting periods, the Company concluded that all revenue from
license agreements with resellers, except for those licenses sold and billed on
a per copy basis, should be recognized only when the licenses were resold or
utilized by resellers and all related obligations had been satisfied. In
addition, amounts received from resellers or financial institutions as
prepayments of software license fees in advance of revenue recognition should be
recorded as advances on unearned license revenue. The financial review
undertaken by the Company resulted in the restatement of the Company's financial
results for fiscal 1996, 1995 and 1994 and for the first quarter of fiscal 1997.
The Company publicly disclosed the results of the restatement in November 1997.

27
<PAGE>
The nature of the Company's business in 1992 and 1993 was such that there
was not a material amount of revenues recorded under prepaid software license
transactions conducted with resellers during these years. Additionally, as a
result of the Company's extended procedures, there were no material errors or
irregularities identified affecting revenues recognized prior to the third
quarter of 1994. The Company concluded based on those circumstances that it was
not necessary to restate the financial statements for 1992 and 1993.

As a result of the restatement, total revenues were reduced from amounts
previously reported by $204.8 million from $939.3 million as originally reported
to $734.5 million, by $77.7 million from $714.2 million as originally reported
to $636.5 million, and by $18.1 million from $470.1 million as originally
reported to $452.0 million for fiscal 1996, 1995 and 1994, respectively. The
restatement also resulted in an increase in revenues of $16.2 million from
$133.7 million as originally reported to $149.9 million for the first quarter of
fiscal 1997. In addition, the restatement resulted in a reduction in net income
of $171.4 million from $97.8 million as originally reported to a loss of $73.6
million for fiscal 1996; a reduction in net income of $59.0 million from $97.6
million as originally reported to $38.6 million for fiscal 1995; and a reduction
in net income of $13.6 million from $61.9 million as originally reported to
$48.3 million for fiscal 1994. The restatement had a material adverse effect on
the Company's financial condition, most notably evidenced by substantial
reductions in retained earnings and working capital. At December 31, 1996, after
giving effect to the restatement, the Company's working capital decreased $255.3
million from $258.4 million as originally reported to $3.1 million. At December
31, 1997, the Company had a working capital deficit of $140.2 million. The
substantial reductions in working capital at December 31, 1997 and 1996 reflect
substantial operating losses and the addition of "advances from customers and
financial institutions" as a current liability on the Company's balance sheet.
Such advances totaled $180.0 million at December 31, 1997 and $239.5 million at
December 31, 1996.

The Company's public announcement of the pending restatement, delays in
reporting operating results for the second and third quarters of fiscal 1997
while the restatement was being compiled, threatened de-listing of the Company's
Common Stock from the Nasdaq National Market as a result of the Company's
failure to satisfy its public reporting obligations, corporate actions to
restructure operations and reduce operating expenses, and customer uncertainty
regarding the Company's financial condition adversely affected the Company's
ability to sell its products in fiscal 1997. In addition, since the beginning of
1997, the Company and its competitors in the RDBMS industry have experienced
substantially slower growth in the market for RDBMS products. The financial
restatement has now been completed, its results have been publicly disclosed and
the Company is current with respect to its public reporting obligations. In
addition, the Company believes that it has effectively controlled its operating
expenses and significantly improved its financial position. Nevertheless,
adverse market conditions, including significant competitive pressures in the
Company's markets and ongoing customer uncertainty about the Company's financial
condition and business prospects, may continue to have an adverse effect on the
Company's ability to sell its products and results of operations.

28
<PAGE>
FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

The following table sets forth operating results as a percentage of net
revenues for the three years ended December 31, 1997, respectively.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----- ----- -----
PERCENT OF NET REVENUE
<S> <C> <C> <C>
Net revenues:
Licenses................................................................................... 57% 68% 73%
Services................................................................................... 43 32 27
--- --- ---
Total net revenues....................................................................... 100 100 100
Cost and expenses:
Cost of software distribution.............................................................. 10 6 6
Cost of services........................................................................... 25 20 14
Sales and marketing........................................................................ 63 56 47
Research and development................................................................... 21 16 14
General and administrative................................................................. 13 9 8
Write-off of goodwill and long-term assets................................................. 5 -- --
Write-off of acquired research and development............................................. 1 -- --
Restructuring charges...................................................................... 16 -- --
Merger expenses............................................................................ -- 1 --
--- --- ---
Total expenses........................................................................... 154 108 89
--- --- ---
Operating income (loss)...................................................................... (54) (8) 11
--- --- ---
Net income (loss)............................................................................ (54)% (10)% 6%
--- --- ---
--- --- ---
</TABLE>

Informix's operating results for fiscal 1997 were significantly below the
prior year due to decreases in license revenue and increases in costs and
expenses. Revenue declined 10% for fiscal 1997 in comparison to fiscal 1996.
Revenue declined 9%, 7%, 10% and 2% in North America, Asia/Pacific, Europe and
Latin America, respectively. The increase in operating expenses reflects
continued expansion of product and customer support organizations through the
early months of fiscal 1997 as well as incremental legal and audit expenses
related to the stockholder lawsuits and the restatement process, charges of
$30.5 million related to the Company's Japanese operations, $108.2 million for
restructuring charges, $14.7 million for write-down to net realizable value of
previously capitalized software costs and $7.0 million for a write-off of
acquired research and development during the period. The lower revenues combined
with increased operating costs resulted in an operating loss of $355.7 million
for the year. See "Legal Proceedings," "--Cost of Software Distribution,"
"--Write-off of Acquired Research and Development," "--General and
Administrative Expenses" and "--Restructuring Charges."

Informix's operating results were affected negatively in 1996 as a result of
operating expenses growing more rapidly than revenues. Informix continued to
invest heavily in personnel in the areas of sales, marketing and customer
service, and research and development and incurred integration expenses and fees
associated with the acquisition in February 1996 of Illustra. In December 1996,
Informix began shipping its Universal Server product. Informix incurred
significant marketing expenses in connection with the initial announcement and
launch of the Universal Server in fiscal 1996. These development, integration
and marketing expenses adversely affected Informix's operating margins in fiscal
1996.

29
<PAGE>
REVENUES

The Company derives revenues from licensing its software and providing
post-license technical product support and updates to customers and from
consulting and training services. License revenues may involve the shipment of
product by the Company or the granting of a license to a customer to manufacture
products. Service revenues consist of customer telephone or direct support,
product update rights, consulting and training fees. Total net revenues were
$663.9 million, $734.5 million and $636.5 million for fiscal 1997, 1996 and
1995, respectively. Between December 31, 1996 and 1997, total net revenues
decreased by 10% or $70.6 million, primarily as a result of a substantial
decrease in license revenues, partially offset by an increase in service
revenues. Between December 31, 1995 and 1996, total net revenues increased by
15% or $98.0 million.

LICENSE REVENUES

The Company sells its products directly to end-users as well as through
resellers, including OEM's, distributors and VAR's. During fiscal 1996, the
Company increased the focus on its reseller channels to establish partnerships
with hardware and application vendors in order to utilize their sales force,
obtain access to their installed base of customers and benefit from their
consulting and systems integration organizations. The Company recognizes license
revenue from resellers, except for those sold and billed on a per copy basis,
when the licenses are resold or utilized by the reseller and all related
obligations have been satisfied. License revenues accounted for 57%, 68% and 73%
of total revenues in fiscal 1997, 1996 and 1995, respectively. The year-to-year
declines in license revenues as a percentage of total revenues reflect the fact
that service revenues have grown at a faster pace than license revenues, and
that license revenues declined substantially in fiscal 1997.

License revenue declined by 25% to $378.2 million for fiscal 1997 from
$502.7 million for fiscal 1996. In the first quarter of fiscal 1997, license
revenues decreased 43% compared to the fourth quarter of fiscal 1996. This
decrease was primarily due to slow growth in demand for RDBMS products as well
as the Company's inability to close a number of sales transactions that
management anticipated would close by quarter's end, particularly in Europe. In
the second quarter of fiscal 1997, license revenue increased 26% compared to the
first quarter, principally as a result of stronger product license sales in
North America. In the third quarter of fiscal 1997, license revenues decreased
29% compared to the second quarter. The decrease in the third quarter was
attributable to a significant extent to decreased product license sales in
Europe and Latin America and customer uncertainties resulting from the Company's
announcement of the restatement of its financial statements in August 1997 and
restructuring activities in September 1997. During the fourth quarter of fiscal
1997, license revenues increased 36% as compared to the third quarter of fiscal
1997. The increase in the fourth quarter of fiscal 1997 was principally due to
increased license sales in Europe and Latin America, which the Company believes
was due to improved customer confidence about the Company and its financial
condition following the announcement of its restated financial statements.

The Company does not believe that the decrease in license revenue in fiscal
1997 compared to fiscal 1996 reflects a reduced acceptance of the Company's
products or a reduced competitive advantage of its products. The Company
believes that this decrease was primarily attributable to the slowing growth in
the market for RDBMS products and customer uncertainty about the Company's
financial condition and viability, due to the Company's operating losses in the
first three quarters of fiscal 1997, the announcement of the restatement, the
delays in reporting operating results for the second and third quarters of
fiscal 1997, the threatened de-listing of the Company's Common Stock from the
Nasdaq National Market as a result of the Company's failure to satisfy its
public reporting obligations, and the Company's actions to restructure
operations and reduce operating expenses. In addition, the Company experienced a
significant turnover in senior management sales positions during 1997, which
adversely affected sales. During the fourth quarter of fiscal 1997, the Company
filled certain key sales positions through new hires, internal promotion and
reorganization of its sales force.

30
<PAGE>
License revenues increased 9% to $502.7 million for fiscal 1996 from $462.1
million for fiscal 1995. The license revenue growth during fiscal 1996 reflects
an increase in sales of the Company's server products, particularly the
Company's flagship database server, OnLine Dynamic Server, partially offset by a
decrease in license revenues from its database tool products. The increase in
server product revenues during fiscal 1996 reflected continued acceptance of the
Company's server products. The Company believes that the RDBMS industry has
benefited from market acceptance of UNIX, Windows, Windows NT and other open
operating environments and trends to downsize from large proprietary computer
systems. The Company believes that the decline in license revenues derived from
its database tool products is primarily the result of competitive product
offerings from other companies.

At December 31, 1997, 1996 and 1995 licenses not resold by resellers
representing approximately $180.0 million, $239.5 million and $83.6 million,
respectively, were recorded as advances from customers and financial
institutions and had not been recognized as earned revenue. Licenses originally
recorded as advances from customers and financial institutions representing
approximately $64.8 million, $58.2 million and $34.2 million were sold through
reseller channels to end users during fiscal 1997, 1996 and 1995, respectively,
and recognized as earned revenue. The Company estimates that approximately $50
to $70 million of the advances from customers and financial institutions of
$180.0 million at December 31, 1997 will be sold through to end-users during
fiscal 1998. Nevertheless, there can be no assurances that such licenses will be
resold. If the underlying license agreements expire and are not renewed prior to
resellers' selling all licenses to end users and the Company has no remaining
obligations, the remaining revenue relating to customers' advances will be
recognized in the quarter following the expiration of the reseller license
agreements.

The Company's license transactions can be relatively large in size and
difficult to forecast both in timing and dollar value. As a result, these
transactions have caused fluctuations in net revenues and net income (loss)
because of the relatively high gross margin on such revenues. As is common in
the industry, a disproportional amount of the Company's license revenue is
derived from transactions that close in the last weeks or days of a quarter. The
timing of closing large license agreements also increases the risk of
quarter-to-quarter fluctuations. The Company expects that these types of
transactions and the resulting fluctuations will continue.

The Company is currently unable to forecast whether the decreases in license
revenue experienced in fiscal 1997 will continue in fiscal 1998. During 1997,
substantial uncertainty existed about the Company's business and financial
condition. The Company believes that various actions taken by the Company during
1997 have substantially improved its financial condition. See "--Restructuring
Charges" and "--Liquidity and Capital Resources." Nevertheless, adverse market
conditions, including significant competive pressures and ongoing customer
uncertainty about the Company's financial condition and business prospects,
could continue to have an adverse effect on license revenues and results of
operations.

SERVICE REVENUES

Service revenues increased 23% to $285.7 million for fiscal 1997 from $231.8
million for fiscal 1996. Service revenues increased 33% to $231.8 million for
fiscal 1996 from $174.5 million for fiscal 1995. Service revenues accounted for
43%, 32% and 27% of total revenues in fiscal 1997, 1996 and 1995, respectively.
As the Company's products become more complex, more support services are
expected to be required. The Company intends to satisfy this requirement through
internal support, third-party services and OEM support. Service revenues are
comprised of maintenance, consulting and training revenues. The Company
continues to emphasize support services as a source of revenue and the growth
achieved in absolute dollars reflects the growth in the Company's installed base
and strategic focus on providing consulting services for its customers. The
year-to-year increases in service revenues as a percentage of total revenues
reflect the fact that service revenues have continued to grow while license
revenues declined substantially in fiscal 1997.

31
<PAGE>
Revenue derived from post-contract technical support and fees for software
updates increased 18% to $188.1 million in fiscal 1997 from $159.5 million in
fiscal 1996 and 31% in fiscal 1996 from $121.9 million in fiscal 1995. This
increase is attributable principally to maintenance contracts for new license
sales in each year as well as the renewal of existing maintenance contracts. In
the event the Company continues to experience substantial declines in license
revenue, such declines would be expected to have an adverse effect on growth in
service revenues.

Consulting and training revenues increased 35% to $97.6 million in fiscal
1997 from $72.3 million in fiscal 1996 and 38% in fiscal 1996 from $52.6 million
in fiscal 1995. The growth in the consulting and training practice was driven by
increased demand for consulting services primarily in North America and in
Europe. Some significant one-time large consulting contracts were also executed
in fiscal 1997 and contributed to the significant increase of consulting
revenues year over year. There can be no assurances that similar one-time large
consulting contracts will be entered into in future periods. Failure to secure
such contracts may have an adverse impact on the growth of service revenues.

GEOGRAPHIC DISTRIBUTION

The Company's distribution markets are organized into four general markets:
North America; Europe, the Middle East and Africa; Latin America; and the
Asia/Pacific region, including Japan. The North America, Europe, Latin America
and Asia/Pacific organizations contributed 46%, 34%, 8% and 12% of the Company's
net revenues, respectively, in fiscal 1997, compared to 46%, 34%, 7% and 13%,
respectively, in fiscal 1996 and 45%, 36%, 6% and 13%, respectively, in fiscal
1995.

Approximately 54%, 54% and 55% of Informix's net revenues were derived from
sales to foreign customers in fiscal 1997, 1996 and 1995, respectively. Informix
expects that foreign revenues will continue to provide a significant portion of
total revenues. However, changes in foreign currency exchange rates, the
condition of local economies, and the general volatility of software markets may
result in a higher or lower proportion of foreign revenues in the future. In
Europe and Asia/Pacific most revenues and expenses are now denominated in local
currencies. The U.S. dollar strengthened in fiscal 1997 against the major
European and Asia/Pacific currencies, which resulted in lower revenue and
expenses recorded when translated into U.S. dollars, compared with the prior
year periods. Although the Company has also increased its direct presence in
Latin America, a significant percentage of this region's revenue is still
denominated in U.S. dollars. Although the effect was not significant in fiscal
1997, the Company has in the past experienced significant currency fluctuations
in Mexico, and to a lesser extent, other Latin American countries, and expects
such fluctuations may occur in the future. The Company's operating and pricing
strategies take into account changes in exchange rates over time; however, the
Company's results of operations may be significantly affected in the short term
by fluctuations in foreign currency exchange rates. In addition, the current
continued weakness observed in Asian currencies may result in reduced revenues
from the countries affected by this condition, thus having a negative impact on
the overall performance of the Company.

CONCURRENT TRANSACTIONS

Principally during fiscal 1996, the Company entered into software license
agreements with certain computer and service vendors where the Company
concurrently committed to acquire goods and services. These concurrent
transactions in fiscal 1996 included license agreements of approximately $170.0
million and a commitment by the Company to acquire goods and services in the
aggregate of approximately $130.0 million. Concurrent transactions in 1997
included license agreements of approximately $21 million and a commitment by the
Company to acquire goods and services in the aggregate of approximately $50
million. See Notes 1 and 2 of Notes to Consolidated Financial Statements.

32
<PAGE>
COST OF SOFTWARE DISTRIBUTION

<TABLE>
<CAPTION>
1997 CHANGE 1996 CHANGE 1995
--------- --------- --------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Manufactured cost of software distribution.......................... $ 26.9 (16)% $ 32.2 26% $ 25.6
Percentage of license revenue....................................... 7% 6% 6%
Amortization of capitalized software................................ $ 21.4 47% $ 14.6 21% $ 12.0
Percentage of license revenue....................................... 6% 3% 3%
Write-down to net realizable value.................................. $ 14.7 N.M. -- N.M. --
Percentage of license revenue....................................... 4%
Cost of software distribution....................................... $ 63.0 35% $ 46.8 24% $ 37.6
Percentage of license revenue....................................... 17% 9% 8%
</TABLE>

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

N.M.=Not meaningful

Cost of software distribution increased to $63.0 million for fiscal 1997
from $46.8 million and $37.6 million for fiscal 1996 and 1995, respectively.
Software distribution costs consist primarily of (i) manufacturing and related
costs such as media, documentation, product assembly and purchasing costs,
freight, customs, and third-party royalties and (ii) amortization of previously
capitalized software development costs, including adjustments to the carrying
value of such capitalized costs based on changes to the carrying value of such
capitalized costs based on changes to the Company's estimates of the net
realizable value of related products.

Excluding amortization and write-down to net realizable value of previously
capitalized software development costs, cost of software distribution as a
percentage of license revenue was 7% for fiscal 1997 and 6% for both 1996 and
1995. In the future, the cost of software distribution as a percentage of
revenue may vary depending upon whether the product is reproduced by the Company
or by its customers.

Amortization of capitalized software costs commences the quarter following
product introduction. Capitalized software amortization increased 47% to $21.4
million for fiscal 1997 from $14.6 million for the prior year period. The
increase in amortization of capitalized software in absolute dollars and as a
percentage of net revenues is due to the release of the Company's Universal
Server products in the fourth quarter of fiscal 1996. The absolute value of
amortization of capitalized software will vary period to period as new products
are released and other products become fully amortized.

Amortization of capitalized software increased 21% in fiscal 1996 compared
to fiscal 1995 due to the release of several products in the latter half of 1995
and 1996. The absolute value of amortization of capitalized software will vary
from quarter to quarter as new products are released and other product
development costs become fully amortized.

The write-down to net realizable value of $14.7 million during the first
quarter of fiscal 1997 was due to the Company's acquisition of CenterView
Software, Inc. ("CenterView") and the related announcements of its revised tool
strategy. In accordance with Financial Accounting Standards Board Statement No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," a net realizable value test was performed on certain of the
Company's database tool products and resulted in a write-down of $14.7 million
of previously capitalized software costs. In addition to this write-down, the
Company recorded separately a $7.0 million charge for write-off of Acquired
Research and Development in connection with the Company's acquisition of
CenterView. See "--Write-off of Acquired Research and Development."

COST OF SERVICES

Cost of services consists primarily of maintenance, consulting and training
expenses. Cost of services increased 15% to $166.9 million for fiscal 1997 from
$144.9 million for fiscal 1996. Cost of services

33
<PAGE>
increased 58% to $144.9 million for fiscal 1996 from $91.5 for fiscal 1995. The
overall growth in cost of services of 15% between fiscal 1996 and 1997 is
consistent with the 23% growth in service revenues over the same period. The
cost of services increased significantly in fiscal 1996 as the Company
substantially expanded its consulting practice in the United States and Europe
as well as its technical support organization in order to provide customer
assistance for the Online Dynamic Server product line. Cost of services
decreased as a percentage of service revenues to 58% for fiscal 1997 compared to
62% for the same period in 1996. During fiscal 1997, gross margins increased
relative to both support revenue and consulting/training revenue, particularly
in the third and fourth quarters of that year. The Company believes that the
increased margins during fiscal 1997 were principally attributable to more
efficient delivery of services. The increase in cost of services in fiscal 1996
in absolute dollars and as a percentage of net revenues compared to the prior
year is primarily due to the Company's expansion of consulting and support
service capabilities as products have become more complex.

SALES AND MARKETING EXPENSES

Sales and marketing expenses increased less than 1% to $417.2 million for
fiscal 1997 from $413.7 million for fiscal 1996,. Sales and marketing expenses
increased 37% to $413.7 million for fiscal 1996 from $301.9 million for fiscal
1995. As a percentage of revenues, sales and marketing expenses increased to 63%
in fiscal 1997 from 56% in fiscal 1996, due to a reduction in net revenues. As a
percentage of revenues, sales and marketing expenses increased to 56% in fiscal
1996 from 47% in fiscal 1995, due to significant increases in sales and
marketing personnel and marketing programs starting in late 1996.

During the late months of fiscal 1996 and in the early months of fiscal
1997, there were significant increases in personnel and expenses as the Company
continued to expand its sales force for anticipated license revenue growth and
continued to implement various marketing programs, including its Information
Superstore program. The Information Superstore program, which was launched in
fiscal 1996 and through the early months of 1997, resulted in increased
depreciation expense due to the fixed asset purchases related to the program.
The slight increase in sales and marketing expense in fiscal 1997 in absolute
dollars compared to fiscal 1996 was a result of continued increased expenses in
the early months of fiscal 1997, offset by a significant reduction in overall
sales and marketing expenses in the second half of fiscal 1997 in connection
with the restructuring plan executed by the Company.

Due to the significant revenue shortfall in the first quarter of fiscal
1997, the Company executed internal restructuring plans in the second quarter
and again in the third quarter, which included reducing headcount, consolidating
facilities and operations, and downsizing, eliminating or converting Information
Superstores into solution labs managed by the Company's consulting practice. The
Company had significantly lower sales and marketing costs in the fourth quarter
of fiscal 1997 as a result of these measures. In the fourth quarter of fiscal
1997, sales and marketing expenses were reduced to $69.3 million. Costs in the
fourth quarter of fiscal 1997 were 43% lower than the prior year quarter and 32%
lower than the third quarter of fiscal 1997.

The significant increase in sales and marketing expenses in fiscal 1996 in
absolute dollars compared to fiscal 1995 was a result of the addition of new
sales offices and sales personnel worldwide as the Company expanded its
worldwide sales organization, the opening of new foreign offices, higher
commission expense associated with the increase of revenues prior to the
restatement and increased marketing programs associated with new product
launches.

34
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES

<TABLE>
<CAPTION>
1997 CHANGE 1996 CHANGE 1995
--------- --------- --------- ---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Incurred product development expenditures......................... $ 161.1 8% $ 148.6 44% $ 103.1
Expenditures capitalized.......................................... 21.8 (23)% 28.4 62% 17.5
Research and development expenses................................. $ 139.3 16% $ 120.2 40% $ 85.6
Expenditures capitalized as a percentage of incurred.............. 14% 19% 17%
</TABLE>

Research and development expenses increased 16% to $139.3 million for fiscal
1997 from $120.2 million for fiscal 1996. Research and development expenses
increased 40% to $120.2 million for fiscal 1996 from $85.6 million for fiscal
1996. The year-to-year increase in research and development expenses in absolute
dollars for fiscal 1997, is attributable principally to an increase in staff
which occurred during the early part of fiscal 1997, working on new products and
product extensions. The year-to-year increase in research and development
expenses in absolute dollars for fiscal 1996 is attributable principally to an
increase in staff working on the development of new products and product
extensions, including Universal Server.

Informix accounts for its software development expenses in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." This statement
requires that, once technological feasibility of a developing product has been
established, all subsequent costs incurred in developing that product to a
commercially acceptable level be capitalized and amortized ratably over the
revenue life of the product.

Prior to fiscal 1997, the higher capitalization in absolute dollars of
product development expenditures from year to year resulted from an increase in
the work involved in projects having already reached technological feasibility
as they neared their release dates, including Universal Data Options formerly
Informix Universal Server.

The Company believes that research and development expenditures are
essential to maintaining its competitive position in its primary markets and
expects the expenditure levels to continue to constitute a significant
percentage of revenues.

GENERAL AND ADMINISTRATIVE EXPENSES

In fiscal 1997, general and administrative expenses increased 36% to $87.5
million from $64.4 million for fiscal 1996. In fiscal 1996, general and
administrative expenses increased 26% to $64.4 million from $51.1 million for
fiscal 1995. The increase in fiscal 1997 in general and administrative expenses
in absolute dollars and as a percentage of net revenue was primarily the result
of the continued expansion of the Company's international operations, higher bad
debt expense of $4.6 million, incremental legal and auditing expenses of $8
million resulting from the stockholders' litigation and the restatement of the
Company's financial statements, and the write-off of certain assets of $2.2
million. General and administrative expenses increased in absolute dollars in
1996 compared to 1995 as a result of the continued expansion of the Company's
international operations.

WRITE-OFF OF GOODWILL AND OTHER LONG-TERM ASSETS

In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company records impairment losses on long-lived assets used
in its operations when events and circumstances indicate that the assets might
be impaired and the estimated future undiscounted cash flows to be generated by
those assets are less than the assets' carrying amounts.

35
<PAGE>
In the first quarter of fiscal 1997, the Company's Japanese subsidiary
experienced a significant shortfall in business activity compared to historical
levels. This fact, coupled with continuing competitive pressures in the Japanese
market, resulted in the Company adjusting its forecasts of the subsidiary's
future cash flows and further led the Company to evaluate the recoverability of
the subsidiary's long-lived assets, including computer and other equipment,
acquired intangible assets and goodwill. As a result of this evaluation, the
Company determined that the carrying value of these long-lived assets had been
impaired and, accordingly, recorded a charge in the first quarter of $30.5
million to write-down the assets' carrying value to their estimated fair value.
Fair value was determined using estimated future discounted cash flows of the
subsidiary and/or resale values as appropriate.

WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT

In February 1997, the Company acquired all of the outstanding capital stock
of CenterView, a privately owned corporation that provides software tools for
application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been accounted for as a purchase and,
based on an independent appraisal of all the assets acquired and liabilities
assumed, the purchase price was allocated to the specifically identifiable
tangible and intangible assets acquired, including approximately $7.0 million of
purchased research and development which has been charged to operations in the
period the acquisition was consummated, the first quarter of fiscal 1997.

Based on a review of CenterView's current suite of products, the Company's
management identified and classified future versions of the Company's Data
Director product as in-process technology, specifically Versions 3.0 and 4.0, as
of the date of its acquisition. Data Director is an integrated development
extension for Microsoft Visual Basic that enables companies to build corporate
Intranet and client/server applications in a single environment. Data Director
enhances Visual Basic with a model-driven data access engine that manages all
database interactions between client and server, eliminating the complexity
traditionally associated with client/server development and enabling companies
to build client/server applications faster and more efficiently than with Visual
Basic alone.

Based on discussions with CenterView management, including project
development project managers regarding the stage of development of Versions 3.0
and 4.0, it was determined that these projects had not reached technological
feasibility as of the date of the CenterView acquisition, nor did these projects
have any alternative future use. This determination was based primarily on an
assessment of the history of the research and development schedules for the
projects, their current stage of development, the risks inherent in completing
the incremental research and development efforts necessary to reach
technological feasibility, and the planned general release dates. Version 3.0
was scheduled for first customer release in July 1997 while Version 4.0 was
anticipated to reach first customer release in April 1998. Based on the
discussions with CenterView management regarding historical product releases, it
was determined that commercial release occurs approximately two to three months
after first customer introduction of the product. The projects are expected to
produce positive levels of cash flow during the year ended December 31, 1998.
Moreover, the Company estimated that the costs to complete these projects would
be approximately $8.4 million in fiscal 1997 and approximately $4.2 million in
fiscal 1998. These figures were estimated by considering (i) the development
schedules of the in-process projects; (ii) complexity of the identified
development projects; and (iii) number of engineer hours per project, per year.

The market for the Company's Data Director product is characterized by
rapidly changing technology, frequent new product introductions and evolving
market and customer demands. Although CenterView successfully developed and
marketed Data Director Version 2.1 and previous versions, there can be no
assurance that the Company will be successful in developing and marketing the
enhanced versions of the Data Director product. As such, the in-process
technology embedded in Data Director Versions 3.0 and 4.0 was valued utilizing
risk-adjusted cash flows to incorporate these and other uncertainties associated
with

36
<PAGE>
the Company's product development efforts. Failure to successfully complete
these efforts in a timely manner could adversely affect the market potential for
the acquired CenterView products.

RESTRUCTURING CHARGES

In June and again in September 1997, the Company approved plans to
restructure its operations in order to bring expenses in line with forecasted
revenues. In connection with these restructurings, the Company substantially
reduced its worldwide headcount and consolidated facilities and operations to
improve efficiency. The following analysis sets forth the significant components
of the restructuring reserve at December 31, 1997:

<TABLE>
<CAPTION>
RESTRUCTURING NON-CASH CASH ACCRUAL BALANCE AT
EXPENSE COSTS PAYMENTS DECEMBER 31, 1997
------------- ----------- ----------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and benefits............... $ 21.9 $ -- $ 19.5 $ 2.4
Write-off of assets.................. 48.2 48.2 -- --
Facility charges..................... 34.7 7.7 3.8 23.2
Other................................ 3.4 2.2 .2 1.0
------ ----- ----- -----
$ 108.2 $ 58.1 $ 23.5 $ 26.6
------ ----- ----- -----
------ ----- ----- -----
</TABLE>

Severance and benefits represent the reduction of approximately 670
employees, primarily sales and marketing personnel, on a worldwide basis.
Temporary employees and contractors were also reduced. Write-off of assets
include the write-off or write-down in carrying value of equipment as a result
of the Company's decision to reduce the number of Information Superstores
throughout the world, as well as the write-off of equipment associated with
headcount reductions. The equipment subject to the write-offs and write-downs
consists primarily of computer servers, workstations, and personal computers
that will no longer be utilized in the Company's operations. These assets were
written down to their fair value less cost to sell. The carrying value at
December 31, 1997, of computer equipment included in the restructuring
activities during the second and third quarters of 1997 and intended to be
disposed of, is approximately $2.2 million. Facility charges include early
termination costs associated with the closing of certain domestic and
international sales offices.

As a result of these restructuring activities, the Company was able to
reduce its operating expenses, in the form of lower depreciation expense,
reduced salaries and wages, and lower rent expense, by approximately $12.2
million and $19.7 million, respectively, in the third and fourth quarters of
1997 compared to quarterly expense levels incurred in 1997 prior to the
initiation of the restructuring activities.

The total Restructuring Expense decreased by $1.2 million during the fourth
quarter of fiscal 1997 primarily due to adjusting the original estimate of the
loss to be incurred on the sale of land to the actual loss.

The Company expects to complete most of the actions associated with
restructuring by the end of the second quarter of fiscal 1998.

MERGER EXPENSES

In the first quarter of 1996, the Company recorded expenses of approximately
$5.9 million as a result of the acquisition of Illustra, which was accounted for
as a pooling of interests. These costs consisted primarily of investment
banking, legal and accounting fees.

37
<PAGE>
INTEREST INCOME

Interest income was $5.6 million as compared to $9.9 million and $8.1
million for fiscal 1997, 1996 and 1995, respectively. The decline in fiscal 1997
in comparison to fiscal 1996 resulted from a reduction in the average
interest-bearing cash and short-term investments balances in fiscal 1997. The
reduction in cash is due to lower sales and higher expenses. The increase in
interest income from fiscal 1995 to fiscal 1996 was due to higher balances of
cash and cash equivalents and short-term investments, offset by slightly lower
interest rates.

INTEREST EXPENSE

Interest expense decreased to $9.4 million from $12.5 million and increased
from $6.3 million for fiscal 1997, 1996, and 1995, respectively. Interest
expense principally relates to interest charges incurred in connection with
financing of customer accounts receivable and has decreased due to a decrease in
the amount of receivables financed.

OTHER INCOME, NET

Other income, net, increased to $10.5 million for fiscal 1997 from $2.9
million and $0.1 million in fiscal 1996 and 1995, respectively. The increase
from fiscal 1996 was due primarily to $8.1 million of net gains on the sale of
marketable securities and $8.0 million of foreign currency transaction gains,
offset partially by adjustments of $4.5 million to the carrying value of
strategic investments and $1.1 million of other expenses. Other income, net, in
fiscal 1996 consisted of $3.9 million of gain on sale of marketable securities
offset by other net expenses of $1.0 million.

The restatement of the 1996, 1995 and 1994 financial statements resulted in
a change in the Company's foreign currency denominated intercompany accounts
payable and accounts receivable balances. As a result, certain foreign currency
transaction gains and losses realized due to fluctuation in the related asset
and liability currency exchange rates were not offset by underlying gains and
losses on forward foreign currency exchange contracts used to hedge those
foreign currency exposures. The Company recorded net foreign currency
transaction gains of approximately $8.0 million, $.3 million and $.2 million in
fiscal 1997, 1996 and 1995, respectively; the restatement of the Company's
financial statements affected the recorded net foreign currency transaction
gains and (losses) as follows: $7.5 million, $(0.7) million, $0.1 million, and
$(0.5) million in fiscal 1997, 1996, 1995 and 1994, respectively.

INCOME TAXES

In fiscal 1997, income tax expense resulted primarily from foreign
withholding taxes and taxable earnings in certain foreign jurisdictions. The
expected tax benefit computed by applying the federal statutory rate to the loss
before income taxes was substantially offset by a corresponding increase in the
valuation allowance for net deferred tax assets. The Company has provided a
valuation allowance for the net deferred tax assets in excess of amounts
recoverable through carryback of net operating losses. Accordingly, realization
of the net deferred tax asset at December 31, 1997 of $34 million is not
dependent on future taxable income.

In fiscal 1996, income tax expense resulted from an increase in the
valuation allowance for deferred tax assets attributable to foreign net
operating loss carryforwards, foreign withholding taxes and taxable earnings in
certain foreign jurisdictions.

38
<PAGE>
IMPACT OF RESTATEMENT ON QUARTERLY FINANCIAL INFORMATION

The restatement of the financial statements for fiscal 1996, 1995 and 1994
and the first quarter of fiscal 1997 had the following impact on previously
reported quarterly financial information.
<TABLE>
<CAPTION>
FOURTH
FIRST QUARTER SECOND QUARTER THIRD QUARTER QUARTER
------------------------ ----------------------- ----------------------- ------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED
------------ ---------- ------------ --------- ------------ --------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Net revenues.......................... $ 133,664 $ 149,902 $ 182,012 $ 182,527 $ 149,911 $ 150,184 $ 181,152
Gross profit (2)...................... 63,185 79,616 123,527 124,042 97,625 97,898 132,266
Net income (loss) (1)(2).............. (140,107) (144,161) (111,377) -- (110,523) -- 9,194
Preferred stock dividend.............. -- -- -- -- -- -- (301)
Value assigned to warrants............ -- -- -- -- -- -- (1,601)
------------ ---------- ------------ --------- ------------ --------- ------------
Net income (loss) applicable to common
stockholders........................ (140,107) (144,161) (111,377) -- (110,523) -- 7,292
Net income (loss) per common share:
Basic............................... $ (0.93) $ (0.95) $ (0.73) $ -- $ (0.73) $ -- $ 0.05
Diluted............................. (0.93) (0.95) (0.73) -- (0.73) -- 0.04

Year ended December 31, 1996
Net revenues.......................... $ 204,021 $ 164,985 $ 226,282 $ 160,290 $ 238,180 $ 190,600 $ 270,828
Gross profit.......................... 160,584 121,758 178,474 113,041 189,003 141,619 218,342
Net income (loss)..................... 15,891 (15,377) 21,628 (34,083) 26,181 (17,095) 34,118
Net income (loss) per share:
Basic............................... $ 0.11 $ (0.10) $ 0.15 $ (0.23) $ 0.17 $ (0.11) $ 0.23
Diluted............................. 0.10 (0.10) 0.14 (0.23) 0.17 (0.11) 0.22

Year ended December 31, 1995
Net revenues.......................... $ 148,037 $ 146,325 $ 164,068 $ 142,381 $ 182,701 $ 168,002 $ 219,413
Gross profit.......................... 121,839 120,343 134,042 112,432 150,183 137,668 178,396
Net income (loss)..................... 17,646 16,177 20,184 (2,731) 23,896 7,759 35,918
Net income (loss) per share:
Basic............................... $ 0.12 $ 0.11 $ 0.14 $ (0.02) $ 0.16 $ 0.05 $ 0.24
Diluted............................. 0.12 0.11 0.14 (0.02) 0.16 0.05 0.23

Year ended December 31, 1994
Net revenues.......................... $ 96,242 $ 92,763 $ 106,214 $ 96,217 $ 117,081 $ 111,428 $ 150,575
Gross profit.......................... 81,429 77,950 89,765 79,768 98,106 92,453 129,520
Net income (loss)..................... 11,540 8,922 12,210 4,686 15,446 11,191 22,752
Net income (loss) per share:
Basic............................... $ 0.09 $ 0.07 $ 0.09 $ 0.03 $ 0.11 $ 0.08 $ 0.16
Diluted............................. 0.08 0.06 0.09 0.03 0.11 0.08 0.16

RESTATED
---------

<S> <C>
Year ended December 31, 1997
Net revenues.......................... $ 181,279
Gross profit (2)...................... 132,393
Net income (loss) (1)(2).............. --
Preferred stock dividend.............. --
Value assigned to warrants............ --
---------
Net income (loss) applicable to common
stockholders........................ --
Net income (loss) per common share:
Basic............................... $ --
Diluted............................. --
Year ended December 31, 1996
Net revenues.......................... $ 218,665
Gross profit.......................... 166,486
Net income (loss)..................... (7,010)
Net income (loss) per share:
Basic............................... $ (0.05)
Diluted............................. (0.05)
Year ended December 31, 1995
Net revenues.......................... $ 179,839
Gross profit.......................... 136,971
Net income (loss)..................... 17,372
Net income (loss) per share:
Basic............................... $ 0.12
Diluted............................. 0.11
Year ended December 31, 1994
Net revenues.......................... $ 151,561
Gross profit.......................... 130,506
Net income (loss)..................... 23,494
Net income (loss) per share:
Basic............................... $ 0.17
Diluted............................. 0.16
</TABLE>

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

(1) The Company recorded in the second quarter and again in the third quarter of
fiscal 1997, restructuring charges of $59.6 million and $49.7 million,
respectively. The total restructuring expenses decreased by $1.2 million
during the fourth quarter of fiscal 1997 primarily due to adjusting the
original estimate of the loss to be incurred on the sale of land to the
actual loss. (See Note 13 to the Consolidated Financial Statements)

(2) In the first quarter of fiscal 1997, the Company recorded a charge of $30.5
million to write down the carrying values of certain of its Japanese
subsidiary's long-lived assets to their fair values. During the same
quarter, the Company also recorded a charge of $14.7 million to write down
the carrying value of capitalized software development costs for certain
products to their net realizable values.

39
<PAGE>
RESULTS OF OPERATIONS--RECENT OPERATING RESULTS

On April 30, 1998 the Company released the following results for the first
quarter ended March 31, 1998:

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and short-term investments................................................................. $ 165,490
Accounts receivable, net........................................................................ 135,969
Deferred taxes.................................................................................. 13,219
Other current assets............................................................................ 27,045
--------------
Total current assets.......................................................................... 341,723
Property and equipment, net....................................................................... 86,913
Software costs, net............................................................................... 38,826
Deferred taxes.................................................................................... 45,906
Intangible assets, net............................................................................ 7,068
Other assets...................................................................................... 29,834
--------------
Total assets.................................................................................. $ 550,270
--------------
--------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................ $ 30,845
Accrued expenses................................................................................ 56,125
Accrued employee compensation................................................................... 44,309
Income taxes payable............................................................................ 4,442
Deferred maintenance revenue.................................................................... 110,171
Advances from customers and financial institutions.............................................. 156,505
Accrued restructuring charges................................................................... 17,344
Other current liabilities....................................................................... 8,468
--------------
Total current liabilities..................................................................... 428,209
Other liabilities................................................................................. 6,187
Deferred taxes.................................................................................... 20,903

Stockholders' equity:
Convertible preferred stock..................................................................... 1
Common stock.................................................................................... 1,674
Additional paid-in capital...................................................................... 368,497
Retained earnings (accumulated deficit)......................................................... (271,066)
Unrealized gain (loss) on available-for-sale securities, net of tax............................. 3,207
Foreign currency translation adjustment......................................................... (7,342)
--------------
Total stockholders' equity.................................................................... 94,971
--------------
Total liabilities and stockholders' equity.................................................... $ 550,270
--------------
--------------
</TABLE>

40
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C>
Net revenues:
Licenses........................................................................................ $ 89,462
Services........................................................................................ 77,720
--------------
167,182

Costs and expenses:
Cost of software distribution................................................................... 9,833
Cost of services................................................................................ 37,425
Sales and marketing............................................................................. 63,889
Research and development........................................................................ 36,619
General and administrative...................................................................... 13,531
Restructuring................................................................................... (3,252)
--------------
158,045
--------------
Operating income.................................................................................. 9,137
Interest income................................................................................... 2,038
Interest expense.................................................................................. (1,882)
Other income (expense), net....................................................................... (315)
--------------
Income before income taxes........................................................................ 8,978
Income taxes...................................................................................... 1,900
--------------
Net income........................................................................................ 7,078
--------------
--------------
Preferred stock dividend.......................................................................... (603)
Value assigned to warrants........................................................................ (1,594)
--------------
Net income applicable to common stockholders...................................................... $ 4,881
--------------
--------------
Net income per common share....................................................................... $ 0.03
Net income per common share assuming dilution..................................................... $ 0.03
Weighted average number of common shares outstanding
Basic........................................................................................... 160,172
Diluted......................................................................................... 168,653
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments............................. $ 155.5 $ 261.0 $ 253.2
Working capital (deficit)..................................................... (140.2) 3.1 163.6
Cash and cash equivalents provided by (used in) operations.................... 144.8 (29.4) 59.3
Cash and cash equivalents used for investment activities...................... (63.1) (145.3) (157.7)
Cash and cash equivalents provided by financing activities.................... 115.2 228.7 136.8
</TABLE>

41
<PAGE>
OPERATING CASH FLOWS

Cash used by operations increased significantly to $144.8 million for the
year ended December 31, 1997 from $29.4 million in 1996 due to operating
expenses in excess of revenues. Cash from operations did not provide sufficient
resources to fund the Company's operations in fiscal 1997 and 1996.

The net loss of $356.9 million for fiscal 1997, included a number of
non-cash transactions. These non-cash transactions included write-downs of long
term assets, capitalized software, goodwill and acquired research and
development and certain non-cash restructuring charges which partially offset
the net loss resulting in net cash used by operations of $144.8 million.

Net accounts receivable decreased by $52.5 million to $142.0 million as of
December 31, 1997 from December 31, 1996. This decrease resulted from a $37.4
million decrease in revenues during the fourth quarter of fiscal 1997 as
compared to the fourth quarter of fiscal 1996 partially offset by a reduction in
its financing programs with third-party financial institutions in fiscal 1997.
Days sales outstanding ("DSO") was 71, 83 and 79 at December 31, 1997, 1996 and
1995, respectively. The Company increased its efforts to improve cash
collections in fiscal 1997 in response to its deteriorating cash position during
the year. The Company expects DSO in 1998 to approximate or to slightly increase
from the fiscal 1997 levels. Cash received from customers and third-party
financial institutions in advance of revenue being recognized is recorded as
advances on unearned license revenue.

INVESTING CASH FLOWS

Net cash and cash equivalents used in investing activities decreased for the
year ended December 31, 1997 compared with the same period in 1996. The decrease
was due in large part to lower investments of excess cash due to the significant
decline in cash balances over the year. Significant investing activities,
excluding the investment of excess cash, during the year included additions to
software costs of $20.8 million, the sale of available-for-sale securities for
$46.0 million, purchase of the Santa Clara property and capital equipment of
$92.2 million, the purchase of CenterView for $8.7 million and net proceeds from
selling the Santa Clara property of $59.3 million.

The Company sold its interest in a strategic investment during fiscal 1997
which resulted in net proceeds of $10.4 million.

The Company planned on relocating its corporate headquarters to Santa Clara,
California, approximately 15 miles to the south of the Company's headquarters.
In January 1997, the Company entered into a two year lease for 27 acres of
undeveloped commercial real estate which required a pledge of $61.5 million in
cash into a non-interest bearing collateral account controlled by an affiliate
of the lessor. In April 1997, the Company exercised its option to purchase the
land for $61.5 million with the intent to arrange for the sale of the parcels to
unrelated third parties. The $61.5 million is reflected in the "purchases of
land and property and equipment" line of the cash flow statement. The land sales
closed in the fourth quarter of fiscal 1997, and $59.3 million is disclosed on
the "proceeds from disposal of land and property and equipment."

In addition, during fiscal 1997, the Company acquired $30.7 million of
capital equipment consisting primarily of computer equipment, computer software
and office equipment. Capital equipment purchases were primarily the result of
the Company's expected expansion during the first half of fiscal 1997.

In February 1997, the Company acquired all of the outstanding capital stock
of Centerview, a privately owned corporation that provides software tools for
application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been accounted for as a purchase and,
based on an independent appraisal of all the assets acquired and liabilities
assumed, the purchase price was allocated to the specifically identifiable
intangible assets acquired, including approximately $7.0 million of purchased
research and

42
<PAGE>
development which has been charged to operations in the period the acquisition
was consummated the first quarter of fiscal 1997.

FINANCING

Net cash and cash equivalents provided by financing activities in fiscal
1997 decreased in comparison to the same period in 1996. A significant portion
of the decrease was the decline in advances from customers and financial
institutions, partially offset by the proceeds from issuances of preferred and
common stock.

The Company may receive cash, either from the customer, or from a financial
institution to whom the customer payment streams due under software license
arrangements are sold, prior to the time the license fee is recognized as earned
revenue. If the Company fails to comply with the contractual terms of the
specific license agreement, the Company could be required to refund to the
customer or the financial institution the amount(s) received. However, the
Company does not believe the refunds of amounts received, if any, will have a
material effect on the Company's results of operations, financial position or
cash flows. During fiscal 1997, 1996 and 1995, the Company received $21.8
million, $207.2 million and $109.3 million, respectively, of license fee
payments in advance of revenue being recognized under such transactions.

Proceeds from common stock represent stock options exercised and purchases
under the employee stock purchase plan. In September 1997, the Company's Board
of Directors authorized the repricing of outstanding stock options to purchase
Common Stock under the Company's stock option plans so that the exercise price
of repriced options would equal the closing sales price of the Company's Common
Stock as reported on The Nasdaq Stock Market on November 17, 1997, which was
$7.1563. See "Executive Compensation--Stock Option Repricing."

In August 1997, the Company raised net proceeds of $37.6 million through the
issuance of the Series A Preferred. In November 1997, the Company raised an
additional $50.0 million in net proceeds (excluding a $1.0 million fee paid to a
financial advisor of the Company) through the issuance of the Series B
Preferred. Simultaneously with the closing of the Series B Preferred, the
holders of the Series A Preferred exchanged all their outstanding shares of
Series A Preferred for the newly designated Series A-1 Preferred, having
substantially similar rights, preferences and privileges as the Series A
Preferred with the exception of certain amendments, including revisions to the
terms under which such shares become mandatorily redeemable.

The Company assigned its leasehold interest and its related obligations
under an office space lease in Santa Clara, California to an unrelated third
party. The lease term was for fifteen years and minimum lease payments amount to
$96.0 million over the term. The Company remains contingently liable for minimum
lease payments under the terms of the assignment.

As of December 31, 1997, the Company was contractually obligated to purchase
approximately $4.4 million of various computer equipment.

The Company has several active software development and service provider
contracts with third-party technology providers. These agreements contain
financial commitments by the Company of $15.1 million, $11.4 million, $10.4
million, $7.3 million and $3.5 million in fiscal 1998, 1999, 2000, 2001 and
2002, respectively.

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<PAGE>
receivable and 50 percent of the eligible foreign accounts receivable. Accounts
receivable for an account debtor are ineligible for purposes of the Credit
Facility when (a) such account receivable is outstanding for longer than 60
days, (b) the account debtor or any other person obligated to make payment
thereon asserts any defense, offset, counterclaim or other right to avoid or
reduce the amount of the account receivable, but only to the extent the lenders
reasonably determine a valid defense, offset, counterclaim or other right exists
and then only to the extent of such right, (c) the account debtor or other
person required to make payment thereon is insolvent, subject to bankruptcy or
receivership proceedings or has made an assignment for the benefit of creditors
or whose credit standing is unacceptable to the lenders, and the lenders have so
notified the Company (d) the account debtor is a lender under the Credit
Facility, (e) 30 percent or more of the accounts receivable of any account
debtor is deemed ineligible because such accounts are outstanding for longer
than 60 days thus rendering all the accounts receivable of that debtor
ineligible, and (f) the lender reasonably deems not to qualify an account
receivable as eligible and provides a reasonably detailed written explanation to
the Company. Under the Credit Facility, foreign accounts receivable that are
backed by a letter of credit issued or confirmed by a financial institution
approved by the lenders are deemed to be domestic accounts receivable. As a
result, the aggregate amount available under the Credit Facility will vary from
time to time based on the amount and eligibility of the Company's receivables.
As of December 31, 1997, no borrowings were outstanding under the Credit
Facility, the Company's accounts receivable totaled $142 million and its
borrowing base under the Credit Facility was $47 million.

The purpose of the Credit Facility is to provide the Company working capital
and finance general corporate purposes. The term of the Credit Facility is two
years. Amounts outstanding under the Credit Facility bear interest at a premium
over one of two alternative variable rates selected by the Company. The "Base
Rate" equals the greater of (i) the rate of interest announced by BankBoston,
N.A. as its "base rate" and (ii) the Federal Funds Effective Rate plus 1/2 of 1%
per year. The "Adjusted LIBOR Rate" equals (i) the London Interbank Offered Rate
divided by (ii) one minus the applicable reserve requirement under Regulation D
of the Federal Reserve Board. The maximum premium over the Base Rate is 1.25%,
and the maximum premium over the LIBOR Rate is 2.50%, subject to downward
adjustment based on the Company's realizing certain financial thresholds. The
Credit Facility is secured by all of the assets of Informix Software and the
capital stock of the Company's subsidiaries that are domiciled in the United
States, including Informix Software. The availability of the Credit Facility is
also subject to the Company's compliance with certain covenants, including the
following financial covenants requiring the Company to: (a) maintain a ratio of
1.25 to 1.00 in respect of the sum of cash and acounts receivable to the
difference of current liabilities less deferred and unearned revenues, (b)
maintain quarterly revenues of $150.0 million through June 1998 and $160.0
million thereafter, (c) maintain quarterly operating loss of no more than $10.0
million through the quarter ending March 31, 1998 and a quarterly operating
profit of at least $10 million for the quarter ending June 30, 1998 and a
quarterly operating profit of at least $15 million thereafter. (d) maintain, for
the quarter ending June 30, 1998 and each quarter thereafter, a positive
quarterly cash flow consisting of operating income which does not include any
restated revenue resulting from the Company's November 1997 restatement of its
financial statements, capitalized software costs, capital expenditures or cash
outlays in respect of accrued expenses arising from restructuring charges (but
which income figure does take into account depreciation and amortization
expenses), (e) maintain an interest coverage ratio of 1.25 to 1.00 in respect of
quarterly operating cash flow to interest expense plus scheduled amortization of
debt, (f) refrain from making additional investments in fixed or capital assets,
in any fiscal year, in excess of $15.0 million, plus any carry forward amount
which carry forward amount cannot exceed $5.0 million, and (g) refrain from
entering into any merger, consolidation, reorganization or other transaction
resulting in a fundamental change. At December 31, 1997, the Company was in
compliance with all financial covenants under the Credit Facility.

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<PAGE>
DISCLOSURES ABOUT MARKET RATE RISK

INTEREST RATE RISK. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default, market and reinvestment risk. The Company classifies
its cash equivalents and short-term investments as "fixed rate" if the rate of
return on such instruments remains fixed over their term. These "fixed-rate"
investments include fixed rate U.S. government securities, municipal bonds, time
deposits and certificates of deposits. The Company classifies its cash
equivalents and short-term investments as "variable rate" if the rate of return
on such investments varies based on the change in a predetermined index or set
of indices during their term. These "variable-rate" investments primarily
include money market accounts held at various securities brokers and banks. The
table below presents the amounts and related weighted interest rates of the
Company's investment portfolio at December 31, 1997:

<TABLE>
<CAPTION>
AVERAGE
INTEREST RATE COST FAIR VALUE
--------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash equivalents
Fixed rate................................................................. 6.02% $ 71,161 $ 71,178
Variable rate.............................................................. 5.59 1,353 1,353
Short-term investments
Fixed rate................................................................. 5.61 15,899 15,898
Variable rate.............................................................. 5.73 117 117
</TABLE>

FOREIGN CURRENCY RISK. The Company enters into forward foreign exchange
contracts primarily to hedge the value of accounts receivable or accounts
payable denominated in foreign currencies (mainly European and Asian foreign
currencies) against fluctuations in exchange rates until such receivables are
collected or such payables are disbursed. The Company does not enter into
forward foreign exchange contracts for speculative or trading purposes. The
Company's accounting policies for these contracts are based on the Company's
designation of the contracts as hedging transactions. The criteria the Company
uses for designating a contract as a hedge include the contract's effectiveness
in risk reduction and one-to-one matching of derivative instruments to
underlying transactions. Gains and losses on forward foreign exchange contracts
are deferred and recognized in income in the same period as losses and gains on
the underlying transactions are recognized and generally offset. If an
underlying hedged transaction is terminated earlier than initially anticipated,
the offsetting gain or loss on the related forward foreign exchange contract
would be recognized in income in the same period. Subsequent gains or losses on
the related contract would be recognized in income in each period until the
contract matures, is terminated or sold. The Company operates in certain
countries in Latin America, Eastern Europe and Asia Pacific where there are
limited forward currency exchange markets and thus the Company has unhedged
transaction exposures in these currencies. However, such exposures are not
material to the Company's financial statements for any period presented. In
addition, since the Company enters into forward contracts only as a hedge, any
change in currency rates would not result in any material net gain or loss as
any gain or loss on the underlying foreign currency denominated balance would be
offset by the gain or loss on the forward contract. The table below provides
information about the Company's foreign currency forward exchange contracts. The
information is provided in U.S. dollar equivalents and presents the notional
amount (contract amount) and the weighted average contractual foreign currency
exchange rates. All contracts mature within twelve months.

45
<PAGE>
FORWARD CONTRACTS

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AT DECEMBER 31, 1997 CONTRACT RATE
- ------------------------------------------------------------------- CONTRACT VALUE ------------- FAIR VALUE
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Forward currency contracts sold:
British Pound.................................................... $ 55,740 $ 0.60 $ 241
Deutsche Mark.................................................... 17,050 1.77 (75)
French Franc..................................................... 14,139 5.91 (66)
Italian Lira..................................................... 3,901 1,742.34 4
Spanish Peseta................................................... 3,166 149.76 (7)
Swedish Krona.................................................... 1,682 7.76 (3)
Other (individually less than $1 million)........................ 2,090 NM 47
-------------- --------------
Total.............................................................. $ 97,768 $ 141
-------------- --------------
-------------- --------------
Forward currency contracts purchased:
Swiss Franc...................................................... $ 1,636 1.42 $ 16
Dutch Guilder.................................................... 1,096 1.99 5
Other (individually less than $1 million)........................ 2,208 NM 12
-------------- --------------
Total.............................................................. $ 4,940 $ 33
-------------- --------------
-------------- --------------
Grand Total........................................................ $ 102,708 $ 174
-------------- --------------
-------------- --------------
</TABLE>

SUMMARY

The Company believes that its current cash balances, cash available under
the Credit Facility and cash flow from operations will be sufficient to meet its
working capital requirements for at least the next 12 months.

RECENT DEVELOPMENTS

On February 13, 1998, Fletcher exercised the Series A-1 Warrant in part, and
the Company issued 60,000 shares of Series A-1 Preferred to Fletcher for net
proceeds of $14.1 million. The sale of the Series A-1 Warrant Stock was not
registered under the Securities Act pursuant to the exemption provided by
Regulation S.

On February 13, 1998, pursuant to the Subscription Agreement, Fletcher
converted 220,000 shares of Series A-1 Preferred into 12,769,908 shares of the
Company's Common Stock.

In December 1997, the Company's Board of Directors authorized a second
option repricing of outstanding stock options under the Company's stock option
plans so that the exercise price of the repriced options would equal the closing
sales price of the Company's Common Stock as reported on The Nasdaq Stock Market
on January 9, 1998, $5.094. See "Executive Compensation--Stock Option
Repricing."

RECENT ACCOUNTING PRONOUNCEMENTS

In 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition" as amended
by Statement of Position 98-4 (SOP 98-4). The Company will be required to adopt
the provisions of the SOPs' as of January 1, 1998. The adoption may, in certain
circumstances, result in the deferral of software license revenues that would
have been recognized upon delivery of the related software under preceding
accounting standards. In response to these SOPs', the Company will likely change
its business practices and, consequently, the Company cannot quantify the effect
the SOPs' will have on its operating results, financial position or cash flows.

46
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income (FAS No. 130) and Statement No. 131,
Disclosures About Segments of An Enterprise and Related Information (FAS No.
131). FAS No. 130 establishes rules for reporting and displaying comprehensive
income. FAS No. 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during 1998. The Company does not believe that the adoption of either FAS No.
130 or FAS No. 131 will have a material impact on the Company's results of
operations, financial position or cash flows.

47
<PAGE>
BUSINESS

THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS RELATING
TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company is a leading multinational supplier of information management
software. The Company designs, develops, manufactures, markets and supports
relational database management systems ("RDBMS"), connectivity interfaces and
gateways and application development tools for graphical and character-based
software applications as part of an RDBMS. Database management software permits
multiple individual users, employing different application software, to access
and manage the same data concurrently without corrupting the underlying
database. RDBMS software extends the functionality and utility of non-relational
database management software by simplifying the data retrieval process for end-
users, who do not require specific knowledge about the structure of the database
but need only to specify the data to be retrieved. Companies commonly employ
RDBMS software for use in storing, managing and retrieving the large amounts of
data necessary to support internal management information and decision-support
systems as well as mission-critical data processing applications.

The Company believes that technological advances, including the development
and commercialization of the Internet, will lead to increasingly sophisticated
customer requirements for data storage and management beyond the functionality
offered by conventional RDBMS products. In recent years, the types and
quantities of data required to be stored and managed has grown increasingly
complex and includes, in addition to conventional character data, audio, video,
text and three dimensional graphics. In 1996, the Company devoted substantial
resources in the development of object-relational database management systems
("ORDBMS") and tools for applications in multimedia and entertainment, digital
media publishing and financial services.

The Company markets its products to end-users on a worldwide basis directly
through its sales force and indirectly through application resellers, OEMs and
distributors. The principal geographic markets for the Company's products are
North America, Europe, the Asia/Pacific region, and Latin America. In recent
years, approximately half of the Company's total revenues have been generated
outside North America. The Company's principal customers include businesses
ranging from small corporations to Fortune 1000 companies, principally in the
manufacturing, financial services, telecommunications, media, retail/wholesale,
hospitality and government services sectors.

PRODUCTS

INFORMIX DYNAMIC SERVER

Informix Dynamic Server is a high performance, enterprise capable online
transaction processing database server. This product is based on Informix's
Dynamic Scalable Architecture and features parallel data processing capability,
replication and connectivity options built into its core. Informix Dynamic
Server is available in a variety of configurations based upon adding one or more
of the configuration options described below.

Informix also provides a version of Informix Dynamic Server called the
Workgroup Edition, which has been adapted specifically for workgroup
environments.

SERVER CONFIGURATION OPTIONS

Informix makes available five server configuration options, which are
integrated in various combinations along with Informix Dynamic Server to meet
specific customer requirements.

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<PAGE>
The Informix Advanced Decision Support Option extends Informix Dynamic
Server with a variety of decision support functions including summarization,
sampling, and "top-N."

The Informix Extended Parallel Option adapts Informix Dynamic Server to
work within loosely coupled, share-nothing computing architectures, including
clusters of symmetric multiprocessing systems and parallel processing systems.

The Informix Universal Data Option extends Informix Dynamic Server with
support for extensibility and SQL3. Extensibility includes the ability to add
new objects and data types, business specific procedures and logic, and new
indexing search methods to the server, as well as support for DataBlade modules,
which can include a related set of data types, functions and indexes for a
specific purpose.

The Informix MetaCube ROLAP Option adds an on-line analytical processing
engine to Informix Dynamic Server that automatically preconsolidates data and
provides a multidimensional view of data without the constraints of two
dimensional (row and table) data model. This option also includes MetaCube
Explorer; MetaCube Scheduler for batch processing; MetaCube Queryback for
running queries in the background; MetaCube Aggregator for creating and
maintaining aggregates in a data warehouse; MetaCube for Excel which enables
data Warehouse analysis in an Excel spreadsheet environment; and MetaCube for
the Web which brings MetaCube analysis capabilities to intranets.

Finally, the Informix Web Integration Option provides connectivity
between Web servers and Informix Dynamic Server. This option enables developers
to create intelligent web applications based upon database information that
deliver multimedia, tailored Web pages to users.

DATABLADE MODULES

DataBlade modules combine new data types, new functions or methods, and
new indexing operations, which taken together extend Informix Dynamic Server.
The DataBlade modules are used in conjunction with the Universal Data Option.
Informix sells the following DataBlade modules, and others are available through
Informix's partners:

The Informix Video Foundation DataBlade module provides an open and
scalable software architecture that allows strategic third-party development
partners to incorporate specific video technologies such as video servers,
external control devices, compression codes or cataloging tools into database
management applications with the Informix Dynamic Server. In addition, the video
data types and data model allow customers to explore new ways to manipulate
video and associated metadata, or information about the video.

The Informix TimeSeries DataBlade module expands the functionality of
the database by adding support for the management of time-series and temporal
data. The TimeSeries DataBlade module supports a regular or irregular repeating
time-stamped series of any datatype supported by Informix Dynamic Server or any
structure or combination of these. For example, a set of open, high, low, and
close currency values can be used to record a time-based series of stock prices.
The granularity of time recording can be adjusted to suit the unique
requirements of the application. The TimeSeries DataBlade module provides
support for three new datatypes, time-series, calendar and calendar pattern, and
over 80 functions to manage them. The time-series type stores sequences of
time-stamped information, and a related calendar allows access to specific
portions of the time series for update, analysis, display or other uses.

The Informix Geodetic DataBlade module provides geo-spatial datatypes
and functions supporting two-dimensional representation of the earth's surface
based on a geodetic (longitude, latitude and datum) coordinate system. In
addition to two-dimensional geographic feature support, the Geodetic DataBlade
Module allows an altitude range and a time range to be specified.

49
<PAGE>
CONNECTIVITY PRODUCTS

The Company's principal connectivity products include the following:

Informix--Enterprise Gateway Manager is a connectivity tool allowing
applications running on various operating systems to access data sources via
loadable gateway drivers. The Company also offers gateway drivers for Oracle and
Sybase databases. Drivers for additional data sources are available from various
third parties.

Informix--Enterprise Gateway with DRDA is a UNIX based connectivity tool
allowing interoperability to IBM databases such as DB2, DB2/VM and DB2/400 from
Windows and UNIX clients. Informix-Gateway with DRDA allows applications built
with Informix application development tools to access and modify information in
Distributed Relational Database Architecture compliant database management
systems.

Informix--ESQL for C and COBOL are embedded SQL products which permit
developers to take advantage of SQL technology while building applications is in
C or COBOL.

Informix--CLI is a library of low level functions that provide high
performance direct access to Informix databases from applications built in C or
other third generation languages. Informix--CLI is compliant with Microsoft's
ODBC specifications.

DATABASE TOOLS

The Company offers a variety of database application development tools
designed to allow users to build applications. The Company's principal database
tools include:

Informix Data Director for Visual Basic enables developers to prototype,
build, and extend workgroup and enterprise applications. Data Director for
Visual Basic reduces the amount of application code necessary for writing
client/server solutions by automating the data access operations for the client
application. This automation eliminates the time consuming task of writing data
access code, allows developers to incorporate sophisticated functionality
without having to be SQL experts, and enables project teams to improve their
time to market with scalable applications. Data Director enables developers to
create applications that support user defined data types, including images, Web
pages and spatial data.

Informix--NewEra is a graphical, object-oriented development environment
designed for creating enterprise-wide multi-tier client/server database
applications. Informix--NewEra features a fourth generation object-oriented
programming language, reusable class libraries, application partitioning and
flexible application deployment and supports open connectivity to Informix and
non-Informix databases. Informix-NewEra is currently available for Microsoft
Windows and OSF Motif.

Informix--4GL is a character-based development environment, which
includes a fourth generation programming language with screen building, report
entry, and SQL database input/output capabilities. The Informix--4GL product
family is comprised of three core products: Informix--4GL Compiled,
Informix--4GL Rapid Development Systems and Informix--4GL interactive Debugger.

Informix--SQL is a package of five interactive tools for creating
character-based applications. Informix--SQL consists of a forms package, a
report writer, an interactive SQL editor, a menu building and an interactive
schema editor.

SERVICES, CONSULTING AND CUSTOMER SUPPORT

The Company maintains field-based and centralized corporate technical staffs
to provide a comprehensive range of assistance to its customers. These services
include pre- and post-sales technical assistance, consulting, product and sales
training and technical support services. Consultants and trainers provide

50
<PAGE>
services to customers to assist them in the use of the Company's products and
the design and development of applications that utilize the Company's products.

The Company provides post-sales support to its customers on an optional
basis for annual fees which generally range from 12% to 18% of the license fees
paid by the customer. These support services usually include product updates.

During fiscal 1996 and the first quarter of fiscal 1997, as part of its
sales and marketing strategy, the Company launched a series of "Information
SuperStores." The Superstores were intended to demonstrate and offer the
Company's software products to customers on actual hardware platforms used by
those customers, thereby permitting the end-user to evaluate and monitor the
performance and functionality of the Company's products prior to purchase. In
addition, the Superstores offered application tools from leading third-party
tools and application vendors installed on a variety of platforms, including
Data General Corporation, Hewlett-Packard Company, IBM, NCR/TeraData, Pyramid,
Sequent Computer Systems Inc. ("Sequent"), Silicon Graphics and Sun
Microsystems. In connection with the Company's restructuring announced in the
second quarter of 1997, the Company scaled back its original plans and
repositioned its remaining sites as solution labs managed by the Company's
consulting practice. The decision to scale back the Superstores resulted in a
charge to operations during fiscal 1997 of approximately $37.0 million. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Restructuring Charges.

MARKETING AND CUSTOMERS

The Company distributes its products through the channels of direct end-user
licensing, OEMs, application vendors addressing specific markets and
distributors. The Company has chosen a multiple channel distribution strategy to
maintain broad market coverage and product availability. The Company, therefore,
has generally avoided exclusive relationships with its licensees and other
resellers of its products. Discount policies and reseller licensing programs are
intended to support each distribution channel with a minimum of channel
conflict. The Company also provides a financing option to customers in
connection with the license of software. For fiscal 1997, sales of licenses
directly to end users accounted for 58% of total license revenues and sales to
OEM's and sales through resellers accounted for 42% of total license revenues.

At December 31, 1997, the Company's sales, marketing and support staff
totaled 986 regular employees in the North America region; 128 regular employees
in the Latin America region; 619 regular employees in Europe, the Middle East
and Africa; and 369 regular employees in the Asia/Pacific region.

LICENSING

END-USER LICENSING

The Company licenses its products to large companies and government entities
through its direct sales force, and to certain of these companies, as well as
smaller end-users, through its telemarketing sales force. The Company believes
that the common core technology of its database management system products,
based on standard operating systems and the SQL database language, helps it sell
into major corporations and government agencies that wish to standardize their
diverse computing environments. As a result, certain of these end-user
organizations have entered into general purchasing agreements with the Company
which offer volume discounts.

APPLICATION VENDOR LICENSING

Since its inception, the Company has licensed application vendors to
distribute its products. A typical application vendor develops an application
product (E.G., an insurance agency management system) using one of the Company's
products and then licenses the resultant application software to its customers
in the

51
<PAGE>
target market. The application vendor customer purchases a license for use of
the Company's product to develop an applications program. Depending on the
application program developed, it may include a run-only license, a full version
license or even multiple product licenses.

Application vendors develop applications using a wide array of application
development tools, including products from the Company, such as
Informix--NewEra, Informix--4GL and Informix--SQL, as well as products offered
by third parties. Applications developed using the Company's products are
generally portable across various brands of computers and different operating
systems.

The Company has specialized programs to support the application vendor
distribution channel. Under these programs, the Company provides to selected
application vendors a combination of marketing development services, consulting
and technical marketing support and discounts.

OEM LICENSING

The Company's products are also marketed with the assistance of the sales
forces of its OEM customers who have concluded that "solution selling" of a
combination of software and hardware to their respective customers enhances the
sales of their computer equipment. The Company believes that the compatibility
and range of applications for its products are significant to this distribution
channel.

DISTRIBUTOR LICENSING

The Company has established a network of full service international
distributors who provide local service and support, as well as the Company's
products, to their respective national markets. Distributors are used to
supplement the Company's direct sales force and enable the Company to sell its
products and services in countries where the Company has not established a
direct sales force.

PRODUCT DEVELOPMENT

The computer software industry is highly competitive and rapidly changing.
Consequently, the Company dedicates considerable resources to research and
development efforts to enhance its existing product lines and to develop new
products to meet new market opportunities. Most of the Company's current
software products and accompanying documentation have been developed internally;
however, the Company has acquired certain software products from others and
plans to do so again in the future.

Major product releases resulting from research and development projects in
fiscal 1997 included the new releases of Informix Dynamic Server; Universal Data
Option; Extended Parallel Option; Advanced Decision Support Option; Informix
Dynamic Server, Workgroup Edition; and the initial release of Web Integration
Option.

The Company's current product development efforts are focused on (i)
improving and enhancing current products and new products, with particular
emphasis on parallel computer architecture, user-defined database extensions,
Web technology integration, graphical desk top and system administration; (ii)
improving the Company's products to provide greater speed and support for larger
numbers of concurrent users; and (iii) adapting new products to the broad range
of computer brands and operating systems the Company currently supports and
adapting current products to new brands of computers and operating systems which
represent attractive market opportunities for the Company's products.

There can be no assurance that the Company's product development efforts
will be successful or that any new products will achieve significant market
acceptance.

As of December 31, 1997, the Company had 941 regular employees engaged in
research and development. In recent months, the Company has experienced high
attrition in its product development group and has had difficulty attracting
qualified replacement development personnel. Any failure to attract

52
<PAGE>
and retain a sufficient number of qualified development personnel would have a
material adverse effect on the Company's business, results of operations and
financial condition.

The Company's research and development expenditures for fiscal 1997, 1996
and 1995 was $139.3 million, $120.2 million and $85.6 million, respectively,
representing approximately 21%, 16% and 14% of net revenues for such periods. In
addition, during fiscal 1997, 1996 and 1995, the Company capitalized product
development costs of $21.8 million, $28.4 million and $17.5 million,
respectively, in accordance with Statement of Financial Accounting Standards No.
86. See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

The market for the Company's products and services is characterized by
rapidly changing technology, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. The life cycles of the Company's products are difficult
to estimate. The Company's growth and future financial performance will depend
upon its ability to enhance its existing products and to introduce new products
on a timely and cost-effective basis and that meet dynamic customer
requirements. There can be no assurance that the Company will be successful in
developing new products or enhancing its existing products or that such new or
enhanced products will receive market acceptance or be delivered timely to the
market. The Company's product development efforts are expected to continue to
require substantial investments by the Company, and there can be no assurance
that the Company will have sufficient resources to make the necessary
investments. The Company has experienced product development delays in the past
and may experience delays in the future. Delays in the scheduled availability or
a lack of market acceptance of its products or failure to accurately anticipate
customer demand and meet customer performance requirements, including as a
result of recent attrition in the Company's product development group, could
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, products as complex as those offered by
the Company may contain undetected errors or bugs when first introduced or as
new versions are released. There can be no assurance that, despite testing, new
products or new versions of existing products will not contain undetected errors
or bugs that will delay the introduction or commercial acceptance of such
products. A key factor in determining the success of the Company will continue
to be the ability of the Company's products to operate and perform well with
existing and future leading, industry-standard application software products
intended to be used with RDBMS. Failure to meet existing or future
interoperability requirements of certain independent vendors and performance
requirements of certain independent vendors marketing such applications in a
timely manner could adversely affect the market for the Company's products.
Commercial acceptance of the Company's products and services could also be
adversely affected by critical or negative statements or reports by brokerage
firms, industry and financial analysts and industry periodicals concerning the
Company, its products, business or competitors or by the advertising or
marketing efforts of competitors, or other factors that could accept consumer
perception.

In recent years, the types and quantities of data required to be stored and
managed has grown increasingly complex and includes, in addition to conventional
character data, audio, video, text, and three dimensional graphics. In 1996, the
Company devoted substantial resources in developing the Company's ORDBMS product
line. The market for the products offering object-relational database
functionality is new and evolving, and its growth depends upon a growing need to
store and manage complex data and on broader market acceptance of the Company's
products as a solution for this need. There can be no assurance that
organizations will chose to make the transition from conventional RDBMS to
ORDBMS. Delays in market acceptance of object-relational database management
products offered by the Company could have an adverse effect on the Company's
results of operations and financial condition.

COMPETITION

Competitors in the relational database software market compete primarily on
the basis of product price and performance characteristics, name recognition,
technical product support, product training and

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services. With respect to product performance, the Company believes that the
principal competitive factors include (i) application development productivity
(I.E., the speed with which applications can be built); (ii) database
performance (I.E., the speed at which database storage and retrieval functions
are executed); (iii) product function and features; (iv) the ability to support
large warehouses of information; (v) reliability, availability and
serviceability; (vi) the distribution of software applications and data across
networks of computers from multiple suppliers; and increasingly (vii) the
ability to manage complex data and solve more complex business problems based on
such data. Although the Company believes that it currently competes favorably
with respect to such factors, there can be no assurance that the Company can
maintain its competitive position against current and potential competitors,
especially those with greater financial, marketing, service, support, technical
and other resources. In addition, the Company believes that it has effectively
controlled its operating expenses and significantly improved its financial
condition.

The Company faces intense competition in the market for RDBMS software
products. The market for the Company's products is subject to rapid
technological change and frequent new product introductions and enhancements,
and the Company's competitors in the market include several large vendors that
develop and market databases, applications, development tools or decision
support products. The Company's principal competitors include Computer
Associates International, Inc., IBM, Microsoft, NCR/ TeraData, Oracle and
Sybase. Several of the Company's competitors have significantly greater
financial, technical, marketing and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than the Company. Any failure
by the Company to compete successfully with its existing competitors or future
competitors could have a material adverse effect on the Company's business,
results of operations and financial condition.

Several of the Company's competitors have announced the development of
enhanced versions of their principal database products that are intended to
improve the performance or expand the capabilities of their existing products.
New or enhanced products by existing competitors or new competitors could result
in greater price pressure on the Company's products. In addition, the industry
movement to new operating systems, like Windows NT, access through low-end
desktop computers, and access to data through the Internet may cause downward
pressure on prices of database software and related products. The bundling of
software products for promotional purposes or as a long-term pricing strategy by
certain of the Company's competitors could also result in reductions in the
price the Company may charge for its products. If such downward pressure on
prices were to occur, the Company's operating margins would be adversely
affected. Existing and future competition or changes in the Company's product or
service pricing structure or product or service offerings could result in an
immediate reduction in the prices of the Company's products or services. If
significant price reductions in the Company's products or services were to occur
and not be offset by increases in sales volume, the Company's business, results
of operation and financial condition would be adversely affected. There can be
no assurance that the Company will continue to compete successfully with its
existing competitors or will be able to compete successfully with new
competitors.

In addition, the Company's public announcement in August 1997 of the pending
restatement of its financial statements, delays in reporting operating results
for the second and third quarters of fiscal 1997 while the restatement was being
compiled, threatened de-listing of the Company's Common Stock from the Nasdaq
National Market as a result of the Company's failure to satisfy its public
reporting obligations, corporate actions to restructure operations and reduce
operating expenses and customer uncertainty regarding the Company's financial
condition have adversely affected the Company's ability to sell its products in
fiscal 1997. In addition, since the beginning of 1997, the Company and its
competitors in the RDBMS industry have experienced substantially slower growth
in the market for RDBMS products. The financial restatement has now been
completed, its results have been publicly disclosed, and the Company is current
with respect to its public reporting obligations. In addition, the Company
believes that it has

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effectively controlled its operating expenses and significantly improved its
financial condition. Nevertheless, there can be no assurance that uncertainties
resulting from the restatement, including ongoing customer concern about the
Company's financial condition, will not continue to have a materially adverse
effect on the Company's competitive position and results of operations.

INTELLECTUAL PROPERTY

The Company's products are generally licensed to end-users on a
"right-to-use" basis pursuant to a license that restricts the use of the
products for the customer's internal business purposes. The Company also relies
on "shrink wrap" licenses, which include a notice informing the end-user that,
by opening the product packaging, the end-user agrees to be bound by the
Company's license agreement printed on the package. Despite such precautions, it
may be possible for unauthorized third parties to copy aspects of its current or
future products or to obtain and use information that the Company regards as
proprietary. In particular, the Company has licensed the source code of its
products to certain customers under certain circumstances and for restricted
uses. The Company has also entered source code escrow agreements with a number
of its customers that generally require release of source code to the customer
in the event of the Company's bankruptcy, liquidation or otherwise ceasing to
conduct business. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar or superior technology.
Policing unauthorized use of the Company's software is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States, and
"shrink-wrap" licenses may be wholly or partially unenforceable under the laws
of certain jurisdictions. Litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
the Company's business, results of operations and financial condition.

The Company is not aware that any of its software product offerings infringe
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not claim infringement by the Company with respect to
its current or future products. The Company expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business, results of
operations and financial condition.

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LEGAL PROCEEDINGS

ACTIONS ARISING UNDER FEDERAL AND STATE SECURITIES LAWS

Two related non-class actions, TEACHERS' RETIREMENT SYSTEM OF LOUISIANA ET
AL. V. INFORMIX CORPORATION ET AL. and STATE BOARD OF ADMINISTRATION OF FLORIDA
V. INFORMIX CORPORATION ET AL., have been consolidated with IN RE INFORMIX
CORPORATION SECURITIES LITIGATION for all pre-trial purposes. The LOUISANA and
FLORIDA plaintiffs request a total of $10.173 million in damages. An amended
consolidated complaint was filed by the LOUISIANA and FLORIDA plaintiffs on
April 3, 1998.

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August 25, 1997. Those actions, captioned RILEY V INFORMIX CORPORATION ET AL.,
DAYANI V. INFORMIX CORPORATION ET AL., AND GOLDSTEIN V. WHITE ET AL., contained
factual allegations nearly identical to the allegations set forth in the federal
court complaints. The Superior Court has consolidated these actions into the
DAYANI case, and has appointed lead plaintiffs' counsel. By stipulation,
plaintiffs filed a consolidated, amended complaint on December 23, 1997. The
state court consolidated, amended complaint names as defendants the Company,
Ernst & Young and the Named Individual Defendants. The claims in the
consolidated amended state complaint arise under California securities, fraud
and unfair business practices statutes.

Defendants filed demurrers to the state court consolidated, amended
complaint on February 13, 1998. Defendants base their demurrers to the
consolidated, amended complaint in this action on the grounds that certain of
the individual defendants made no actionable statements during the alleged class
period, the Company did not engage in any market activity during the alleged
class period, the plaintiffs did not actually rely upon any of the alleged false
and misleading statements, the California statutory unfair business practices
claims are inapplicable to securities transactions, and the consolidated,
amended complaint fails to plead the alleged fraud with sufficient
particularity. The hearing on defendants' demurrers is set for May 29, 1998. The
Company will not file an answer in this action unless the Court overrules the
pending and any subsequent demurrers. Further, the Company is not in a position
to state its factual defenses to the consolidated, amended complaint until the
Court rules upon the pending and any subsequent demurrers.

DERIVATIVE ACTIONS

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have brought demurrers to the consolidated, amended complaint on the grounds
that plaintiffs fail to plead any of their claims with sufficient particularity
and that certain of plaintiffs' California statutory causes of action do not
apply, by their terms, to officers and directors of a Delaware corporation. On
April 1, 1998, the Court sustained Informix's demurrer based upon the
plaintiffs' failure to make demand. The Court has given plaintiffs leave to
amend their complaint. In addition, the Court has kept on its calendar the
defendants' demurrers based upon the lack of merit in plaintiffs' substantive
claims. That hearing is set for May 29, 1998. The Company will not file an
answer in this action unless the Court overrules the pending or any subsequent
demurrers. Further, the Company is not in a position to state its factual
defenses to the consolidated, amended complaint until the Court rules upon the
pending demurrers. Because of the nature of derivative litigation, any recovery
in the action would inure to the benefit of the Company.

INDEMNIFICATION AGREEMENTS AND LIABILITY INSURANCE

Pursuant to Delaware law, the Company's Certificate of Incorporation, its
Bylaws and the indemnification agreements between the Company and each of its
current and former officers and directors, the Company is obligated to indemnify
its current and former officers and directors for certain liabilities arising
from their employment with or service to the Company. These indemnification
obligations require the Company to indemnify its current and former officers and
directors for any suit or other proceeding, threatened or actual, whether civil,
criminal, administrative, investigative, appellate or any other type of
proceeding, that arises as a result of any act or omission in the indemnitee's
capacity as an officer or director of the Company to the fullest extent
permitted under Delaware or any other applicable law. The indemnification
extends to any and all expenses (including but not limited to attorneys' fees
and costs, and any other out-of-pocket expense) and/or liabilities of any type
(including but not limited to judgments, fines, excise taxes or penalties under
the Employee Retirement Income Security Act ("ERISA"), and amounts paid in
settlement) reasonably incurred in connection with the investigation, defense,
settlement or appeal of such proceedings. The obligation to provide
indemnification does not apply if the indemnitee is adjudicated to be liable for
fraudulent or criminal conduct.

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<PAGE>
ILLUSTRA ESCROW

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION

In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, financial reports, other public disclosures and trading activity in the
Company's securities. The Company is cooperating with the investigation and is
providing all information subpoenaed by the Commission. The Company is in the
process of producing documents and a number of current and former officers have
been testified to appear before the Commission.

GENERAL

The pending federal and state securities actions are in the early stages of
discovery. Consequently, at this time it is not reasonably possible to estimate
the damages, or the range of damages, that the Company might incur in connection
with such actions. However, the uncertainty associated with substantial
unresolved litigation can be expected to have an adverse impact on the Company's
business. In particular, such litigation could impair the Company's
relationships with existing customers and its ability to obtain new customers.
Defending such litigation will likely result in a diversion of management's time
and attention away from business operations, which could have a material adverse
effect on the Company's results of operations. Such litigation may also have the
effect of discouraging potential acquirors from bidding for the Company or
reducing the consideration such acquirors would otherwise be willing to pay in
connection with an acquisition.

FACILITIES

The Company's headquarters and its principal marketing, finance, sales,
administration, customer service and research and development operations are
located in five buildings in a corporate office park in Menlo Park, California.
The Company currently leases approximately 214,000 square feet of space in these
buildings. The leases for spaces in two of the buildings expire in September
2001. The leases for space in the remaining three of the buildings were recently
renewed for an additional five year term expiring in March 2003. In addition,
the Company leases space totalling approximately 33,000 square feet in two
additional buildings in close proximity. These leases expire in May 1998 and
October 2000. The Company anticipates renewing the lease expiring in May 1998 at
prevailing market rates.

In addition, certain of the Company's research and development facilities, a
portion of its customer service organization, its principal domestic
manufacturing facility and its telemarketing organization are located in a
134,000 square foot facility in Lenexa, Kansas. The buildings are leased to the
Company under a lease expiring in April 2003, subject to renewal for up to two
additional five year terms. The Lenexa, Kansas facility was leased to the
Company by a partnership of which the Company held a 50% partnership interest.
The Company entered an agreement to sell its interest in 49.9% of the
partnership to the other partner. Such sale closed in the first quarter of
fiscal 1998. The Company also leases office space, principally for sales and
support offices, in a number of facilities in the United States, Canada and
outside

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North America. The Company believes that its current facilities are adequate to
meet its needs through the next twelve months.

Some of the research and development operations for the Company's tools
products and a portion of customer service and sales training are located in
Oakland, California. The Company leases approximately 130,000 square feet at
this site, and the lease expires in May 2003. The Company also leases 47,276
square feet in Portland, Oregon, primarily for its research and development
group. The lease on approximately one-half of this space expires on October 31,
1998. The lease on the remaining space expires in March 2000.

In December 1996, the Company announced plans to relocate its corporate
headquarters from the Menlo Park facilities to a new corporate campus in Santa
Clara, California. In January 1997, the Company entered into a two-year lease
for 27 acres of undeveloped commercial real estate in Santa Clara, which was
intended to be used for construction of the new headquarters facility. The
Company also obtained an option to purchase the land for $61.5 million. In order
to secure performance of its obligations under the lease, the Company pledged
$61.5 million in cash collateral to the lessor. In April 1997, the Company
exercised its option to purchase the land, and in December 1997 completed the
sale of the real estate for net proceeds of approximately $59.3 million. In
addition, in November 1996, the Company had leased approximately 200,000 square
feet of office space in Santa Clara on property located adjacent to the 27 acre
undeveloped parcel. In December 1997, the Company assigned its rights under such
lease agreement to an unrelated third party, although the Company remains
contingently liable for the lease payments thereunder.

EMPLOYEES

As of December 31, 1997, the Company and its subsidiaries employed 3,489
regular employees worldwide, including 2,102 in sales, marketing and support,
941 in research and development, 69 in operations and 377 in administration and
finance. Of the Company's total employees at December 31, 1997, approximately
1,447 were located outside North America. None of the Company's employees
located in the United States are represented by a labor union. A small number of
employees located outside the United States are represented by labor unions, and
the degree and scope of representation varies from country to country. The
Company has not experienced any work stoppages either domestically or
internationally.

Since the first quarter of fiscal 1997, the Company has experienced a
significant number of voluntary resignations and has taken selective actions to
reduce the number of employees in certain functional areas. The Company had
3,489 employees at December 31, 1997, compared to 4,491 at December 31, 1996. In
fiscal 1997, the Company experienced high attrition rates in its product
development and sales groups and has had trouble attracting qualified
replacement personnel. The competition for employees in the software industry is
intense, and the Company expects that such competition will continue for the
foreseeable future. The Company has experienced difficulty in locating
candidates with appropriate qualifications and believes that recent financial
and business developments at the Company have made recruitment more difficult.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the Company's
executive officers and directors as of the date of this Prospectus.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert J. Finocchio, Jr.............................. 46 President, Chief Executive Officer and Chairman of
the Board of Directors-- Class III, term to expire
at 1999 Annual Stockholder Meeting
Jean-Yves F. Dexmier................................. 46 Executive Vice President and Chief Financial Officer
Susan T. Daniel...................................... 57 Vice President, Human Resources
James F. Engle....................................... 51 Vice President, Treasurer and acting Corporate
Controller
Diane L. Fraiman..................................... 42 Vice President, Corporate Marketing
J.F. Hendrickson, Jr................................. 58 Vice President, Customer Services, and Lenexa
(Kansas) Site General Manager
Stephen E. Hill...................................... 39 Vice President, and General Manager, Tools Business
Unit
Gary Lloyd........................................... 50 Vice President, Legal, General Counsel and Secretary
Wesley Raffel........................................ 42 Vice President, North American Field Operations
Myron (Mike) Saranga................................. 60 Senior Vice President, Product Management and
Development
Michael R. Stonebraker............................... 54 Vice President and Chief Technology Officer
Leslie G. Denend..................................... 56 Director--Class I, term to expire at 2000 Annual
Stockholder Meeting
Albert F. Knorp, Jr. (2)(3).......................... 62 Assistant Secretary and Director--Class III, term to
expire at 1999 Annual Stockholder Meeting
James L. Koch (1)(2)................................. 53 Director--Class II, term to expire at 1998 Annual
Stockholder Meeting
Thomas A. McDonnell (1)(2)(3)........................ 52 Director--Class II, term to expire at 1998 Annual
Stockholder Meeting
Cyril J. Yansouni (1)(2)............................. 55 Director--Class I, term to expire at 2000 Annual
Stockholder Meeting
</TABLE>

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

(1) Member of Compensation Committee

(2) Member of Audit Committee

(3) Member of Nominating Committee

ROBERT J. FINOCCHIO, JR. has served as Chairman, President and Chief
Executive Officer since July 1997. From December 1988 until May 1997, Mr.
Finocchio was employed with 3Com Corporation ("3Com"), a global data networking
company, where he held various positions, most recently serving as President,
3Com Systems. Prior to his employment with 3Com, Mr. Finocchio held various
executive positions in sales and service with Rolm Communications, a
telecommunications and networking company, most recently as Vice President of
Rolm Systems Marketing. Mr. Finocchio also serves as a director of Latitude
Communications, a teleconferencing company. Mr. Finocchio is also a Regent of
Santa Clara University.

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Mr. Finocchio holds a B.S. in economics from Santa Clara University and an
M.B.A. from the Harvard Business School.

JEAN-YVES F. DEXMIER has served as the Company's Executive Vice President
and Chief Financial Officer since October 1997. Mr. Dexmier also served as the
Company's Secretary from October 1997 to February 1998. Mr. Dexmier served as a
strategy consultant to high technology companies from February 1997 to September
1997. From November 1995 until February 1997, Mr. Dexmier served as Senior Vice
President and Chief Financial Officer of Octel Communications Corporation, a
provider of voice messaging systems ("Octel"). From April 1995 to October 1995,
Mr. Dexmier served as Chief Financial Officer for Kenetech Corporation, a wind
energy company. From May 1994 to March 1995, Mr. Dexmier served as Chief
Financial Officer for Air Liquide America Corporation, a U.S. subsidiary of the
French-based group Air Liquide, a worldwide producer of industrial gases. From
January 1991 to January 1994, Mr. Dexmier served as Chief Financial Officer for
Thomson Consumer Electronics, Inc., a subsidiary of Thomson SA, a worldwide
electronics manufacturer. Mr. Dexmier holds a B.S. in mathematics from Lycee
Pasteur, a Ph.D. in electronics from the Ecole Nationale Superieure de
l'Aeronautique et de l'Espace and an M.B.A. in economics and finance from the
Ecole Polytechnique. In addition, he attended the executive management program
at the University of Michigan School of Business Administration.

SUSAN T. DANIEL has served as the Company's Vice President, Human Resources
since February 1998. From March 1981 until February 1998, Ms. Daniel served in a
variety of positions at Advanced Micro Devices, Inc., a semiconductor
manufacturer, most recently as Vice President, Human Resource Operations. Ms.
Daniel holds a B.A. in History from Queens College, an M.A. in social studies
from Syracuse and J.D. from Santa Clara University.

JAMES F. ENGLE has served as the Company's Vice President and Treasurer
since December 1997 and as its acting Corporate Controller since April 1998.
From 1991 until December 1997, Mr. Engle served as a Vice President and the
Corporate Treasurer of Octel. Mr. Engle holds a B.A. in economics from the
University of Missouri and an M.B.A. in international business and corporate
finance from the Columbia University Graduate School of Business.

DIANE L. FRAIMAN will serve as the Company's Vice President, Corporate
Marketing beginning April 1998. From September 1996 to March 1998, Ms. Fraiman
served as Vice President, Marketing Video & Networking Division, at Tektronix,
Inc., a producer of hardware and software networking and video products. From
May 1994 to August 1996, Ms. Fraiman was Director of Marketing at Sequent, a
manufacturer of large-scale multiprocessor systems. From 1978 to April 1994, Ms.
Fraiman worked in a variety of positions at Digital Equipment Corporation, a
global networking company, most recently as its Director, Corporate
Digital/Microsoft Alliance. Ms. Fraiman holds a B.S. in biomedical engineering
from Vanderbilt University.

J.F. HENDRICKSON, JR. has served as the Company's Vice President, Customer
Services, since July 1992 and as its Lenexa (Kansas) Site General Manager since
February 1995. From 1991 until the time he joined the Company, Mr. Hendrickson
was Senior Vice President of Sales and Support at Image Business Systems, a
developer of document image management software for client/server systems. Mr.
Hendrickson holds a B.S. in mechanical engineering from Stanford University and
an M.B.A. in business and administration from the University of California, Los
Angeles.

STEPHEN E. HILL has served as the Company's Vice President and General
Manager, Tools Business Unit since January 1998. Prior to assuming that
position, Mr. Hill served as the Company's Vice President, Advanced Technology
since December 1995. Mr. Hill has been employed with the Company since 1985 and
has served in various strategic planning and marketing positions. Prior to
joining the Company, Mr. Hill held various product development positions at
General Electric Company, a diversified electronics and manufacturing company,
Software Publishing Corporation, a supplier of business productivity software,
and Human Edge Software, a business software company. Mr. Hill holds a B.S. in
electrical engineering from the University of Vermont.

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<PAGE>
GARY LLOYD has served as the Company's Vice President, Legal and General
Counsel since January 1998 and as its Secretary since February 1998. From
November 1997 until January 1998, Mr. Lloyd served as the Company's interim
General Counsel. From March 1994 until October 1997, Mr. Lloyd was with the law
firm of Farella Braun & Martel L.L.P. From 1984 until February 1994, Mr. Lloyd
served in a variety of positions at the Securities and Exchange Commission, most
recently as its Assistant Director, Division of Enforcement. Mr. Lloyd holds a
B.A. in political science and English from Kent State University and a J.D. from
Case Western Reserve University.

WESLEY RAFFEL has served as the Company's Vice President, North American
Field Operations since September 1997. From January 1996 to January 1997, Mr.
Raffel served as Senior Vice President, Sales and Marketing, and was the acting
Chief Executive Officer of AssureNet Pathways, Inc., a network security company.
From October 1992 to September 1995, Mr. Raffel was Vice President, Sales, of
Global Village Communication, Inc., a designer of integrated communications
products for personal computers ("Global Village"). Prior to joining Global
Village, Mr. Raffel held a variety of positions at 3Com, most recently as its
Vice President, Intercontinental Operations. Mr. Raffel holds a B.A. in general
studies from Harvard University and an M.B.A. from the University of Chicago
Graduate School of Business.

MYRON (MIKE) SARANGA has served as the Company's Senior Vice President,
Product Management and Development, since May 1993. Prior to joining the
Company, Mr. Saranga was employed by IBM for 30 years, where he held various
positions, most recently as Assistant General Manager of Programming Systems.
Mr. Saranga holds a B.A. in economics from Northeastern University.

MICHAEL A. STONEBRAKER has served as the Company's Vice President and Chief
Technology Officer since February 1996. Dr. Stonebraker co-founded Illustra and
served in a consulting capacity with Illustra as its Chief Technology Officer
until February 1996. Dr. Stonebraker is the professor emeritus of Electrical
Engineering and Computer Sciences at the University of California, Berkeley,
where he joined the faculty in 1971. Dr. Stonebraker holds a B.S. in electrical
engineering from Princeton University and an M.S. and Ph.D. in computer
information and control engineering from the University of Michigan.

LESLIE G. DENEND has served as a member of the Company's Board of Directors
since December 1997. Since December 1997, Mr. Denend has served as President of
Network Associates, Inc., a provider of network security and management
software, that resulted from the merger of McAfee Associates, Inc. and Network
General Corporation ("Network General"). From June 1993 to December 1997, Mr.
Denend served as President and Chief Executive Officer of Network General. He
also served as Network General's Senior Vice President of Products from February
1993 to June 1993. From November 1990 to December 1992, he was President of
Vitalink Communications, a manufacturer of networking products. From January
1989 to October 1990, Mr. Denend served in a variety of positions at 3Com, most
recently as Executive Vice President for Product Operations. Mr. Denend is also
a director of Rational Software Inc., a provider of component-based development
software systems, and Proxim, Inc., a designer of wireless local area networking
products. Mr. Denend is a graduate of the United States Air Force Academy and
holds an M.B.A. and Ph.D. in economics, public policy and business from Stanford
University. Mr. Denend was also a Fulbright Scholar in economics at Bonn
University.

ALBERT F. KNORP, JR. has served as a member of the Company's Board of
Directors since 1984 and as its Assistant Secretary since 1985. Mr. Knorp is a
general partner in Seaport Ventures, L.P., a family partnership. Since November
1994, Mr. Knorp has been of counsel to the law firm of Gray Cary Ware &
Freidenrich. He had previously been a partner in the law firm of Lewis, Knorp,
Walsh & Kavalaris. Mr. Knorp holds a B.A. in social sciences from Stanford
University and an L.L.B. from Santa Clara University.

JAMES L. KOCH has served as a member of the Company's Board of Directors
since May 1991. Since July 1990, Mr. Koch has served in various positions at
Santa Clara University. Since February 1997, Mr. Koch has been its Director of
the Center for Science, Technology and Society and, since July 1990, a Professor
of Management and Corporate Strategy. In addition, from July 1990 to July 1996,
Mr. Koch

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served as Dean of the Leavey School of Business Administration at Santa Clara
University. Mr. Koch holds a B.A. in business administration from San Francisco
State University and an M.B.A. and Ph.D. in business administration from the
University of California, Los Angeles.

THOMAS A. MCDONNELL has served as a member of the Company's Board of
Directors since February 1988. Since 1971, Mr. McDonnell has served as Chief
Executive Officer of DST Systems, Inc. ("DST"), a transfer agent for mutual
funds, stocks and bonds, and since October 1984 as a director of DST. Mr.
McDonnell is also President of DST, a position he has held since 1973; Mr.
McDonnell also served as Treasurer of DST from 1973 to September 1995. From
August 1983 to November 1995, Mr. McDonnell was Executive Vice President and a
director of Kansas City Southern Industries, Inc., a holding company and the
former parent of DST. Mr. McDonnell is also director of BHA Group, Inc., a
manufacturer of pollution control devices, Cerner Corporation, a provider of
software and technology to the health care industry, Computer Sciences
Corporation, an information technology company, Euronet Services, Inc., an
operator of automatic teller machines, Janus Capital Corporation, a registered
investment advisor and Nellcor-Puritan-Bennett Corporation, a medical device
company. Mr. McDonnell holds a B.S. and B.A. in accounting from Rockhust College
and an M.B.A. from the Wharton School of the University of Pennsylvania.

CYRIL J. YANSOUNI has served as a member of the Company's Board of Directors
since May 1991. Since March 1991, Mr. Yansouni has been the Chief Executive
Officer and Chairman of the Board of Directors of Read-Rite Corporation, a
manufacturer of thin film magnetic recording heads. He also is a member of the
Advisory Board of both the Leavey School of Business Administration at Santa
Clara University and the San Jose State University School of Engineering. Mr.
Yansouni is a director of PeopleSoft, Inc., a provider of client/server business
software, Raychem Corporation, an international manufacturer and marketer of
products for electronics, industrial and telecommunications applications, and
ActivCard, a French company that develops authentication communication software.
Mr. Yansouni holds a B.S. degree in electrical and mechanical engineering from
the University of Louvain, Belgium and an M.S. degree in electrical engineering
from Stanford University. In addition, he attended the executive management
program at Stanford University.

DIRECTOR COMPENSATION

Employee directors do not receive any additional compensation for serving as
a director. For the fiscal year ended December 31, 1997, the Company paid each
non-employee director a quarterly fee of $2,000 and an additional fee of $1,000
for each Board meeting attended. In addition, members of the Audit and
Compensation Committees received $500 for each committee meeting attended
members of the nominating committee do not receive additional compensation for
committee meetings attended. For the year ending December 31, 1998, the outside
directors will continue to receive the same compensation as they received in
1997. The Company reimburses each member of the Company's Board of Directors,
whether or not an employee, for out-of-pocket expenses, including travel
expenses, incurred in connection with attending Board meetings. In addition,
from time to time, the Company invites the directors' spouses to accompany the
directors to board meetings, and, when invited, the Company also pays the travel
expenses incurred by the spouses. In 1997, these spousal travel expenses were
less than $10,000 per director.

The Company's 1989 Outside Directors Stock Option Plan (the "Director Plan")
provides for the grant of options to non-employee directors pursuant to an
automatic, nondiscretionary grant mechanism. Each non-employee director is
automatically granted an option to purchase 15,000 shares of Common Stock upon
initial election to the Board of Directors and an additional option to purchase
15,000 shares upon re-election. The Company has a staggered board, with each
director serving for a three year term. Each such option is granted at the fair
market value of Common Stock on the date of grant. Options granted under the
Director Plan become exercisable over three years with one-third of the shares
vesting on each anniversary of the grant date. See "Stock Plans--1989 Outside
Director Stock Option Plan."

64
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, the Chief Executive
Officer, other officers and certain key employees of the Company. The
Compensation Committee also administers the Company's 1994 Stock Option and
Award Plan and in this capacity approves employee stock option grants and
awards. The Compensation Committee consists of directors James L. Koch, Thomas
A. McDonnell and Cyril J. Yansouni. Robert J. Finocchio, Jr., Chairman,
President and Chief Executive Officer of the Company, participates in all
discussions regarding the compensation of all officers of the Company but is
excluded from discussions regarding his own salary and incentive compensation.
No interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other company's board of directors
or compensation committee.

65
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during each of fiscal 1997, 1996 and 1995 by (i) the Company's
Chairman, President and Chief Executive Officer, (ii) the Company's next four
most highly compensated executive officers whose salary and bonus for fiscal
1997 exceeded $100,000; and (iii) the Company's former President and Chief
Executive Officer (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
(1) SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- ---------------------------------------------------- ----------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert J. Finocchio, Jr.(2) ...................... 1997 $ 185,278 $ -- 1,500,000 5,000(12)
Chairman, President and Chief Executive Officer 1996 -- -- -- --
1995 -- -- -- --

J. F. Hendrickson(3) ............................. 1997 192,667 39,600 83,560(8) 5,977(13)
Vice President, Customer 1996 179,667 -- 30,000 6,013
Services, and Lenexa (Kansas) 1995 171,667 95,000 40,000 5,395
Site General Manager

Stephen E. Hill(4) ............................... 1997 163,667 33,400 56,000(9) 2,533(14)
Vice President and General 1996 154,569 -- 30,000 2,500
Manager, Tools Business Unit 1995 145,667 85,000 40,000 2,429

Myron (Mike) Saranga(5) .......................... 1997 267,667 69,000 409,000(10) 43,886(15)
Senior Vice President, Product Management and 1996 245,667 -- 100,000 45,875(10)
Development 1995 229,333 168,000 130,000 5,525

Michael R. Stonebraker(6) ........................ 1997 209,200 42,400 135,000(11) 2,592(16)
Vice President and Chief 1996 155,000 -- 75,000 1,620
Technology Officer 1995 -- -- -- --

FORMER EXECUTIVE OFFICERS

Phillip E. White(7) .............................. 1997 277,083 -- -- 203,967(17)
Chairman, President and Chief Executive Officer 1996 461,667 -- 200,000 4,484
1995 421,667 400,000 250,000 4,256
</TABLE>

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

(1) Other than the salary and bonus described herein, the Company did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1997, 1996 or 1995.

(2) Mr. Finocchio became Chairman, President and Chief Executive Officer in July
1997. Accordingly, he received no reportable income from the Company for
fiscal 1996 or 1995. Mr. Finocchio's salary and other compensation for
fiscal 1997 were determined in accordance with the provisions of his
Employment Agreement with the Company. See "--Employment Agreements and
Change in Control Arrangements." In January 1998, the Company granted Mr.
Finocchio an additional option under the 1994 Plan to acquire 500,000 shares
of Common Stock, subject to vesting in equal annual installments over four
years.

(3) Mr. Hendrickson became Vice President, Customer Services, in July 1992 and
Lenexa (Kansas) Site General Manager in February 1995.

66
<PAGE>
(4) Mr. Hill was promoted to Vice President and General Manager, Tools Business
Unit in January 1998 from Vice President, Advanced Technology, a position
he had held since December 1995.

(5) Mr. Saranga became Senior Vice President, Product Management and Development
in May 1993.

(6) Dr. Stonebraker became Vice President and Chief Technology Officer in
February 1996. Accordingly, he received no reportable income for fiscal
1995.

(7) Mr. White resigned as Chairman, President and Chief Executive Officer in
July 1997.

(8) Includes options to purchase 56,000 shares that Mr. Hendrickson elected to
reprice under the Company's November 1997 option repricing program. In
connection with such repricing, Mr. Hendrickson forfeited the right to
purchase 14,000 shares of Common Stock under options previously granted to
him. See "--Stock Option Repricing."

(9) Fiscal 1997 figure includes 56,000 shares that Mr. Hill elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Hill forfeited the right to purchase 14,000 shares
of Common Stock under options previously granted to him. See "--Stock
Option Repricing." In January 1998, the Company granted Mr. Hill an
additional option under the 1994 Plan to acquire 100,000 shares of Common
Stock, subject to vesting in equal installments over four years.

(10) Fiscal 1997 figure includes 184,000 shares Mr. Saranga elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Saranga forfeited the right to purchase 46,000
shares of Common Stock under options previously granted to him. See
"--Stock Option Repricing." Fiscal 1997 figure also includes 100,000 option
shares of which will vest on December 31, 2000 if Mr. Saranga remains an
employee of the Company on such date. In January 1998, the Company granted
Mr. Saranga the right to receive 35,000 performance shares of Common Stock
under the 1994 Plan during each of the next three years if certain
financial milestones are met as of January 1, 1999, 2000 and 2001. Such
performance shares are subject to a right of repurchase in favor of the
Company which shall lapse if Mr. Saranga remains an employee of the Company
on January 1, 2001.

(11) Fiscal 1997 figure includes options to purchase 60,000 shares Dr.
Stonebraker elected to reprice under the Company's November 1997 option
repricing program. In connection with such repricing, Dr. Stonebraker
forfeited the right to purchase 15,000 shares of Common Stock under options
previously granted to him. See "--Stock Option Repricing."

(12) Represents reimbursement by the Company of $5,000 in legal fees incurred in
connection with the negotiation of Mr. Finocchio's Employment Agreement.
See "Employment Agreements and Change in Control Arrangements."

(13) Represents $4,050, $4,013 and $3,395 in group life insurance paid by the
Company in fiscal 1997, 1996 and 1995, respectively; and $1,927, $2,000 and
$2,000 in matching contributions under the Company's 401(k) plan paid by the
Company in fiscal 1997, 1996 and 1995, respectively.

(14) Represents $533, $500 and $429 in group life insurance paid by the Company
in fiscal 1997, 1996 and 1995, respectively, and $2,000, $2,000 and $2,000
in matching contributions under the Company's 401(k) Plan by the Company in
fiscal 1997, 1996 and 1995, respectively.

(15) Represents $6,318, $4,050 and $3,525 in group life insurance paid by the
Company in fiscal 1997, 1996 and 1995, respectively; and $2,000, $2,000 and
$2,000 in matching contributions under the Company's 401(k) plan paid by the
Company in fiscal 1997, 1996 and 1995, respectively. Includes $35,568 and
$39,825 in forgiveness by the Company in fiscal 1997 and 1996, respectively,
of outstanding principal and accrued interest (such forgiveness amounts were
not grossed up to satisfy tax obligations) under a promissory note delivered
by Mr. Saranga to the Company. See "Certain Transactions."

(16) Represents $2,592 and $1,620 in group life insurance paid by the Company in
fiscal 1997 and 1996, respectively.

(17) Represents $4,050, $2,484 and $2,256 in group life insurance paid by the
Company in fiscal 1997, 1996 and 1995, respectively, and $2,000, $2,000 and
$2,000 in matching contributions under the Company's 401(k) plan paid by the
Company in fiscal 1997, 1996 and 1995, respectively. Fiscal 1997 figure also
includes $197,917 paid by the Company in connection with Mr. White's
resignation pursuant to the terms of his Employment Agreement with the
Company. See "--Employment Agreements and Change in Control Arrangements"
and "Certain Transactions."

67
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997

The following table provides information relating to stock options awarded
to each of the Named Executive Officers during fiscal 1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUES AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTIONS TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------
GRANTED FISCAL 1997(2) SHARE(3) DATE(4) 5% 10%
----------- --------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert J. Finocchio, Jr. (5)... 1,500,000 11.44% $ 10.8125 07/22/07 $ 10,199,885 $ 25,848,511
J. F. Hendrickson, Jr. (6)..... 27,500 0.21 9.0313 06/18/07 156,193 395,823
32,000 0.24 7.1563 04/18/05 99,665 234,842
24,000 0.18 7.1563 05/16/06 88,044 213,728
Stephen E. Hill (7)............ 50,000 0.38 9.0313 06/18/07 283,987 719,678
32,000 0.24 7.1563 04/18/05 99,665 234,842
24,000 0.18 7.1563 05/16/06 88,044 213,728
Myron (Mike) Saranga (8)....... 125,000 0.95 9.0313 06/18/07 709,967 1,799,196
100,000 0.76 9.5000 09/15/07 597,450 1,514,055
104,000 0.79 7.1563 04/18/05 323,911 763,235
80,000 0.61 7.1563 05/16/06 293,481 712,425
Michael R. Stonebraker (9)..... 75,000 0.57 9.0313 06/18/07 425,980 1,079,517
60,000 0.46 7.1563 04/15/06 217,424 526,549
FORMER EXECUTIVE OFFICERS
Phillip E. White............... -- -- -- -- -- --
</TABLE>

- ----------------------------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth.

(2) Based on options to acquire 13,107,338 shares granted under the 1994 Plan,
the Director Plan and the Company's 1987 Non-Statutory Stock Option Plan.
Such option grants include shares granted as a result of the Company's
November 1997 option repricing program. See "--Stock Option Repricing."
Unless otherwise specified herein, all options granted to the Named
Executive Officers were under the 1994 Plan.

(3) Options were granted at an exercise price equal to not less than the fair
market value of the Company's Common Stock on the date of grant as reported
on the Nasdaq National Stock Market. The exercise price may be paid in cash,
check, by delivery of already-owned shares of the Company's Common Stock
subject to certain conditions or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.

(4) Twenty-five percent (25%) of the shares issuable upon exercise of options
granted under the 1994 Stock Plan become vested on the first anniversary of
the date of grant, and the remaining shares vest over three years at the
rate of 25% of the shares subject to option vesting on each successive
anniversary of the option grant date. Unless otherwise specified, options
granted to Named Executive Officers in fiscal 1997, including options
granted outside the 1994 Plan, are subject to the Company's standard four
year vesting schedule described above.

(5) The options to purchase 1,500,000 option shares of Common Stock granted to
Mr. Finocchio were issued in connection with his Employment Agreement with
the Company. See "Executive Compensation--Employment Agreements and Change
in Control Arrangements." Of the 1,500,000 option shares granted to Mr.
Finocchio, 1,000,000 were granted under the 1994 Plan and 500,000 were
granted under the Company's 1997 Non-Statutory Stock Option Plan. In
addition, in January 1998, the Company granted Mr. Finocchio an additional
option under the 1994 Plan to acquire 500,000 shares of Common Stock,
subject to vesting in equal annual installments over four years.

(6) Option grant figures includes 56,000 shares Mr. Hendrickson elected to
reprice under the Company's November 1997 option repricing program. In
connection with such repricing, Mr. Hendrickson forfeited the right to
purchase 14,000 shares of Common Stock under options previously granted to
him. See "--Stock Option Repricing."

(7) Option grant figures includes 56,000 shares Mr. Hill elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Hill forfeited the right to purchase 14,000 shares
of Common Stock under options previously granted to him. See "--Stock Option
Repricing." In addition, in January 1998, the Company granted Mr. Hill an
additional option under the 1994 Plan to acquire 100,000 shares of Common
Stock, subject to vesting in equal annual installments over four years.

(8) Option grant figures includes 184,000 shares Mr. Saranga elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Saranga forfeited the right to purchase 46,000
shares of Common Stock under options previously granted to him. See "--Stock
Option Repricing." Mr. Saranga's option to purchase up to 100,000 shares of
the Common Stock of the Company granted in September 1997 under the 1994
Plan will become vested on December 31, 2000 if Mr. Saranga remains an
employee of the Company on such date. In January 1998, the Company granted
Mr. Saranga the right to receive 35,000 performance shares of Common Stock
under the 1994 Plan each of the next three years if certain financial
milestones are met as of January 1, 1999, 2000 and 2001. Such performance
shares are subject to a right of repurchase in favor of the Company which
shall lapse if Mr. Saranga remains an employee of the Company on January 1,
2001.

(9) Option grant figures includes 60,000 shares Dr. Stonebraker elected to
reprice under the Company's November 1997 option repricing program. In
connection with such repricing, Dr. Stonebraker forfeited the right to
purchase 15,000 shares of Common Stock under options previously granted to
him. See "--Stock Option Repricing."

68
<PAGE>
AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding stock options
exercised during the fiscal year ended December 31, 1997 and held as of December
31, 1997 by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
SHARES 1997 AT DECEMBER 31, 1997(2)
ACQUIRED OR VALUE -------------------------- --------------------------
EXERCISED REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS

Robert J. Finocchio, Jr. (3).. -- $ -- -- 1,500,000 $ -- $ --

J. F. Hendrickson, Jr......... -- -- 320,000 93,500 132,800 --

Stephen E. Hill (4)........... 15,000 142,188 62,500 116,000 -- --

Myron (Mike) Saranga (5)...... -- -- 135,000 429,000 -- --

Michael R. Stonebraker........ -- -- -- 135,000 -- --

FORMER EXECUTIVE OFFICERS
Phillip E. White.............. 50,000 63,810 1,245,000(6) -- 624,348(6) --
</TABLE>

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

(1) Market value at the time of exercise less the applicable exercise price

(2) Based on the closing sales price of $4.750 of underlying securities as of
December 31, 1997 as reported on the Nasdaq National Stock Market minus the
exercise price.

(3) In January 1998, the Company granted Mr. Finocchio an additional option to
purchase 500,000 shares of Common Stock under the 1994 Plan, subject to
vesting in equal installments over four years.

(4) In January 1998, the Company granted Mr. Hill an additional option to
purchase 100,000 shares of Common Stock under the 1994 Plan, subject to
vesting in equal installments over four years.

(5) In January 1998, the Company granted Mr. Saranga the right to receive 35,000
performance shares of Common Stock under the 1994 Plan each of the next
three years if certain financial milestones are met as of January 1, 1999,
2000 and 2001. Such performance shares are subject to a right of repurchase
in favor of the Company which shall lapse if Mr. Saranga remains an employee
of the Company on January 1, 2001.

(6) All of Mr. White's options expired in February 1998. Prior to the expiration
of such options, Mr. White exercised options to acquire an aggregate of
540,000 shares of Common Stock in January and February 1998 with a realized
value of approximately $1,161,380.

STOCK OPTION REPRICING

In September 1997, the Company's Board of Directors authorized the repricing
of outstanding options to purchase Common Stock under the Company's stock option
plans. Employees, including executive officers, were eligible to participate
only if they remained actively employed at the effective date of the repricing
and were only permitted to exchange options outstanding prior to May 1, 1997.
The repricing/ option exchange was effective November 21, 1997 (the "Repricing
Effective Date"). The repricing program offered eligible employees the
opportunity to exchange eligible outstanding options with exercise prices in
excess of the closing sales price of the Company's Common Stock on the Repricing
Effective Date for a new option with an exercise price equal to such price.
Other than the exercise price, each new option issued upon exchange has terms
substantially equivalent to the surrendered option, including with respect to
the number of shares, vesting terms and expiration. Options issued in connection
with the exchange may not be exercised for a period of one year from the
Repricing Effective Date, however. In addition, officers of the Company
participating in the option exchange were required to forfeit 20% of the shares
subject to each option being surrendered. The exercise price for repriced
options was $7.1563, the closing sales price of the Company's Common Stock on
the Repricing Effective Date.

69
<PAGE>
The following table provides information with respect to the November 1997
repricing for the Named Executive Officers and for other executive officers of
the Company who elected to reprice options. These are the only executive
officers of the Company who had their options repriced.

TEN-YEAR OPTION/SAR REPRICINGS

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE LENGTH OF
UNDERLYING OF STOCK AT EXERCISE ORIGINAL OPTION
OPTIONS/SARS TIME OF PRICE AT TIME NEW TERM REMAINING
REPRICED OR REPRICING OR OF REPRICING EXERCISE AT DATE OF
AMENDED AMENDMENT OR AMENDMENT PRICE REPRICING OR
NAME DATE (#)(1) ($) ($) ($) AMENDMENT
- ------------------------------------ --------- ------------- ------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert F. Finocchio, Jr. (2)...... -- -- -- -- -- --

J. F. Hendrickson, Jr. (3)........ 11/21/97 32,000 7.1563 18.250 7.1563 7.41
11/21/97 24,000 7.1563 24.125 7.1563 8.48

Stephen E. Hill (4)............... 11/21/97 32,000 7.1563 18.250 7.1563 7.41
11/21/97 24,000 7.1563 24.125 7.1563 8.48

Myron (Mike) Saranga (5).......... 11/21/97 104,000 7.1563 18.250 7.1563 7.41
11/21/97 80,000 7.1563 24.125 7.1563 8.48

Michael R. Stonebraker (6)........ 11/21/97 60,000 7.1563 19.375 7.1563 8.40

FORMER EXECUTIVE OFFICERS
Philip E. White (7)............... -- -- -- -- -- --

Karen Blasing (8)................. 11/21/97 4,200 7.1563 18.250 7.1563 7.41
11/21/97 4,800 7.1563 18.250 7.1563 8.49
11/21/97 8,000 7.1563 18.250 7.1563 8.54
</TABLE>

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

(1) All options repriced by the Named Executive Officers and other executive
officers listed in the above table were granted under the 1994 Plan.

(2) Mr. Finocchio became Chairman, President and Chief Executive Officer in July
1997; consequently, he was not eligible to participate in the November 1997
repricing.

(3) Mr. Hendrickson forfeited the right to purchase 14,000 shares of Common
Stock as a result of the repricing. At the time of repricing, 22,000 of the
56,000 options Mr. Hendrickson elected to reprice were vested.

(4) Mr. Hill forfeited the right to purchase 14,000 shares of Common Stock as a
result of the repricing. At the time of repricing, 22,000 of the 56,000
options Mr. Hill elected to reprice were vested.

(5) Mr. Saranga forfeited his right to purchase 46,000 shares of Common Stock as
a result of the repricing. At the time of the repricing, 72,000 of the
184,000 options Mr. Saranga elected to reprice were vested.

(6) Dr. Stonebraker forfeited his right to purchase 15,000 shares of Common
Stock as a result of the repricing. At the time of the repricing, 15,000 of
the 60,000 options Dr. Stonebraker elected to reprice were unvested.

(7) Mr. White resigned as the Company's Chairman, President and Chief Executive
Officer in July 1997; consequently he was not eligible to participate in the
November 1997 repricing.

(8) Ms. Blasing resigned as the Company's Vice President and Corporate
Controller in April 1998. Ms. Blasing forfeited the right to purchase 4,250
shares of Common Stock as a result of the repricing. At the time of the
repricing, 4,600 of the 17,000 options Ms. Blasing elected to reprice were
vested.

70
<PAGE>
In December 1997, the Company's Board of Directors authorized a second
option repricing to be effective January 9, 1998 (the "Second Repricing
Effective Date") based upon the closing sales price of the Company's Common
Stock as of the Second Repricing Effective Date ($5.094). Under the terms of the
second repricing, each employee, other than officers and directors of the
Company, could elect to exchange any option outstanding as of May 1, 1997 for a
new option with an exercise price equal to the closing sales price on the Second
Repricing Effective Date. Options exchanged in the second repricing may not be
exercised for a period of one year from the Second Repricing Effective Date.

STOCK PLANS

1994 STOCK OPTION AND AWARD PLAN. The Company's 1994 Stock Option and Award
Plan, as amended (the "1994 Plan"), provides for the grant to employees of
either options to purchase shares of Common Stock or the award of performance
shares of Common Stock to be paid to employees upon the achievement of certain
performance goals set for such employees. Options granted under the 1994 Plan
may be either "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock
options. Stock options or performance awards granted under the 1994 Plan shall
be referred to herein as "Awards." The 1994 Plan became effective in March 1994.
The 1994 Plan replaced the Company's 1986 Stock Option Plan for Employees (the
"Prior Plan"). Options previously issued under the Prior Plan continue to be
exercisable according to their terms. Unless terminated sooner, without contrary
action by the Company's stockholders, the 1994 Plan will terminate automatically
in March 2004. A total of 16,000,000 shares of Common Stock had been reserved
for issuance under the 1994 Plan at September 28, 1997, with a maximum of
800,000 of those shares available for award as performance shares.

The 1994 Plan may be administered by a committee of the Board of Directors
(the "Committee"), which shall be comprised solely of directors who are both
"disinterested persons" under Rule 16b-3 of the Exchange Act and "outside
directors" under Section 162(m) of the Code. The 1994 Plan is currently
administered by the Compensation Committee of the Board of Directors. The
Committee has the power, among other things, to determine which employees shall
be granted Awards, to prescribe the terms and conditions of the Awards and to
interpret the 1994 Plan and Awards. In addition, the Committee has the authority
to amend, suspend or terminate the 1994 Plan, provided that no such action may
adversely affect any Award previously granted under the 1994 Plan. In addition,
in May 1997, the Company's stockholders approved an increase by 8,000,000 shares
in the number of shares reserved for issuance under the 1994 Plan, provided that
options to acquire such additional shares may not be repriced without
stockholder approval.

Options granted under the 1994 Plan are not generally transferable by the
optionee, and each option is generally exercisable during the lifetime of the
optionee only by such optionee. Options granted under the 1994 Plan must
generally be exercised within three months of the termination of optionee's
status as an employee of the Company or within 12 months after such employee's
termination by death or disability, but in no event later than the expiration of
ten-years from the date of grant of such option. The Committee has the
discretion to extend or accelerate the exercisability of options following a
termination of the optionee's employment but in no event for more than ten years
after the date of grant of such option. The exercise price of nonstatutory stock
options granted under the 1994 Plan must at least be equal to the fair market
value of the Common Stock on the date of grant. The exercise price of all
incentive stock options granted under the 1994 Plan must generally be at least
equal to the fair market value of the Common Stock on the date of grant. In the
event of certain transactions specified in Section 424(d) of the Code where the
Company is assuming stock options granted to an employee by such employee's
previous employer, the Committee may grant substitute options under the 1994
Plan with an exercise price less than fair market value. The term of all other
options granted under the 1994 Plan may not exceed ten years. Notwithstanding
the foregoing, with respect to any participant who owns stock possessing more
than ten percent of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any incentive

71
<PAGE>
stock option granted must equal at least 110% of the fair market value on the
grant date and the term of such incentive stock option must not exceed five
years.

No employee shall be granted in any fiscal year options to purchase more
than 500,000 shares, except that new employees and newly appointed executive
officers may be granted options under the 1994 Plan to purchase up to 1,000,000
shares in the fiscal year of their hire or appointment. Generally, options
granted under the 1994 Plan are not exercisable until one year after the date of
grant, with 25% vesting on the first year anniversary and 25% vesting on the
second, third and fourth anniversaries of the option grant date. Options which
are unexercisable at the time of an employee's death or disability but which
would otherwise become exercisable within one year of such date will
automatically accelerate to the date of the employee's death or disability. The
consideration to be paid upon exercise of an option may be cash, other shares
(with certain restrictions) or such other form of consideration as may be
acceptable to the Committee.

No employee shall receive more than 200,000 shares pursuant to a performance
award in any fiscal year. In all cases, the performance period relating to a
performance award grant shall exceed six months in duration. Such performance
may be qualified as "performance based compensation" under Section 162(m) of the
Code in the Committee's discretion and may be based on the achievement of goals
relating to Company revenue, return on stockholders' equity and/or earnings per
share. Shares of Common Stock of the Company will be paid out to employees based
on his or her achievement of certain performance milestones. The 1994 Plan
provides that in the event of a merger or consolidation of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
certain other changes in control of the Company, the number of shares
purchasable under options granted under the 1994 Plan and the corresponding
exercise price will be adjusted in connection with such corporate restructuring
and that, with regard to the performance shares outstanding, the Committee shall
determine the appropriate actions to prevent the dilution or diminishment of the
awards.

As of December 31, 1997, 33,181,131 shares of Common Stock had been issued
upon exercise of options outstanding under the Prior Plan and 148,970 shares of
Common Stock had been issued upon exercise of options outstanding under the 1994
Plan. Options to purchase 5,578,715 shares of Common Stock at a weighted average
exercise price of $6.1147 were outstanding under the Prior Plan, and options to
purchase 11,841,554 shares of Common Stock at a weighted average exercise price
of $4.2516 were outstanding under the 1994 Plan (giving effect to an option
repricing effected in November 1997 but not to the second option repricing in
January 1998). Additionally, 105,000 shares of Common Stock have been awarded in
connection with performance shares awards under the 1994 Plan but have not yet
been issued. Moreover, as of December 31, 1997, options to purchase 873,952
shares of Common Stock of the Company assumed in connection with the acquisition
of Illustra were outstanding with a weighted average exercise price of $.8915
and are exercisable according to their terms (giving effect to an option
repricing effected in November 1997 but not to the second option repricing in
January 1998). As of December 31, 1997, 4,009,476 shares remained available for
issuance under the 1994 Plan, including 800,000 shares available for issuance as
performance shares.

1997 NON-STATUTORY STOCK OPTION PLAN

The Company's 1997 Non-Statutory Stock Option Plan (the "1997 Plan") was
approved by the Board of Directors in July, 1997. As of December 31, 1997, no
shares had been issued upon exercise of stock options granted under the 1997
Plan, and 500,000 shares were subject to outstanding options. Such options were
granted to Robert J. Finocchio, the Company's Chairman, President and Chief
Executive Officer, in connection with his July 1997 employment agreement. See
"Employment Agreements and Change in Control Arrangements."

The 1997 Plan provides for the grant of nonstatutory stock options to
employees and consultants; provided that options may only be granted to officers
and directors under the 1997 Plan as an inducement essential to their entering
into an employment contract with the Company. A total of 500,000 shares of

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Common Stock are currently reserved for issuance pursuant to the 1997 Plan.
Unless terminated sooner, the 1997 Plan will terminate automatically in July
2007.

The 1997 Plan may be administered by the Board of Directors or a committee
of the Board (as applicable, the "Administrator"). The Administrator has the
power to determine the terms of the options granted, including the exercise
price of the option, the number of shares subject to each option, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the Administrator has the authority to amend, suspend or
terminate the 1997 Plan, provided that no such action may affect any share of
Common Stock previously issued and sold or any option previously granted under
the 1997 Plan.

Options granted under the 1997 Plan are generally not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1997 Plan must generally be
exercised within three months after the end of optionee's status as an employee,
director or consultant of the Company if such termination is for cause, or
within twelve months after such optionee's termination by death, disability or
for any termination other than for cause, but in no event later than the
expiration of the option's ten year term.

The exercise price of options granted under the 1997 Plan is determined by
the Administrator. The term for options granted under the 1997 Plan is ten
years.

The 1997 Plan provides that in the event of a merger of the Company with or
into another corporation, or a sale of substantially all of the Company's
assets, each option shall be assumed or an equivalent option substituted for by
the successor corporation. If the outstanding options are not assumed or
substituted for by the successor corporation, the Administrator shall provide
for the optionee to have the right to exercise the option as to all of the
optioned stock, including shares as to which it would not otherwise be
exercisable. If the Administrator makes an option exercisable in full in the
event of a merger or sale of assets, the Administrator shall notify the optionee
that the option shall be fully exercisable for a period of fifteen (15) days
from the date of such notice, and the option will terminate upon the expiration
of such period.

The 1997 Plan provides that in the event of a change of control of the
Company, the acceleration of vesting terms contained in the optionee's
employment agreement shall govern.

1997 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1997 Employee Stock
Purchase Plan (the "1997 Purchase Plan") became effective in July 1997 and shall
continue in effect until terminated by the Company. The 1997 Purchase Plan
replaces the Corporation's Employee Stock Purchase Plan which expired on July 1,
1997. A total of 4,000,000 shares of Common Stock has been reserved for issuance
under the 1997 Purchase Plan, all of which shares remained available for
issuance under the 1997 Purchase Plan at December 31, 1997. The 1997 Purchase
Plan, which is intended to qualify under Section 423 of the Internal Revenue
Code, has four three-month offering periods each year beginning on the first
trading day on or after July 1, October 1, January 1 and April 1. The 1997
Purchase Plan is administered by the Board of Directors or by a committee
appointed by the Board (the "Committee"). The 1997 Purchase Plan is currently
administered by the Compensation Committee. Employees are eligible to
participate if they are customarily employed by the Company for more than 20
hours per week and more than five months during a calendar year and have
completed a two year service period with the Company. Moreover, employees are
not eligible to participate in the 1997 Purchase Plan if they possess or have
the right to acquire five percent (5%) or more of the voting stock of the
Company or any of its subsidiaries. The 1997 Purchase Plan permits participants
to purchase Common Stock through payroll deductions of up to 15% of an
employee's compensation, including commissions, overtime and bonuses. The price
of Common Stock purchased under the 1997 Purchase Plan is 85% of the lower of
the fair market value of the Common Stock at the beginning or at the end of each
offering period as reported on the Nasdaq National Stock Market for the day in
question. Employees may not purchase more than 500 shares of Common Stock during
any three month offering period. In addition, employees will not be granted the
right to purchase shares of Common Stock under the 1997 Purchase Plan at a rate
which accrues in excess of $25,000 of fair market value at the

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applicable grant dates of such shares. Employees may end participation at any
time during an offering period, and they will be paid their payroll deductions
to date. Participation ends automatically upon termination of employment with
the Company.

Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation
or a sale of substantially all of the Company's assets, the Board of Directors
may make such adjustment, if any, as it deems appropriate in the number, kind
and purchase price of the shares available for purchase under the 1997 Purchase
Plan and in the maximum number of shares subject to any option under the 1997
Purchase Plan. The Board of Directors has the authority to amend or terminate
the 1997 Purchase Plan. If the 1997 Purchase Plan is terminated, the Board may
elect to terminate all outstanding options either immediately or upon completion
of the purchase of shares on the next purchase date or may elect to permit
options to expire in accordance with their terms.

1989 OUTSIDE DIRECTORS STOCK OPTION PLAN. Outside directors are entitled to
participate in the 1989 Outside Directors Stock Option Plan, as amended, (the
"Director Plan"). The Director Plan has a term of 20 years, unless terminated
sooner by the Board. A total of 1,600,000 shares of Common Stock has been
reserved for issuance under the Director Plan. The Director Plan provides for
the automatic grant of 15,000 shares of Common Stock to each eligible outside
director on the date such person first is elected as a director. In addition,
outside directors shall automatically be granted an option to purchase 15,000
shares at each time such outside director is re-elected to the Board of
Directors. Each option granted under the Director Plan shall have a term of ten
years and the shares subject to the option shall vest over three years with
one-third of the shares vesting on each of the first three anniversaries of the
grant date. The exercise prices of the options granted under the Director Plan
shall be 100% of the fair market value per share of the Common Stock, generally
determined with reference to the closing price of the Common Stock as reported
on the Nasdaq National Market on the date of grant. In the event of a change of
control of the Company, each option granted under the Director Plan shall become
fully vested and exercisable. Options granted under the Director Plan must be
exercised within one month of the end of the optionee's tenure as a director of
the Company, or within 12 months after such director's termination by death or
disability, but in no event later than the expiration of the option's ten-year
term. No option granted under the Director Plan is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable, during the lifetime of the optionee, only by such optionee.

401(K) PLAN. The Company has adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan"). All U.S. employees except temporary
employees, leased employees, non-resident alien employees with no U.S.-source
income, union employees and employees of an affiliated employer not authorized
to participate in the 401(k) Plan are eligible to participate as of their date
of hire. Eligible employees may elect to defer between one percent (1%) and
fifteen percent (15%) of their compensation in the 401(k) Plan, subject to the
statutorily prescribed annual limit. The Company may make matching contributions
on behalf of all participants in the 401(k) Plan in an amount determined by the
Company's Board of Directors. The matching contribution for the year ended
December 31, 1997 was 50% of employee deferrals, up to a maximum of $2,000 per
employee. The Company may also make additional discretionary profit sharing
contributions in such amounts as determined by the Board of Directors, subject
to statutory limitations on contributions made by employees and employers under
such plans. Matching contributions are subject to a vesting schedule; all other
contributions are at all times fully vested. Employees may borrow from the
401(k) Plan, and may request withdrawal from their account in the case of
hardship or on attainment of age 59 1/2. The 401(k) Plan is intended to qualify
under Sections 401 and 501 of the Internal Revenue Code of 1986, as amended, so
that contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. The trustee under the 401(k) Plan, at the
direction of each participant, invests the assets of the 401(k) Plan in any of a
number of investment options.

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EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

On July 18, 1997, the Company entered into an at-will employment agreement
with Mr. Finocchio, the Company's Chairman, President and Chief Executive
Officer. The agreement provides for an annual base salary of $460,000, subject
to annual review concerning increases. Pursuant to the agreement, the Company
granted Mr. Finocchio an option to purchase 1,000,000 shares of Common Stock
under the 1994 Plan at an exercise price per share of $10.8125, subject to
vesting in equal annual installments over four years and an option under the
Company's 1997 Non-statutory Stock Option Plan to acquire an additional 500,000
shares of Common Stock, also at an exercise price of $10.8125 and subject to
vesting under the same terms as the grant under the 1994 Plan. In the event of a
merger or change in control of the Company the exercisability of Mr. Finocchio's
options will accelerate so as to become fully vested. In January 1998, the
Company granted Mr. Finocchio an additional option under the 1994 Plan to
acquire 500,000 shares of Common Stock, subject to vesting in equal annual
installments over four years.

On September 24, 1997, the Company entered into an at-will employment letter
agreement with Jean-Yves F. Dexmier, the Company's Executive Vice President and
Chief Financial Officer, which provides for an annual base salary of $350,000
and an annual cash bonus based on the achievement of individual and Company
performance objectives. In the event Mr. Dexmier is terminated without cause
within the first twelve months of his employment with the Company, he will be
entitled to receive severance in an amount equal to one year of base salary plus
any bonus he would have been entitled to receive under the Company's executive
compensation plan. If such termination occurs after Mr. Dexmier's first twelve
months with the Company, he shall be entitled to receive as severance an amount
equal to six months base salary. If there is a change in control of the Company
within the first twelve months Mr. Dexmier is employed with the Company, Mr.
Dexmier will be entitled to receive $1,000,000 less any stock option profit
realized upon the change in ownership. In connection with his employment, the
Company granted Mr. Dexmier an option under the 1994 Plan to acquire 500,000
shares of Common Stock at an exercise price of $6.8125, subject to vesting in
equal annual installments over four years. In January 1998, the Company granted
Mr. Dexmier an additional option under the 1994 Plan to acquire 100,000 shares
of Common Stock, subject to equal annual installments over four years.

On September 18, 1997, the Company entered into an at-will employment letter
agreement with Wesley Raffel, the Company's Vice President, North American Field
Operations, which provides for an annual base salary of $250,000 and an annual
cash bonus based on the achievement of individual and Company performance
objectives. In the event of a change in the Chief Executive Officer or a change
in ownership of the Company, Mr. Raffel will be entitled to receive severance in
an amount equal to one year of base salary. In connection with his employment,
the Company granted Mr. Raffel an option under the 1994 Plan to acquire 325,000
shares of Common Stock at an exercise price of $7.3438, subject to vesting in
equal annual installments over four years.

In October 1997, the Company entered into Change of Control Agreements (the
"Change of Control Agreements") with Messrs. Dexmier and Raffel and Myron (Mike)
Saranga, the Company's Senior Vice President, Product Management and
Development. The Change of Control Agreements, which are substantially similar
for each executive officer, provide that in the event a change in control of the
Company occurs, the exercisability of each executive officer's options will
accelerate so as to become fully vested.

In January 1998, the Company entered into an at-will employment letter with
Susan T. Daniel, the Company's Vice President, Human Resources, which provides
for an annual base salary of $230,000 and an annual cash bonus based on the
achievement of individual and Company performance objectives. Ms. Daniel will
also receive $7,500 annually her first two years of employment if she remains
employed with the Company on the anniversary date of her employment with the
Company. In connection with her employment, the Company granted Ms. Daniel an
option under the 1994 Plan to acquire 200,000 shares of Common Stock at a per
share exercise price of $7.4688, subject to vesting in equal annual installments
over

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four years. In the event of a change of ownership of the Company within Ms.
Daniel's first two years of employment with the Company where Ms. Daniel's
employment is terminated within 90 days of the change of control event other
than for cause, she will be entitled to receive severance in an amount equal to
one (1) year base salary. If a change of control in the ownership of the Company
occurs within Ms. Daniel's first six months with the Company, the exercisability
of her options will accelerate as to two years additional vesting. If such
change of control takes place after such six month period, the exercisability of
Ms. Daniel's options will accelerate so as to become fully vested.

In January 1998, the Company entered into an at-will employment letter with
Gary Lloyd, the Company's Vice President, Legal, General Counsel and Secretary,
which provides for an annual base salary of $200,000 and an annual cash bonus
based on the achievement of individual and Company performance objectives. In
connection with his employment, the Company granted Mr. Lloyd an option under
the 1994 Plan to acquire 150,000 shares of Common Stock at a per share exercise
price of $5.7500, subject to vesting in equal installments over four years. If a
change of control in the ownership of the Company occurs within Mr. Lloyd's
first six months with the Company, the exercisability of his options will
accelerate as to two years additional vesting. If such change of control takes
place after such six month period, the exercisability of Mr. Lloyd's options
will accelerate so as to become fully vested.

On March 18, 1998, the Company entered into an at-will employment letter
agreement with Diane L. Fraiman, the Company's Vice President, Corporate
Marketing, which provides for an annual base salary of $250,000 and an annual
cash bonus based on the achievement of individual and Company performance
objectives. Pursuant to her employment letter, Ms. Fraiman received a $135,000
signing bonus, which Ms. Fraiman will be required to repay in full if she
terminates her employment with the Company prior to the first anniversary of her
commencement date. Ms. Fraiman will be required to repay half that amount if she
terminates her employment after the first anniversary date but prior to the
second anniversary date. In connection with her employment with the Company, the
Company granted Ms. Fraiman option to acquire 200,000 shares of Common Stock at
an exercise price equal to the closing sales price of the Company's Common Stock
as reported by The Nasdaq Stock Market on Ms. Fraiman's employment commencement
date with the Company, subject to vesting in equal annual installments over four
years. If there is a change in control of the Company within the first six
months after the date of Ms. Fraiman's employment letter, the vesting of Ms.
Fraiman's options will accelerate as to two year's additional vesting. If such
change of control occurs after such six month anniversary, Ms. Fraiman's options
will accelerate so as to become fully vested.

Other than the employment arrangements described above, the Company does not
have employment agreements with any other current executive officer or director.

In connection with Philip E. White's resignation as Chairman, President and
Chief Executive Officer in July 1997, and pursuant to his employment agreement
with the Company, the Company was obligated to pay Mr. White six months salary
at a rate of $39,583.34 per month from the time of his resignation.

The Company has entered into severance arrangements with additional former
executive officers of the Company. See "Certain Transactions."

The Company has also adopted a Rights Agreement, commonly referred to as a
poison pill. See "Description of Capital Stock--Rights Agreement."

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Amended and Restated Certificate
of Incorporation that eliminate to the fullest extent permissible under Delaware
law the liability of its directors to the Company for monetary damages. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission. The Company's Bylaws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by Delaware law, including in circumstances in which

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indemnification is otherwise discretionary under Delaware law. The Company has
entered into indemnification agreements with its officers and directors
containing provisions which may require the Company, among other things, to
indemnify the officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. See "Business--Legal Proceedings."

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CERTAIN TRANSACTIONS

In June 1993, the Company made a loan in the principal amount of $150,000 to
Myron (Mike) Saranga, the Company's Senior Vice President, Product Management
and Development, in connection with his accepting employment by the Company. The
loan is secured by a second deed of trust on residential real property acquired
by Mr. Saranga in California and was originally due and payable in full on the
earliest of June 2, 1995, the date Mr. Saranga sold certain residential real
property located in Connecticut, or the date Mr. Saranga's employment with the
Company was terminated. In June 1995, Mr. Saranga and the Company amended the
loan to increase the interest rate of 3.56% per annum to 6.55% per annum and to
provide that $30,000 of principal, and accrued interest, would be forgiven on
June 2, 1996 and each anniversary thereafter until the loan is no longer
outstanding, provided that Mr. Saranga remains an employee of the Company. The
loan continues to provide that the full amount of unpaid principal and accrued
interest will become immediately due and payable on the date Mr. Saranga's
employment with the Company is terminated for any reason. In June 1997 and June
1996, respectively, the Company forgave $35,568 and $39,825 of principal and
interest loan under the promissory note, respectively (such forgiveness amounts
were not grossed up to satisfy tax obligations). As of December 31, 1997,
outstanding principal under the note totaled $90,000.

The Company has entered into employment and change of control agreements
with certain executive officers of the Company. See "Management--Employment
Agreements and Change in Control Arrangements."

In connection with Frank J. Bergandi's resignation as Vice President, North
American Sales, in December 1995, the Company entered into a Separation
Agreement with Mr. Bergandi whereby the Company agreed to pay Mr. Bergandi six
months salary at a rate of $15,833.33 per month during a six month transition
period. The Company also agreed that options to purchase up to an aggregate of
95,000 shares of Common Stock of the Company held by Mr. Bergandi would continue
to vest during such transition period.

In April 1997, the Company entered into Separation Agreements with Ronald M.
Alvarez, the Company's former Vice President, American Sales, and Edwin C.
Winder, the Company's former Vice President, Japan Operations, in connection
with their resignations as executive officers of the Company. Under the terms of
their respective Separation Agreements, Mr. Alvarez and Mr. Winder received
payments for six months additional salary from the time of their resignations at
the rate of $17,083.33 and $18,250.00 per month, respectively. In addition, Mr.
Alvarez received a bonus in the amount of $7,686.00 for his services during the
Company's first fiscal quarter of 1997. As part of his Separation Agreement,
options to purchase 11,250 shares of Common Stock of the Company held by Mr.
Alvarez continued to vest during the six months subsequent to his resignation
date. The Company also agreed to pay both Mr. Alvarez and Mr. Winder additional
fees for outplacement services and legal fees incurred in connection with the
negotiation of their respective Separation Agreements.

In connection with D. Kenneth Coulter's resignation as Executive Vice
President, Worldwide Field Operations in July 1997, and pursuant to an
Employment Agreement the Company previously entered with Mr. Coulter, the
Company will pay Mr. Coulter an aggregate of $106,954 over the five month period
ending December 31, 1997.

In connection with Richard H. Williams' resignation as Senior Vice
President, Business Units, in September 1996, the Company entered into a
Separation Agreement with Mr. Williams whereby the Company agreed to pay Mr.
Williams $132,500 in a lump sum payment, which represented six months of Mr.
Williams' base salary. Moreover, the Company agreed that certain additional
unvested restricted stock to purchase up to 77,283 shares of Common Stock of the
Company held by Mr. Williams would continue to vest during the five month period
following his resignation from the Company. The Company also agreed to pay Mr.
Williams $1,000 for each day that he performed consulting services for the
Company during the five months following his resignation; however, Mr. Williams
did not perform any consulting services for

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the Company during such period. In addition, under the terms of a restricted
stock purchase agreement the Company previously entered into with Mr. Williams,
in connection with Mr. Williams' resignation, the Company purchased 128,804
shares of restricted stock that had been held by Mr. Williams for $24,999.81.

In connection with Richard Blass' resignation as Vice President, Americas
Finance, in November 1996, the Company entered into a Separation Agreement with
Mr. Blass whereby it agreed to pay Mr. Blass five and one-half months salary at
a rate of $11,500.00 per month following his resignation. The Company also
agreed to pay Mr. Blass an additional six months salary, at the same rate of
$11,500.00 per month, either in a lump sum payment or over six months following
such five and one-half month transition period. Under his Separation Agreement,
the Company also agreed to pay Mr. Blass up to $5,000 for outplacement services.

In January 1997, the Company made a loan in the principal amount of $150,000
to Alan Henricks, the Company's former Executive Vice President and Chief
Financial Officer, at an interest rate of seven percent (7.0%) per annum in
connection with his appointment as Chief Financial Officer. Under the terms of
the loan, $50,000 of principal would be forgiven on December 20 of each year
that Mr. Henricks remained an employee of the Company. In connection with Mr.
Henricks' resignation in April 1997, the Company entered into a Separation
Agreement with Mr. Henricks whereby the Company agreed to pay Mr. Henricks nine
months salary at a rate of $25,000.00 per month following his resignation. In
addition, Mr. Henricks agreed to repay the outstanding principal and interest
under the note in equal monthly installments of $17,156.00 through deductions
from Mr. Henricks' monthly severance payments described above.

In connection with David H. Stanley's resignation as Vice President, Legal
and Corporate Services, and General Counsel in October 1997, the Company entered
into a Separation Agreement with Mr. Stanley whereby the Company agreed to pay
Mr. Stanley six months salary at a rate of $16,666.67 per month following his
resignation. In addition, the Company agreed that unvested options to purchase
up to an aggregate of 150,000 shares of Common Stock of the Company held by Mr.
Stanley would continue to vest during a one month transition period. Under the
Separation Agreement the Company also agreed to pay Mr. Stanley up to $5,000 for
outplacement services.

The Company has made certain payments to Philip E. White, the Company's
former Chairman, President and Chief Executive Officer in connection with his
resignation pursuant to the terms of an employment agreement between the Company
and Mr. White. See "Management--Employment Agreements on Change in Control
Arrangements."

On November 17, 1997, the Company issued 160,000 shares of Series A-1
Preferred and the Series A-1 Warrant in cancellation of and exchange for all of
the outstanding Series A Preferred and the Series A Warrant previously issued in
connection with a Subscription Agreement, dated August 12, 1997, between
Fletcher International Limited and the Company. The issuance of the Series A-1
Preferred in exchange for the Series A Preferred was effected in reliance on the
exemption under Section 3(a)(9) of the Securities Act. See "Description of
Capital Stock--Preferred Stock." On February 13, 1998, Fletcher exercised the
Series A-1 Warrant with respect to 60,000 shares of Series A-1 Preferred and
simultaneously converted 220,000 shares of Series A-1 Preferred into 12,769,908
shares of Common Stock.

In connection with the issuance of the Series B Preferred in November 1997,
the Company paid Shemano a fee of $1,000,000 for financial advisory services
provided in connection with such financing. In addition, the Company issued
Shemano 100,000 shares of its Common Stock, which are being registered and
offered for resale pursuant to this Prospectus. The Company also agreed to issue
Shemano a warrant to purchase up to an additional 50,000 shares of Common Stock
in the event that, as of May 17, 1998, the trading price of the Company's Common
Stock is less than $12.50. The Shemano Warrant will be exercisable according to
the same terms as the Warrants. In addition, pursuant to a February 1998 letter
agreement with Shemano, the Company has agreed that upon receipt of a written
request from Shemano prior to the time the Commission declares the Registration
Statement effective, the Company will

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repurchase the Shemano Shares at a per share price equal to the closing sales
price of the Company's Common Stock as reported on The Nasdaq Stock Market on
the date such request is made.

Pursuant to both Article VI of the Company's Bylaws and Section 6 of the
Indemnification Agreement the Company enters into with its executive officers
and directors, the Company advances expenses incurred by indemnified parties in
connection with the investigation, defense, settlement or appeal of threatened,
pending or completed action or suits against such parties in their capacity as
an agent of the Company. Under both the Bylaws and the Indemnification
Agreement, the indemnified party will repay the Company for any advanced
expenses if it is ultimately determined that the indemnified party is not
entitled to be indemnified by the Company. See "Risk Factors--Litigation" and
"Legal Proceedings." As of March 31, 1998, the Company has received invoices for
legal fees of approximately $1,075,000 incurred by certain of its current and
former executive officers and/or directors in connection with certain actions
and suits discussed in this report. As of the date of this report, the Company
has advanced approximately $540,000 in expenses to its former executive officers
and/or directors incurred in connection with such proceedings. The Company
anticipates advancing the remaining balance of such expenses in the near future.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding equity securities as of December 31,
1997, after giving effect to the conversion of all of the Company's Series B
Preferred Stock into 12,500,000 shares of Common Stock based upon an assumed
conversion price of $4.00 per share and the Warrants to acquire an aggregate of
2,700,000 shares of Common Stock and the assumed grant and exercise of the
Shemano Warrant to purchase 50,000 shares of Common Stock of the Company by (i)
each person or entity who is known by the Company to own beneficially 5% or more
of the Company's outstanding Common Stock; (ii) each director of the Company;
(iii) each of the Named Executive Officers; (iv) all current directors and
executive officers of the Company as a group; and (v) each Selling Stockholder.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (2) AFTER OFFERING (2)
--------------------------- NUMBER OF ---------------------------
PERCENT OF SHARES PERCENT OF
NAME AND ADDRESS OF STOCKHOLDER(1) NUMBER CLASS OFFERED NUMBER CLASS
- ------------------------------------------------------------ ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK

5% STOCKHOLDERS
Fletcher International Limited(3) ........................
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies
13,674,500 7.6% -- 13,674,500 7.6%

DIRECTORS AND CURRENT EXECUTIVE OFFICERS
Leslie G. Denend(4).......................................
-- -- -- -- --
Robert J. Finocchio, Jr.(5)...............................
100 * -- 100 *
J.F. Hendrickson, Jr.(6)..................................
321,072 * -- 321,072 *
Stephen E. Hill(7)........................................
64,373 * -- 64,373 *
Albert F. Knorp, Jr.(8)...................................
153,868 * -- 153,868 *
James L. Koch(9)..........................................
84,000 * -- 84,000 *
Thomas A. McDonnell(10)...................................
140,000 * -- 140,000 *
Myron (Mike) Saranga(11)..................................
136,760 * -- 136,760 *
Michael R. Stonebraker(12)................................
638,655 * -- 638,655 *
Cyril J. Yansouni(13).....................................
40,000 * -- 40,000 *
All current directors and executive officers as a group
(16 persons)(14)........................................
1,583,028 * -- 1,587,679 *

FORMER EXECUTIVE OFFICERS
Phillip E. White(15)......................................
1,257,819 * -- 1,257,819 *

SELLING STOCKHOLDERS
CC Investments, LDC(16)(17)...............................
3,800,000 2.1% 3,800,000 -- --
Proprietary Convertible Investment Group Inc.(16)(18).....
6,080,000 3.4% 6,080,000 -- --
Capital Ventures International(16)(19)....................
5,320,000 3.0% 5,320,000 -- --
The Shemano Group Inc.(20)................................
150,000 * 150,000 -- --
</TABLE>

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

* Less than 1%.

(1) Unless otherwise indicated, the address for each listed stockholder, other
than the Selling Stockholders, is c/o Informix Corporation, 4100 Bohannon
Drive, Menlo Park, California 94025. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock held by them.

(2) For figures related to holdings of Common Stock, applicable percentage
ownership is based on 177,906,959 shares of Common Stock outstanding as of
December 31, 1997 (including the February 1998 issuance of 12,769,908
shares of Common Stock issued to Fletcher upon conversion of 220,000 shares
of Series A-1 Preferred as described more fully in footnote 3), together
with applicable options or warrants for such stockholder. Such outstanding
Common Stock share figure assumes (i) the conversion of the outstanding
Series B Preferred into 12,500,000 shares of Common Stock based on an
assumed conversion price of $4.00 per share and (ii) the issuance of 50,000
shares of Common Stock to Shemano in connection with the exercise of the
Shemano Warrant.

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Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities, subject to community property laws, where applicable. Shares
of Common Stock or Series A-1 Preferred subject to options or warrants that
are presently exercisable or exercisable within 60 days of December 31,
1997 are deemed to be beneficially owned by the person holding such options
or warrants for the purpose of computing the percentage of ownership of
such person but are not treated as outstanding for the purpose of computing
the percentage of any other person. To the extent that any shares are
issued upon exercise of options, warrants or other rights to acquire the
Company's capital stock that are presently outstanding or granted in the
future or reserved for future issuance under the Company's stock plans,
there will be further dilution to new public investors.

(3) Includes 12,769,208 shares of Common Stock issued upon conversion of
220,000 shares of Series A-1 Preferred on February 13, 1998 and 904,592
shares of Common Stock currently issuable upon conversion of shares of
Series A-1 Preferred, which are currently issuable upon exercise of the
Series A-1 Warrant. As described below, the number of shares of Common
Stock issuable upon exercise and conversion of the Series A-1 Warrant will
increase effective April 1, 1998. Fletcher is the original purchaser of
160,000 shares of the Company's Series A Preferred and the Series A Warrant
to purchase an additional 140,000 shares of Series A Preferred. Fletcher
exchanged such Series A Preferred for a like number of shares of Series A-1
Preferred and exchanged the Series A Warrant for the Series A-1 Warrant to
purchase a like number of shares of Series A-1 Preferred. The Series A-1
Preferred is convertible into Common Stock of the Company based on a
conversion rate that is dependent upon the trading price of the Company's
Common Stock as reported on The Nasdaq Stock Market prior to the time of
such conversion. As indicated above, on February 13, 1998, Fletcher
exercised the Series A-1 Warrant with respect to 60,000 shares of Series
A-1 Preferred and simultaneously converted 220,000 shares of Series A-1
Preferred into 12,769,908 shares of Common Stock. Pursuant to the terms of
the Subscription Agreement, the maximum number of shares of Common Stock
issuable upon conversion of the Series A-1 Preferred (including upon
exercise and conversion of the Series A-1 Warrant) was 13,674,500 as of
December 31, 1997; however, on January 26, 1998, pursuant to the terms of
the original financing agreements, Fletcher gave the Company a notice
designating 16,674,500 shares as the maximum number of shares of Common
Stock to be issuable upon conversion of the Series A-1 Preferred on or
after April 1, 1998. Fletcher must give the Company another notice to
increase the maximum number of conversion shares further. The Series A-1
Preferred shares are non-voting securities and holders of Series A-1
Preferred are not generally entitled to vote on corporate matters, prior to
the conversion of such shares into Common Stock.

(4) Mr. Denend is a member of the Company's Board of Directors.

(5) Includes 100 shares of Common Stock held by Mr. Finocchio's minor son. Mr.
Finocchio is the Company's Chairman, President and Chief Executive Officer.
See "Management--Employment Agreements and Change-in-Control Arrangements."

(6) Includes 320,000 shares of Common Stock held issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Hendrickson is the
Company's Vice President, Customer Services, and Lenexa (Kansas) Site
General Manager. Mr. Hendrickson forfeited options to acquire 14,000 shares
of Common Stock in connection with the Company's November 1997 option
repricing program. See "Executive Compensation--Stock Option Repricing."

(7) Includes 62,500 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Hill is the Company's
Vice President and General Manager, Tools Business Unit. Mr. Hill forfeited
options to acquire 14,000 shares of Common Stock in connection with the
Company's November 1997 option repricing program. See "Executive
Compensation--Stock Option Repricing."

(8) Includes 25,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Also includes 105,728
shares of Common Stock held by Seaport Ventures, L.P., of which Mr. Knorp
is a general partner. Mr. Knorp is a member of the Company's Board of
Directors.

(9) Includes 82,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Koch is a member of
the Company's Board of Directors.

(10) Includes 85,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. McDonnell is a member
of the Company's Board of Directors.

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(11) Includes 135,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Saranga is the
Company's Senior Vice President, Product Management and Development. Mr.
Saranga forfeited options to aquire 46,000 shares of Common Stock in
connection with the Company's November 1997 option repricing program. See
"Executive Compensation--Option Repricing."

(12) Includes 181,882 shares of Common Stock held by Dr. Stonebraker's minor
children and 533 shares of Common Stock held by Dr. Stonebraker as trustee
for the Michael Stonebraker Pension Plan. Dr. Stonebraker is the Company's
Vice President and Chief Technology Officer. Dr. Stonebraker forfeited
options to acquire 15,000 shares of Common Stock in connection with the
Company's November 1997 option repricing program. See "Executive
Compensation--Stock Option Repricing."

(13) Includes 40,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Yansouni is a member
of the Company's Board of Directors.

(14) Includes 749,500 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997.

(15) Includes 1,245,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will be exercisable
within 60 days of December 31, 1997. Mr. White resigned as Chairman of the
Board of Directors, President and Chief Executive Officer in July 1997. Mr.
White's options remained exercisable for 90 days after the termination of
his employment, and such 90 day period was extended for any days when the
Company was out of compliance with its reporting requirements under the
Exchange Act. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Mr. White's options expired in
February 1998. Prior to the termination of such options, Mr. White
exercised options to acquire an aggregate of 540,000 shares of Common Stock
in January and February 1998.

(16) Assumes (i) the conversion of all of such Selling Stockholder's Series B
Preferred into shares of Common Stock based on an assumed conversion price
of $4.00 per share and, upon conversion of the Series B Preferred, (ii) the
issuance and immediate exercisability of the Warrants based on the $4.00
per share conversion price. For a description of the terms of conversion of
the Series B Preferred, see "Description of Capital Stock--Preferred
Stock."

(17) Includes 675,000 shares of Common Stock issuable upon exercise of Warrants
held by such Selling Stockholder. Prior to the assumed conversion Series B
Preferred, such Selling Stockholder held 12,500 shares of Series B
Preferred, representing 25.0% of the Series B Preferred outstanding as of
the date of this Prospectus.

(18) Includes 1,080,000 shares of Common Stock issuable upon exercise of
Warrants held by such Selling Stockholder. Prior to the assumed conversion
Series B Preferred, such Selling Stockholder held 20,000 shares of Series B
Preferred, representing 40.0% of the Series B Preferred outstanding as of
the date of this Prospectus.

(19) Includes 945,000 shares of Common Stock issuable upon exercise of Warrants
held by such Selling Stockholder. Prior to the assumed conversion Series B
Preferred, such Selling Stockholder held 17,500 shares of Series B
Preferred, representing 35.0% of the Series B Preferred outstanding as of
the date of this Prospectus.

(20) Includes 50,000 shares issuable upon exercise of the Shemano Warrant which
the Company will be obligated to issue if the closing sale price of the
Company's Common Stock as reported by The Nasdaq Stock Market on May 17,
1998 is less than $12.50. 100,000 shares were issued and the Shemano
Warrant will be issuable to Shemano in connection with the sale of the
Series B Preferred. See "Certain Transactions."

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized to issue 500,000,000 shares of Common Stock, $0.01
par value, and 5,000,000 shares of Preferred Stock, $0.01 par value. Of the
Preferred Stock, 440,000 shares have been designated Series A Convertible
Preferred Stock, none of which are outstanding; 440,000 shares have been
designated Series A-1 Convertible Preferred Stock, of which 160,000 shares are
outstanding and of which 140,000 shares are issuable upon exercise of an
outstanding warrant; and 50,000 shares of Series B Convertible Preferred Stock,
all of which are outstanding. As of December 31, 1997, the Company had an
aggregate of 152,587,051 shares of Common Stock outstanding (not including
shares of Common Stock issuable upon conversion of the Series B Preferred,
12,769,908 shares of Common Stock issued in February 1998 upon conversion of
220,000 shares of Series A-1 Preferred or 50,000 shares of Common Stock issuable
upon exercise of the Shemano Warrant), and an additional 19,110,951 shares of
Common Stock were issuable upon exercise of outstanding options, of which
3,007,538 shares were vested and exercisable.

On February 13, 1998, Fletcher elected to exercise its right to purchase
60,000 shares of Series A-1 Preferred under the Series A-1 Warrant and
simultaneously converted 220,000 shares of A-1 Preferred into 12,769,908 shares
of Common Stock.

On January 26, 1998 Fletcher gave the Company a 65 day notice designating
16,674,500 shares as the maximum number of shares of Common Stock issuable upon
conversion of the Series A-1 Preferred (including the 12,769,908 issued on
February 13, 1998); prior to the time Fletcher delivered such notice, the
maximum number of shares of Common Stock issuable upon conversion of the series
B Preferred was 13,674,500. Fletcher must give the Company another 65 day notice
to increase the maximum number of conversion shares further.

The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Amended and Restated Certificate of Incorporation and Bylaws, by the Company's
Certificates of Designation of Series A Convertible Preferred Stock, Series A-1
Convertible Preferred Stock and Series B Convertible Preferred Stock, by the
Rights Agreement and by the applicable provisions of Delaware law.

The Amended and Restated Certificate of Incorporation and Bylaws as well as
the Rights Agreement contain certain provisions that are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and which may have the effect of delaying, deferring or preventing a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Board of Directors. In addition,
acquisitions of the Company and certain other change-in-control transactions may
not be effected without the consent of the holders of the outstanding Preferred
Stock or without requiring the acquiring entity to assume the Preferred Stock or
cause such Preferred Stock to be redeemed. These provisions are likely to make
an acquisition of the Company more difficult and expensive and could discourage
potential acquirors.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.

Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. The Company has never declared or paid
cash dividends on its capital stock, expects to retain future earnings, if any,
for use in the operation and expansion of its business, and does not anticipate
paying any cash dividends in the foreseeable future. In

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the event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets legally
available for distribution after payment of all debts and other liabilities and
subject to the prior rights of any holders of Preferred Stock then outstanding.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of Preferred Stock. The
Board of Directors has the authority to issue the Preferred Stock in one or more
series and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. To date, the
Company has used its ability to designate new series of Preferred Stock in
transactions intended to raise additional capital for the Company. The ability
to issue additional shares of Preferred Stock, however, also provides desirable
flexibility in connection with possible acquisitions and other corporate
purposes but could also have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the market price of, and the voting and other rights of,
the holders of Common Stock. The issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of Common
Stock, including the loss of voting control to others.

On August 12, 1997, the Company issued 160,000 shares of Series A Preferred
to Fletcher International Limited ("Fletcher") for net proceeds of $37.6
million. In addition, the Company granted Fletcher a warrant to acquire up to an
additional 140,000 shares of Series A Preferred for a purchase price per share
of $250. On November 17, 1997, the Company issued 160,000 shares of the Series
A-1 Preferred in cancellation of and exchange for all of the outstanding Series
A Preferred previously issued to Fletcher. In connection with such cancellation
and exchange, the Company and Fletcher also agreed to cancel the previously
granted warrant to acquire Series A Preferred for the Series A-1 Warrant. The
rights, preferences and privileges of the Series A-1 Preferred are substantially
identical to those of the previously outstanding Series A Preferred, except that
the mandatory redemption terms and certain other provisions differ. In
particular, the holders of Series A Preferred could require the Company to
redeem the Series A Preferred in the event certain conditions were not met in
connection with a third party acquiring the Company or substantially all of its
assets. Under the terms of the Series A-1 Preferred, however, the Company, not
the holders of the Series A-1 Preferred, may make an election to redeem the
Series A-1 Preferred in the event of such a change of control transaction. As a
result of these differences, the Series A Preferred was excluded from
stockholders' equity in the Company's consolidated balance sheet, while the
Series A-1 Preferred is included in stockholders' equity.

The Series A-1 Preferred is convertible into shares of Common Stock at any
time after issuance. At the holder's option, each share of Series A-1 Preferred,
which has a face value of $250, is convertible into Common Stock at a per share
price equal to 101% of the average price of the Common Stock for the 30 trading
days ending five trading days prior to the conversion, but not greater than the
lesser of (i) 105% of the Common Stock average price of the first five trading
days of such thirty day period or (ii) $12. The number of shares of Common Stock
to be issued upon conversion will vary based on future stock price movements.
Holders of the Series A-1 Preferred will not be entitled to convert the Series
A-1 Preferred into more than 13,674,500 shares of Common Stock without first
giving the Company 65 days prior notice. Holders of the A-1 Preferred will be
entitled to a 15% annual dividend, payable quarterly in cash, in the event of
(i) the Company's failure to obtain stockholder approval within 90 days
following any date when the number of shares of Common Stock issuable or issued
upon conversion of the A-1 Preferred would have exceeded 19.9% of the Company's
outstanding Common Stock or (ii) the failure of the Company to have a
registration statement declared effective by the Commission under the Securities
Act within 180 days following the request of the holders of the Series A-1
Preferred. Such dividend rights will continue to accrue until such default has
been cured or the shares have been converted or redeemed. See "--Registration
Rights." In the event holders of the Series A-1 Preferred object to the terms of
a proposed

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acquisition of the Company, the Company may redeem shares of the Series A-1
Preferred at a price of $250 per share, plus any accrued but unpaid dividends.
In the event the Company fails to redeem such shares, such failure will be
deemed a default and the Company will be obligated to pay a 15% annual dividend
(payable quarterly in cash) on such shares until redeemed or converted. In the
event the Company defaults on the payment of any required dividend, the holders
of Series A-1 Preferred will be entitled, voting separately as a class, to
appoint and elect a number of directors (not less than one) to the Company's
Board of Directors such that, following such election, such new directors will
represent a percentage of the total members of the Board that most nearly
approximates the percentage of ownership of the Company held by the holders of
the Series A-1 Preferred on a fully-diluted basis. The Series A-1 Preferred will
automatically convert into Common Stock 18 months following the date of its
issuance by the Company; however, in the event the Company defaults on the
payment of a required dividend other than as a result of a failure to redeem in
connection with certain acquisitions, the automatic conversion date of the
Series A-1 Preferred will be extended for a one-year period beginning on the
date the default is first cured. The automatic conversion date may also be
extended for additional periods under other circumstances. See "Risk
Factors--Risks Associated with Convertible Preferred Stock Financings."

The Series B Preferred is convertible at the election of the holder into
shares of Common Stock beginning on the date six months after issuance, and at
any time prior to such date upon the occurrence of certain events, including
merger and similar transactions which would result in a change of control of the
Company. The currently outstanding Series B Preferred was originally issued on
November 17, 1997. The Series B Preferred will automatically convert into Common
Stock three years following the date of its issuance by the Company. Each share
of Series B Preferred, which has a face value of $1,000, is convertible into (i)
shares of Common Stock at a per share price equal to the lowest of (A) the
average of the closing bid prices for the Common Stock for the 22 trading days
immediately prior to the 180th day following the initial issuance date of the
Series B Preferred, (B) 101% of the average of the closing bid prices for the
Common Stock for the 22 trading days ending five trading days prior to the date
of actual conversion, or (C) 101% of the lowest closing bid price for the Common
Stock during the five trading days immediately prior to the date of actual
conversion and (ii) Warrants to acquire that number of shares of Common Stock
equal to 20% of the shares determined pursuant to item (i). The exercise price
for the Warrants will be equal to 110% of the lesser of (A) the average of the
closing bid price for the Common Stock on the five trading days prior to
November 17, 1997 and (B) the average of the closing bid price for the Common
Stock on the five trading days occurring immediately prior to the date six
months after November 17, 1997. The conversion price of the Series B Preferred
is subject to modification and adjustment upon the occurrence of specified
events. The Series B Preferred accrues cumulative dividends at an annual rate of
5% of the face value of each share of Series B Preferred. The dividend is
generally payable upon the conversion or redemption of the Series B Preferred,
and may be paid in cash or, at the Company's election subject to certain
conditions, in shares of Common Stock. The Series B Preferred is junior to the
Company's outstanding Series A-1 Convertible Preferred Stock in respect of
liquidation preference and the right to receive dividend payments. See "Risk
Factors--Risks Associated with Convertible Preferred Stock Financings."

In connection with the issuance of the Series B Preferred in November 1997,
the Company paid Shemano a fee of $1,000,000 for financial advisory services
provided in connection with such financing. In addition, the Company issued
Shemano 100,000 shares of its Common Stock, which are being registered and
offered for resale pursuant to this Prospectus. The Company also agreed to issue
Shemano a warrant to purchase up to an additional 50,000 shares of Common Stock
in the event that, as of May 17, 1998, the trading price of the Company's Common
Stock is less than $12.50. In February 1998, the Company and Shemano entered a
letter agreement pursuant to which the Company agreed to repurchase from Shemano
the 100,000 shares of Common Stock issued in connection with the issuance of the
Series B Preferred. The repurchase price would be determined based on the
then-prevailing price on The Nasdaq Stock Market and would be payable in cash.
The Company's obligation to repurchase such shares will terminate upon the
effectiveness with the Commission of a registration statement covering such
shares. See "Certain Transactions."

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REGISTRATION RIGHTS

The Company has agreed that if the Commission imposes a holding period for
securities issued in reliance on the exemption from registration set forth in
Regulation S under the Securities Act longer than the 40 day period currently in
effect or materially restricts the ability of the holders of the Series A-1
Preferred to sell or otherwise dispose of such securities pursuant to Regulation
S, upon the request of the Series A-1 Preferred holders, the Company will file
with the Commission a registration statement under the Securities Act covering
that number of shares of the Company's Common Stock issued or issuable to such
holders upon conversion of the Series A-1 Preferred, and thereafter to use its
best efforts to cause such registration statement to become effective. The
Company has agreed to use its best efforts to keep any such registration
effective until the earlier of the date at which time all applicable securities
have been sold, the second anniversary of the issuance of the Series A Preferred
shares or at such time that such securities may otherwise be sold to the public
absent registration.

The Company also agreed to file with the Commission within 45 days following
the sale of the Series B Preferred a registration statement under the Securities
Act covering not less than 150% of that number of shares of Common Stock
issuable to the Series B Preferred holders upon conversion of the Series B
Preferred and upon exercise of the Warrants at the time of filing, and
thereafter to use its best efforts to cause such registration statement to
become effective. If the Commission has not declared the registration statement
filed in connection with the Series B Preferred effective on or prior to the May
15, 1998, the Company will be obligated to pay certain damages to the Series B
Preferred holders. The Company has agreed to maintain the effectiveness of the
registration statement filed in connection with the Series B Preferred until the
earlier to occur of the date on which all of the applicable securities have been
sold thereunder or such time that such securities may be sold to the public
without registration. In addition, the Company has granted "piggyback"
registration rights to holders of the Series B Preferred, which permit such
holders to include shares of Common Stock issuable upon conversion of the Series
B Preferred and upon exercise of the Warrants in certain registration statements
which may be filed by the Company covering the sale of shares of Common Stock
for the account of the Company.

ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS;
RIGHTS AGREEMENT

The Company's Amended and Restated Certificate of Incorporation provides
that all stockholder actions must be effected at a duly called annual or special
meeting and may not be effected by written consent. The Company's Bylaws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the Board of Directors, the Chairman of the Board of
Directors or the President of the Company. In addition, the Company's Bylaws
establish an advance notice procedure for stockholder proposals to be brought
before an annual meeting of stockholders, including proposed nominations of
persons for election to the Board. Stockholders at an annual meeting may only
consider proposals or nominations specified in the notice of meeting or brought
before the meeting by or at the direction of the Board of Directors or by a
stockholder who was a stockholder of record on the record date for the meeting,
who is entitled to vote at the meeting and who has delivered timely written
notice in proper form to the Company's Secretary of the stockholder's intention
to bring such business before the meeting. In addition, the Board of Directors
of the Company is divided into three classes, with each class standing for
election once every three years.

The Company's Board of Directors has declared a dividend of one Purchase
Right (a "Right") under the Company's Rights Agreement for each share of the
Company's Common Stock outstanding on September 17, 1991 or thereafter issued.
When exercisable, each Right initially entitles the holder to purchase one share
of Common Stock at a specified price. The Rights become exercisable on the
earlier of: (i) the tenth day (or such later date as may be determined by a
majority of the Company's Directors not affiliated with the acquiring person or
group (the "Continuing Directors")) after a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 20% of more of the
Company's outstanding Common Stock or (ii) the tenth business day (or such later
date as may be determined by a

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majority of the Continuing Directors) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in beneficial ownership by a person or group
of 20% or more of the Company's outstanding Common Stock. If an acquiror obtains
20% or more of the Company's outstanding Common Stock (other than in certain
permitted transactions), and unless the Rights are earlier redeemed, the holder
of each unexercised Right will have the right to receive shares of the Company's
Common Stock having a value equal to two times the purchase price. Similarly,
unless the Rights are earlier redeemed, after the tenth day following certain
acquisition transactions, proper provision must be made so that holders of
Rights (other than those beneficially owned by an acquiring person, which will
thereafter be void) will thereafter have the right to receive, upon exercise,
shares of common stock of the acquiring company having a value equal to two
times the purchase price. The Rights Agreement has been amended so as to prevent
holders of the Series A-1 Preferred and the holders of the Series B Preferred
from being deemed acquiring persons under the Rights Agreement by virtue of
their beneficial ownership of securities issued or issuable in connection with
the sale and issuance of Preferred Stock. The Rights expire on July 25, 2005 or
on their earlier exchange, redemption or expiration in connection with certain
permitted transactions. See "Executive Compensation--Employment Agreements and
Change in Control Arrangements."

The foregoing provisions of the Company's Amended and Restated Certificate
of Incorporation Bylaws and the Rights Agreement are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions which may involve an actual or
threatened change of control of the Company. Such provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and, accordingly, could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions are also
intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for the Company's shares and, consequently, may also inhibit fluctuations in the
market price of the Company's shares that could result from actual or rumored
takeover attempts. These provisions may also have the effect of preventing
changes in the management of the Company. In addition, acquisitions of the
Company and certain other change-in-control transactions may not be effected
without the consent of the holders of the outstanding Preferred Stock or without
requiring the acquiring entity to assume the Preferred Stock or cause such
Preferred Stock to be redeemed. These provisions are likely to make an
acquisition of the Company more difficult and expensive and could discourage
potential acquirors. See "Risk Factors--Risks Associated with Convertible
Preferred Stock Financings" and "--Effect of Certain Charter Provisions;
Limitation of Liability of Directors; Antitakeover Effects of Delaware Law."

EFFECT OF DELAWARE ANTITAKEOVER STATUTE

The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from engaging,
under certain circumstances in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of the Antitakeover Law, a "business
combination" includes, among other things, a merger or consolidation involving
the Company and the interested shareholder and the sale of more than ten percent
(10%) of the Company's assets. In general, the Antitakeover Law defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
the outstanding voting stock of the Company and any entity or person affiliated
with or controlling or controlled by such entity or person. A Delaware
corporation may "opt out" of the Antitakeover Law with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from amendments approved by the
holders of at least a majority of the Company's outstanding voting shares. The
Company has not "opted out" of the provisions of the Antitakeover Law. See "Risk
Factors--Effect of Certain Charter Provisions; Limitation of Liability of
Directors; Antitakeover Effects of Delaware Law."

TRANSFER AGENT

The Transfer Agent and Registrar for the Common Stock is Boston Equiserve
LP.

88
<PAGE>
PLAN OF DISTRIBUTION

The Company will not receive any proceeds from the sale of the Shares. The
Shares are being offered on behalf of the Selling Stockholders. The Shares may
be sold or distributed from time to time by the Selling Stockholders, or by
pledgees, donees or transferees of, or other successors in interest to, the
Selling Stockholders, directly to one or more purchasers (including pledgees) or
through brokers, dealers or underwriters who may act solely as agents or may
acquire Shares as principals, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The sale of the Shares may be effected in
one or more of the following methods: (i) ordinary brokers' transactions, which
may include long or short sales; (ii) transactions involving cross or block
trades or otherwise on the Nasdaq National Stock Market; (iii) purchases by
brokers, dealers or underwriters as principal and resale by such purchasers for
their own accounts pursuant to this Prospectus; (iv) "at the market" to or
through market makers or into an existing market for the Shares; (v) in other
ways not involving market makers or established trading markets, including
direct sales to purchases or sales effected through agents; (vi) through
transactions in options, swaps or other derivatives (whether exchange-listed or
otherwise); or (vii) any combination of the foregoing, or by any other legally
available means. In addition, the Selling Stockholders or their successors in
interest may enter into hedging transactions with broker-dealers who may engage
in short sales of Shares in the course of hedging the positions they assume with
the Selling Stockholders. The Selling Stockholders or their successors in
interest may also enter into option or other transactions with broker-dealers
that require the delivery by such broker-dealers of the Shares, which Shares may
be resold thereafter pursuant to this Prospectus.

Brokers, dealers, underwriters or agents participating in the distribution
of the Shares as agents may receive compensation in the form of commissions,
discounts or concessions from the Selling Stockholders and/or purchasers of the
Shares for whom such broker-dealers may act as agent, or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be less than or in excess of customary commissions). The Selling Stockholders
and any broker-dealers who act in connection with the sale of Shares hereunder
may be deemed to be "Underwriters" within the meaning of the Securities Act, and
any commissions they receive and proceeds of any sale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Neither the
Company nor any Selling Stockholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between any Selling
Stockholder, any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the Shares.

To the extent required, the specific shares of Common Stock to be sold, the
names of the Selling Stockholders, purchase price, public offering price, the
names of any such agent, dealer or underwriter and any applicable commission or
discount with respect to a particular offering will be set forth in an
accompanying Prospectus Supplement.

The Company has agreed to bear all expenses incurred in connection with
registration, filing or qualification of the Shares under federal and state
securities laws, other than underwriting discounts and commissions and fees and
expenses of counsel for the holders of Series B Preferred. Such expenses
include, without limitation, all registration, filing and qualification fees,
printers' and accounting fees and the fees and disbursements of counsel for the
Company, including any fees incurred in connection with the delivery of opinions
by the Company's counsel to the holders of Series B Preferred regarding the
effectiveness of the registration statement for the Shares. In addition, the
Company has agreed to indemnify the Selling Stockholders (other than Shemano)
against certain liabilities, including certain potential liabilities under the
Securities Act, or to contribute payments to the Selling Stockholders as may be
required in respect thereof. Such liabilities include losses arising out of any
untrue statement or alleged untrue statement of material fact in the
registration statement, or any preliminary or final prospectus thereto including
any supplements or amendments, and any omission or alleged omission of a
material fact required to be stated therein, or necessary to make the statements
therein not misleading. See "Description of Capital Stock--Registration Rights."

89
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.

EXPERTS

The consolidated financial statements of Informix Corporation at December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

90
<PAGE>
INFORMIX CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

BOARD OF DIRECTORS AND STOCKHOLDERS--INFORMIX CORPORATION

We have audited the accompanying consolidated balance sheets of Informix
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Informix
Corporation at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

San Jose, California
March 2, 1998

F-2
<PAGE>
INFORMIX CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE AND PER-SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................................. $ 139,396 $ 226,508
Short-term investments.................................................................... 16,069 34,512
Accounts receivable, less allowance for doubtful accounts of $33,807 in 1997 and $21,429
in 1996................................................................................. 142,048 194,499
Deferred taxes............................................................................ 12,249 42,133
Other current assets...................................................................... 26,243 35,662
---------- ----------
Total current assets........................................................................ 336,005 533,314
---------- ----------
Property and equipment, at cost
Computer equipment........................................................................ 189,985 225,336
Office equipment and leasehold improvements............................................... 73,084 67,982
Less accumulated depreciation and amortization.......................................... (167,057) (106,591)
---------- ----------
96,012 186,727
Software costs, less accumulated amortization of $22,786 in 1997 and $41,559 in 1996........ 40,854 54,486
Deferred taxes.............................................................................. 56,345 10,542
Long-term investments....................................................................... -- 6,639
Intangible assets, net...................................................................... 8,277 34,693
Other assets................................................................................ 25,751 55,597
---------- ----------
Total Assets................................................................................ $ 563,244 $ 881,998
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable.......................................................................... $ 36,155 $ 65,446
Accrued expenses.......................................................................... 64,538 59,723
Accrued employee compensation............................................................. 49,154 57,626
Income taxes payable...................................................................... 3,031 5,757
Deferred maintenance revenue.............................................................. 100,828 94,981
Advances from customers and financial institutions........................................ 180,048 239,506
Accrued restructuring costs............................................................... 26,597 --
Other current liabilities................................................................. 15,802 7,138
---------- ----------
Total current liabilities................................................................... 476,153 530,177
---------- ----------
Other non-current liabilities............................................................... 6,311 2,359
Deferred taxes.............................................................................. 21,716 24,158
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01 per share--5,000,000 shares authorized
Series A-1 convertible preferred stock, 160,000 shares issued and outstanding, aggregate
liquidation preference of $40,000...................................................... 2 --
Series B convertible preferred stock, 50,000 shares issued and outstanding, aggregate
liquidation preference of $50,301...................................................... 1 --
Common stock, par value $.01 per share--500,000,000 shares authorized, 152,587,000 and
150,782,000 shares issued and outstanding in 1997 and 1996, respectively................ 1,526 1,508
Additional paid-in capital................................................................ 347,582 243,564
Retained earnings (accumulated deficit)................................................... (278,144) 78,723
Unrealized gain (loss) on available-for-sale securities, net of tax....................... (767) 11,690
Foreign currency translation adjustment................................................... (11,136) (10,181)
---------- ----------
Total stockholders' equity.................................................................. 59,064 325,304
---------- ----------
Total Liabilities and Stockholders' Equity.................................................. $ 563,244 $ 881,998
---------- ----------
---------- ----------
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>
INFORMIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net Revenues
Licenses..................................................................... $ 378,164 $ 502,730 $ 462,061
Services..................................................................... 285,728 231,810 174,486
---------- --------- ---------
663,892 734,540 636,547
Costs and Expenses
Cost of software distribution................................................ 63,027 46,786 37,593
Cost of services............................................................. 166,916 144,850 91,540
Sales and marketing.......................................................... 417,162 413,689 301,932
Research and development..................................................... 139,310 120,211 85,643
General and administrative................................................... 87,498 64,416 51,114
Write-off of goodwill and other long-term assets............................. 30,473 -- --
Write-off of acquired research and development............................... 7,000 -- --
Restructuring charges........................................................ 108,248 -- --
Expenses related to Illustra merger.......................................... -- 5,914 --
---------- --------- ---------
1,019,634 795,866 567,822
---------- --------- ---------
Operating income (loss)........................................................ (355,742) (61,326) 68,725
Interest income.............................................................. 5,623 9,868 8,148
Interest expense............................................................. (9,405) (12,475) (6,299)
Other income, net............................................................ 10,474 2,899 120
---------- --------- ---------
Income (loss) before income taxes.............................................. (349,050) (61,034) 70,694
Income taxes................................................................. 7,817 12,531 32,094
---------- --------- ---------
Net income (loss).............................................................. (356,867) (73,565) 38,600
Preferred stock dividend....................................................... (301) -- --
Value assigned to warrants..................................................... (1,601) -- --
---------- --------- ---------
Net income (loss) applicable to common stockholders............................ $ (358,769) $ (73,565) $ 38,600
---------- --------- ---------
---------- --------- ---------
Net income (loss) per common share:
Basic........................................................................ $ (2.36) $ (0.49) $ 0.27
---------- --------- ---------
---------- --------- ---------
Diluted...................................................................... $ (2.36) $ (0.49) $ 0.26
---------- --------- ---------
---------- --------- ---------
Shares used in per share calculations:
Basic........................................................................ 151,907 149,310 145,062
---------- --------- ---------
---------- --------- ---------
Diluted...................................................................... 151,907 149,310 150,627
---------- --------- ---------
---------- --------- ---------
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income (loss)............................................................. $ (356,867) $ (73,565) $ 38,600
Adjustments to reconcile net income (loss) to cash and cash equivalents
provided by (used in) operating activities:
License fees received in advance............................................ (64,797) (58,206) (34,237)
Depreciation and amortization............................................... 65,639 47,207 28,949
Amortization of capitalized software........................................ 21,437 14,626 12,041
Write-off of capitalized software........................................... 14,749 -- --
Write-off of long term assets............................................... 6,799 -- --
Write-off of intangibles.................................................... 20,033 -- --
Write-off of acquired research and development.............................. 7,000 -- --
Foreign currency transaction losses (gains)................................. 3,243 (5,349) (4,609)
Gain on sales of strategic investments...................................... (5,007) (3,856) --
Loss on disposal of property and equipment.................................. 10,815 2,393 605
Deferred tax expense........................................................ (328) (3,965) (16,577)
Provisions for losses on accounts receivable................................ 19,929 14,983 8,508
Restructuring charges....................................................... 77,196 -- --
Stock-based employee compensation........................................... 7,501 -- --
Changes in operating assets and liabilities:
Accounts receivable....................................................... 42,596 (45,426) (47,045)
Other current assets...................................................... 40,530 89 (8,441)
Accounts payable and accrued expenses..................................... (58,867) 52,077 64,294
Deferred maintenance revenue.............................................. 3,618 29,590 17,197
---------- ---------- ----------
Net cash and cash equivalents provided by (used in) operating activities...... (144,781) (29,402) 59,285
---------- ---------- ----------
Investing Activities
Investments of excess cash:
Purchases of held-to-maturity securities.................................... -- -- (144,517)
Purchases of available-for-sale securities.................................. (35,255) (152,179) (4,303)
Maturities of held-to-maturity securities................................... -- -- 83,159
Maturities of available-for-sale securities................................. 14,468 126,137 6,104
Sales of available-for-sale securities...................................... 45,957 83,696 27,261
Purchases of strategic investments............................................ (3,250) (12,737) (1,000)
Proceeds from sales of strategic investments.................................. 10,454 7,299 --
Purchases of land, and property and equipment................................. (93,786) (148,270) (56,500)
Proceeds from disposal of land, and property and equipment.................... 62,371 1,929 288
Additions to software costs................................................... (20,776) (32,381) (23,977)
Business combinations, net of cash acquired................................... (9,749) (4,340) (38,413)
Other......................................................................... (33,500) (14,434) (5,757)
---------- ---------- ----------
Net cash and cash equivalents used in investing activities.................... (63,066) (145,280) (157,655)
---------- ---------- ----------
Financing Activities
Advances from customers and financial institutions............................ 21,787 207,218 109,338
Proceeds from issuance of common stock, net................................... 9,239 24,357 27,898
Proceeds from issuance of preferred stock, net................................ 87,600 -- --
Principal payments on capital leases.......................................... (3,388) (1,025) (442)
Acquisition of common stock................................................... -- (2,388) --
Reissuance of treasury stock.................................................. -- 578 --
---------- ---------- ----------
Net cash and cash equivalents provided by financing activities................ 115,238 228,740 136,794
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents.................. 5,497 8,145 (6,402)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.............................. (87,112) 62,203 32,022
Cash and cash equivalents at beginning of year................................ 226,508 164,305 132,283
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 139,396 $ 226,508 $ 164,305
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------------------------
COMMON
SERIES A-1 SERIES B STOCK
------------------------ ------------------------ ---------
SHARES AMOUNT SHARES AMOUNT SHARES
----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994............................. -- $ -- -- $ -- 140,154
Exercise of stock options................................. 4,377
Sale of stock to employees under employee stock purchase
plan.................................................... 349
Issuance of stock, net of costs........................... 2,571
Tax benefits related to stock options.....................
Acquisition of STG........................................ 533
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net income................................................
--- --- --- --- ---------
Balances at December 31, 1995............................. -- -- -- -- 147,984
Exercise of stock options................................. 2,182
Sale of stock to employees under employee stock purchase
plan.................................................... 616
Acquisition of treasury stock.............................
Reissuance of treasury stock..............................
Tax benefits related to stock options.....................
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net loss..................................................
--- --- --- --- ---------
Balances at December 31, 1996............................. -- -- -- -- 150,782
Exercise of stock options................................. 1,132
Sale of stock to employees under employee stock purchase
plan.................................................... 573
Stock-based compensation expense resulting from stock
options.................................................
Issuance of Series A-1 convertible preferred stock and
warrants, net........................................... 160 2
Issuance of Series B convertible preferred stock and
warrants, net........................................... 50 1
Common stock issued for services rendered in connection
with the Series B convertible preferred stock offering.. 100
Accrual of 5% cumulative preferred dividends on Series B
convertible preferred stock.............................
Change in unrealized gain (loss) on available-for-sale
securities..............................................
Foreign currency translation adjustment...................
Net loss..................................................
--- --- --- --- ---------
Balance at December 31, 1997.............................. 160 $ 2 50 $ 1 152,587
--- --- --- --- ---------
--- --- --- --- ---------

RETAINED
ADDITIONAL TREASURY STOCK EARNINGS
PAID-IN ---------------------- (ACCUMULATED
AMOUNT CAPITAL SHARES AMOUNT DEFICIT)
----------- ----------- ----------- --------- ------------

<S> <C> <C> <C>
Balances at December 31, 1994............................. $ 1,400 $ 153,343 $ -- $ -- $ 115,668
Exercise of stock options................................. 44 13,712
Sale of stock to employees under employee stock purchase
plan.................................................... 3 6,603
Issuance of stock, net of costs........................... 28 7,508
Tax benefits related to stock options..................... 21,291
Acquisition of STG........................................ 5 1,991 (170)
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net income................................................ 38,600
----------- ----------- --- --------- ------------
Balances at December 31, 1995............................. 1,480 204,448 -- -- 154,098
Exercise of stock options................................. 22 13,343
Sale of stock to employees under employee stock purchase
plan.................................................... 6 10,986
Acquisition of treasury stock............................. (100) (2,388)
Reissuance of treasury stock.............................. 100 2,388 (1,810)
Tax benefits related to stock options..................... 14,787
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net loss.................................................. (73,565)
----------- ----------- --- --------- ------------
Balances at December 31, 1996............................. 1,508 243,564 -- -- 78,723
Exercise of stock options................................. 11 3,563
Sale of stock to employees under employee stock purchase
plan.................................................... 6 5,659
Stock-based compensation expense resulting from stock
options................................................. 7,501
Issuance of Series A-1 convertible preferred stock and
warrants, net........................................... 37,598
Issuance of Series B convertible preferred stock and
warrants, net........................................... 49,196
Common stock issued for services rendered in connection
with the Series B convertible preferred stock offering.. 1 802
Accrual of 5% cumulative preferred dividends on Series B
convertible preferred stock............................. (301)
Change in unrealized gain (loss) on available-for-sale
securities..............................................
Foreign currency translation adjustment...................
Net loss.................................................. (356,867)
----------- ----------- --- --------- ------------
Balance at December 31, 1997.............................. $ 1,526 $ 347,582 -- $ -- $ (278,144)
----------- ----------- --- --------- ------------
----------- ----------- --- --------- ------------

<CAPTION>
UNREALIZED
GAIN (LOSS)
ON FOREIGN
AVAILABLE CURRENCY
FOR-SALE TRANSLATION
SECURITIES ADJUSTMENT TOTALS
----------- ----------- ----------

Balances at December 31, 1994............................. $ 665 $ (1,676) $ 269,400
Exercise of stock options................................. 13,756
Sale of stock to employees under employee stock purchase
plan.................................................... 6,606
Issuance of stock, net of costs........................... 7,536
Tax benefits related to stock options..................... 21,291
Acquisition of STG........................................ 1,826
Change in unrealized gain (loss) on available-for-sale
securities, net of tax.................................. 3,399 3,399
Foreign currency translation adjustment................... (4,667) (4,667)
Net income................................................ 38,600
----------- ----------- ----------
Balances at December 31, 1995............................. 4,064 (6,343) 357,747
Exercise of stock options................................. 13,365
Sale of stock to employees under employee stock purchase
plan.................................................... 10,992
Acquisition of treasury stock............................. (2,388)
Reissuance of treasury stock.............................. 578
Tax benefits related to stock options..................... 14,787
Change in unrealized gain (loss) on available-for-sale
securities, net of tax.................................. 7,626 7,626
Foreign currency translation adjustment................... (3,838) (3,838)
Net loss.................................................. (73,565)
----------- ----------- ----------
Balances at December 31, 1996............................. 11,690 (10,181) 325,304
Exercise of stock options................................. 3,574
Sale of stock to employees under employee stock purchase
plan.................................................... 5,665
Stock-based compensation expense resulting from stock
options................................................. 7,501
Issuance of Series A-1 convertible preferred stock and
warrants, net........................................... 37,600
Issuance of Series B convertible preferred stock and
warrants, net........................................... 49,197
Common stock issued for services rendered in connection
with the Series B convertible preferred stock offering.. 803
Accrual of 5% cumulative preferred dividends on Series B
convertible preferred stock............................. (301)
Change in unrealized gain (loss) on available-for-sale
securities.............................................. (12,457) (12,457)
Foreign currency translation adjustment................... (955) (955)
Net loss.................................................. (356,867)
----------- ----------- ----------
Balance at December 31, 1997.............................. $ (767) $ (11,136) $ 59,064
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

F-6
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997, 1996 AND 1995

NOTE 1--RESTATEMENT OF FINANCIAL STATEMENTS

Subsequent to the filing of its Annual Report on Form 10-K for the year
ended December 31, 1996 with the Securities and Exchange Commission, the Company
became aware of errors and irregularities that ultimately affected the timing
and dollar amount of reported earned revenues from license transactions in 1996,
1995 and 1994. The irregularities took numerous forms and were primarily the
result of lack of compliance with or circumvention of the Company's procedures
and controls.

These errors and irregularities included unauthorized and undisclosed
arrangements or agreements between Company personnel and resellers, recognition
of revenue on certain transactions in reporting periods prior to contract
acceptance, the recording of certain transactions that lacked economic substance
and the recording of maintenance revenue as license revenue. The unauthorized
and undisclosed agreements with resellers introduced acceptance contingencies,
permitted resellers to return unsold licenses for refunds, extended payment
terms or committed the Company to assist resellers in selling the licenses to
end-users. Accordingly, license revenue from these transactions that was
recorded at the time product was delivered to resellers should have instead been
recorded at the time all conditions on the sale lapsed. Because of the
pervasiveness of the unauthorized arrangements with resellers in the 1994, 1995
and 1996 accounting periods, the Company concluded that all revenue from license
agreements with resellers in these accounting periods, except for those licenses
sold and billed on a per copy basis, should be recognized only when the licenses
were resold or utilized by resellers and all related obligations had been
satisfied. Amounts received from resellers as prepayments of software license
fees in advance of revenue recognition have been recorded as advances from
customers and financial institutions. This revised application of accounting
policy has been followed for all transactions with resellers, other than those
licenses sold and billed on a per-copy basis, for 1996, 1995 and 1994.

Accordingly, such financial statements have been restated as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues
Licenses......................................... $ 708,035 $ 502,730 $ 539,733 $ 462,061 $ 364,661 $ 346,518
Services......................................... 231,276 231,810 174,486 174,486 105,451 105,451
----------- --------- ----------- --------- ----------- ---------
939,311 734,540 714,219 636,547 470,112 451,969

Operating income (loss)............................ 137,344 (61,326) 145,826 68,725 95,091 77,229
Income taxes....................................... 50,391 12,531 55,164 32,094 34,074 29,250
Net income (loss).................................. 97,818 (73,565) 97,644 38,600 61,948 48,293
Net income (loss) per share:
Basic............................................ $ 0.66 $ (0.49) $ 0.67 $ 0.27 $ 0.45 $ 0.35
Diluted.......................................... $ 0.63 $ (0.49) $ 0.65 $ 0.26 $ 0.43 $ 0.34
Retained earnings.................................. $ 322,805 $ 78,723 $ 226,797 $ 154,098 $ 129,323 $ 115,668
Advances from customers and financial
institutions..................................... $ -- $ 239,506 $ -- $ 83,553 $ -- $ 18,556
</TABLE>

The nature of the Company's business in 1992 and 1993 was such that there
was not a material amount of revenues recorded under prepaid software license
transactions conducted with resellers during these years. Additionally, as a
result of the Company's extended procedures, there were no material errors or
irregularities identified affecting revenues recognized prior to the third
quarter of 1994. The Company concluded based on those circumstances that it was
not necessary to restate the financial statements for 1992 and 1993.

F-7
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 1--RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
In response to the errors and irregularities discussed above, a number of
conditions which collectively represented a material weakness in the Company's
internal accounting controls were identified. These conditions included a
deterioration in the Company's accounting controls at corporate and regional
management levels, and a related failure to stress the importance of these
controls, an inappropriate level of influence, principally by the Company's
sales organization, over the revenue recognition process and an apparent lack of
clarity and consistent understanding within the Company concerning the
application of the Company's revenue recognition policies to large, complex
reseller license transactions. The Company is implementing a plan to strengthen
the Company's internal accounting controls. This plan includes updating the
Company's policies regarding accounting and reporting for large, complex
reseller license transactions, developing and conducting educational programs to
help implement such policies, changing the Company's corporate and regional
accounting and reporting structure, and re-establishing an internal audit
function reporting to the Company's Board of Directors.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS. The Company is a multinational supplier of
high-performance, parallel processing database technology for open systems. The
Company's products also include application development tools for creating
client/server production applications, decision-support systems, ad-hoc query
interfaces, and software that allows information to be shared transparently from
personal computers to mainframes within the corporate computing environment. In
addition to software products, the Company offers training, consulting, and
post-contract support to its customers.

The principal geographic markets for the Company's products are North
America, Europe, Asia/ Pacific, and Latin America. Customers include large-,
medium- and small-sized corporations in the manufacturing, financial services,
telecommunications, retail/wholesale, hospitality, and government services
sectors.

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

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Informix Corporation and its wholly owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.

FOREIGN CURRENCY TRANSLATION. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of operations are translated at the
average exchange rates during the year. Exchange gains or losses arising from
translation of foreign entity financial statements are included as a component
of stockholders' equity.

For foreign operations with the U.S. dollar as the functional currency,
certain assets and liabilities are remeasured at the year-end or historical
exchange rates as appropriate. Statements of operations are remeasured at the
average exchange rates during the year. Gains and losses resulting from the
remeasurement of the entity's financial statements and other foreign currency
transaction gains and losses are

F-8
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
included in other income, net. Foreign currency transaction gains, net of
losses, were $8.0 million, $.3 million and $.2 million for the years ended
December 31, 1997, 1996 and 1995, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS. The Company enters into forward foreign
currency exchange contracts to reduce its exposure to foreign currency risk due
to fluctuations in exchange rates underlying the value of firm accounts
receivable and accounts payable denominated in foreign currencies (primarily
European and Asian currencies) until such receivables are collected and payables
are disbursed. A forward foreign currency exchange contract obligates the
Company to exchange predetermined amounts of specified foreign currencies at
specified exchange rates on specified dates or to make an equivalent U.S. dollar
payment equal to the value of such exchange. These forward foreign exchange
contracts, to qualify as hedges of firm commitments, are denominated in the same
currency in which the underlying foreign receivables or payables are denominated
and bear a contract value and maturity date which approximate the value and
expected settlement date of the underlying transactions. For contracts that are
designated and effective as hedges, discounts or premiums (the difference
between the spot exchange rate and the forward exchange rate at inception of the
contract) are accreted or amortized to other expenses over the contract lives
using the straight-line method while unrealized gains and losses on open
contracts at the end of each accounting period resulting from changes in the
spot exchange rate are deferred and recognized in earnings in the same period as
gains and losses on the underlying foreign denominated receivables or payables
are recognized and generally offset. Contract amounts in excess of the carrying
value of the Company's foreign denominated accounts receivable or payable
balances are marked to market, with changes in market value recorded in earnings
as foreign exchange gains or losses. The Company does not enter into forward
foreign currency exchange contracts for speculative or trading purposes. If an
underlying hedged transaction is terminated earlier than initially anticipated,
the offsetting gain or loss on the related forward foreign currency exchange
contract is recognized in earnings in the same period. Subsequent gains or
losses on the related contract would be recognized in earnings in each period
until the contract matures, is terminated, or sold. The Company operates in
certain countries in Latin America, Eastern Europe, and Asia Pacific where there
are limited forward currency exchange markets and thus the Company has limited
unhedged transaction exposures in these currencies. However, such exposures are
not material to the Company's financial statements for any period presented.

LICENSE REVENUE. The Company recognizes revenue from sales of software
licenses to end-users upon delivery of the software product to a customer when
there are no significant post-delivery obligations and collection of the license
fee is considered probable. Revenue from license agreements with resellers,
except for those licenses sold and billed on a per-copy basis, is recognized as
earned when the licenses are resold or utilized by the reseller and all related
obligations have been satisfied. The Company provides for sales allowances on an
estimated basis.

SERVICE REVENUE. Maintenance contracts generally call for the Company to
provide technical support and software updates to customers. Maintenance
contract revenue is recognized ratably over the term of the maintenance
contract, generally on a straight-line basis. Where maintenance revenue is not
separately invoiced, it is unbundled from license fees and deferred for revenue
recognition purposes. Other service revenue, primarily training and consulting,
is generally recognized at the time the service is performed.

ADVANCES FROM CUSTOMERS AND FINANCIAL INSTITUTIONS. At December 31, 1997
and 1996, "advances on unearned license revenue" reflect amounts received from
customers and third-party financial institutions

F-9
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in advance of revenue being recognized. The Company may receive cash, either
from the customer, or from a financing entity to whom the customer payment
streams are sold, prior to the time the license fee is recognized as earned
revenue.

The Company's license agreements with customers provide contractually for a
non-refundable fee payable by the customer in single or multiple installment(s)
at the initiation or over the term of the license arrangement. If the Company
fails to comply with the contractual terms of a specific license agreement, the
Company could be required to refund to the customer or the financial institution
the amount(s) received. These terms require the Company to meet all of its
obligations under the license agreement; to have rights to the software it
licenses; to deliver software that is fully functional according to agreement
specifications; and to represent that the accounts receivable or payment streams
sold to the financial institution are payment obligaions under a valid,
authorized, and legally enforceable contract between the Company and customer.
The refund of amounts received would not, however, have a material effect on the
Company's results of operation as revenue has not been recognized for amounts
recorded as "Advances from customers and financial institutions."

SALES OF RECEIVABLES. The Company often finances amounts due from customers
with financial institutions on a non-recourse basis. The Company accounts for
these transactions in accordance with Statement of Financial Accounting
Standards No. 77, "Reporting by Transferors for Transfers of Receivables with
Recourse (FAS 77). Effective January 1, 1998 these transactions will be
accounted for in accordance with Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" (FAS 125). If at the time of the transfer the
amounts due from the customer have been recognized as revenue and a receivable,
the transfer is accounted for as the sale of a receivable and the receivable is
removed from the books and the financing fees are charged to operations
immediately as interest expense.

SALES OF FUTURE REVENUE STREAMS. If at the time of transfer the amounts due
from the customers have not been recognized as revenue or a receivable, the
transfer is accounted for as the sale of a future revenue stream in accordance
with EITF 88-18. Accordingly, the receipt of cash is treated as a borrowing and
recorded as "advances from customers and financial institutions" and the
financing fees are amortized to interest expense over the term of the financing
arrangement. The Company does not expect to finance amounts due from customers
subsequent to December 31, 1997.

CONCURRENT TRANSACTIONS. Principally during 1996, the Company entered into
software license agreements with certain computer and service vendors where the
Company concurrently committed to acquire goods and services in the aggregate of
approximately $130 million. If the agreement is with a reseller, revenue is
recognized as earned on these transactions as the licenses are resold by the
customer. If the agreement is with an end user, revenue is generally recognized
as earned upon delivery of software. The computer equipment and services are
recorded at their fair value. These concurrent transactions for 1996 included
license agreements of approximately $170 million and commitments to acquire
goods and services in the aggregate of approximately $130 million. Concurrent
transactions in 1997 included software license agreements of approximately $21
million and commitments by the Company to acquire goods and services in the
aggregate of approximately $50 million (see Note 13).

F-10
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES. Inventories, which consist primarily of software product
components, finished software products, and marketing and promotional materials,
are carried at the lower of cost (first in, first out) or market value, and are
included in other current assets.

SOFTWARE COSTS. The Company capitalizes software development costs incurred
in developing a product once technological feasibility of the product has been
determined. Software costs also include amounts paid for purchased software and
outside development on products which have reached technological feasibility.
All software costs are amortized as a cost of software distribution either on a
straight-line basis over the remaining estimated economic life of the product or
on the basis of each product's projected revenues, whichever results in greater
amortization. Capitalized software costs are generally amortized over three
years. The Company recorded amortization of $21.4 million, $14.6 million, and
$12.0 million of software costs in 1997, 1996 and 1995, respectively, in cost of
software distribution.

PROPERTY AND EQUIPMENT. Depreciation of property and equipment is
calculated using the straight-line method over its estimated useful life,
generally the shorter of the applicable lease term or three-to-seven years for
financial reporting purposes.

BUSINESSES ACQUIRED. The purchase price of businesses acquired, accounted
for as purchased business combinations, is allocated to the tangible and
specifically identifiable intangible assets acquired based on their estimated
fair values with any amount in excess of such allocations being designated as
goodwill. Intangible assets are amortized over their estimated useful lives,
which to date have been five to seven years. The carrying values of goodwill and
specified intangible assets are reviewed if the facts and circumstances suggest
that they may be impaired. If this review indicates that the asset will not be
recoverable, as determined based on the undiscounted cash flows of the acquired
business over the remaining amortization period, the Company's carrying value is
reduced to net realizable value. During 1997, the Company wrote down $30.5
million of impaired long-term assets related to the shortfall in business
activity of its Japanese subsidiary (see Note 13). There were no writedowns of
intangible assets in 1996 or 1995. As of December 31, 1997 and 1996, the Company
had $19.2 million and $50.6 million of intangible assets, with accumulated
amortization of $10.9 million and $15.9 million respectively, as a result of
these acquisitions.

CONCENTRATION OF CREDIT RISK. The Company designs, develops, manufactures,
markets, and supports computer software systems to customers in diversified
industries and in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.

No single customer accounted for 10% or more of the consolidated revenues of
the Company in 1997, 1996 or 1995.

CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, AND LONG-TERM
INVESTMENTS. The Company considers liquid investments purchased with a maturity
of three months or less to be cash equivalents. The Company considers
investments with a maturity of more than three months but less than one year to
be short-term investments. Investments with an original maturity of more than
one year are considered long-term investments. Short-term and long-term
investments are classified as available-for-sale and are carried at fair value.
Cash equivalents are carried at amortized cost.

F-11
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company invests its excess cash in accordance with its short-term and
long-term investments policy, which is approved by the Board of Directors. The
policy authorizes the investment of excess cash in government securities,
municipal bonds, time deposits, certificates of deposit with approved financial
institutions, commercial paper rated A-1/P-1 (a small portion of the portfolio
may consist of commercial paper rated A-2/P-2), and other specific money market
instruments of similar liquidity and credit quality. The Company has not
experienced any significant losses related to these investments.

SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE. Management determines
the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive intent and the
ability to hold the securities until maturity. Held-to-maturity securities are
stated at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, as well as any interest on the
securities, is included in interest income.

Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
expense, net. The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
are included in interest income. The Company realized gross gains of
approximately $8.5 million and $5.2 million and gross losses of approximately
$1.2 million and $1.3 million on the sale of available-for-sale equity
securities during 1997 and 1996, respectively. Realized gains and losses were
not material in 1995.

FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair values of cash, cash equivalents,
short and long term investments, other assets, and currency forward contracts
are based on quoted market prices.

RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform to the current period presentation.

F-12
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 3--FINANCIAL INSTRUMENTS

The following is a summary of available-for-sale debt and equity securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. treasury securities......................................... $ 3,701 $ 1 $ -- $ 3,702
Commercial paper, corporate bonds and medium-term notes.......... 49,664 18 -- 49,682
Municipal bonds.................................................. 11,903 -- (3) 11,900
Repurchase agreements............................................ 23,262 -- -- 23,262
---------- ----------- ----------- ----------
Total debt securities.......................................... $ 88,530 $ 19 $ (3) $ 88,546
U.S. equity securities........................................... 13,309 -- (851) 12,458
---------- ----------- ----------- ----------
$ 101,839 $ 19 $ (854) $ 101,004
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Amounts included in cash and cash equivalents.................... $ 72,460 $ 18 $ (1) $ 72,477
Amounts included in short-term investments....................... 16,070 1 (2) 16,069
Amounts included in other assets................................. 13,309 -- (851) 12,458
---------- ----------- ----------- ----------
$ 101,839 $ 19 $ (854) $ 101,004
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------

<CAPTION>
DECEMBER 31, 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities......................................... $ 61,308 $ -- $ (20) $ 61,288
Commercial paper................................................. 15,872 14 (2) 15,884
Municipal bonds.................................................. 27,317 10 (48) 27,279
Auctioned preferred stock........................................ 4,504 -- (4) 4,500
---------- ----------- ----------- ----------
Total debt securities.......................................... 109,001 24 (74) 108,951
U.S. equity securities........................................... 15,404 18,490 -- 33,894
---------- ----------- ----------- ----------
$ 124,405 $ 18,514 $ (74) $ 142,845
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Amounts included in cash and cash equivalents.................... $ 67,806 $ -- $ (6) $ 67,800
Amounts included in short-term investments....................... 34,548 19 (55) 34,512
Amounts included in long-term investments........................ 6,647 5 (13) 6,639
Amounts included in other assets................................. 15,404 18,490 -- 33,894
---------- ----------- ----------- ----------
$ 124,405 $ 18,514 $ (74) $ 142,845
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>

NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into forward foreign exchange contracts primarily to
hedge the value of accounts receivable or accounts payable denominated in
foreign currencies against fluctuations in exchange rates until such receivables
are collected or payables are disbursed. The purpose of the Company's foreign
exchange exposure management policy and practices is to attempt to minimize the
impact of exchange rate fluctuations on the value of the foreign currency
denominated assets and liabilities being hedged. Substantially all forward
foreign exchange contracts entered into by the Company have maturities of 360

F-13
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
days or less. The Company's practice is to settle all foreign exchange contracts
within ten calendar days of year end and thus there is no material difference
between the contract value and the fair value of the contracts at December 31,
1997 and 1996. At December 31, 1997 and 1996, the Company had approximately
$102.7 and $168.6 million of forward foreign currency exchange contracts
outstanding, respectively. The table below summarizes by currency the
contractual amounts of the Company's forward foreign exchange contracts at
December 31, 1997 and December 31, 1996.

The restatement of the 1996, 1995 and 1994 financial statements resulted in
a change in the Company's foreign currency denominated intercompany accounts
payable and accounts receivable balances. As a result, certain foreign currency
transaction gains and losses realized due to fluctuation in the related asset
and liability currency exchange rates were not offset by underlying gains and
losses on forward foreign currency exchange contracts used to hedge those
foreign currency exposures. The Company recorded net foreign currency
transaction gains and (losses) of approximately $7.5 million, $(0.7) million,
$0.1 million, and $(0.5) million in 1997, 1996, 1995, and 1994, respectively,
due to the restatement.

F-14
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

FORWARD CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
AT DECEMBER 31, 1997 CONTRACT VALUE GAIN/(LOSS) FAIR VALUE
- ------------------------------------------------------------------------- -------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Forward currency contracts sold:
British Pound.......................................................... $ 55,740 $ 28 $ 241
Deutsche Mark.......................................................... 17,050 13 (75)
French Franc........................................................... 14,139 9 (66)
Italian Lira........................................................... 3,901 4 4
Spanish Peseta......................................................... 3,166 1 (7)
Swedish Krona.......................................................... 1,682 2 (3)
Other (individually less than $1 million).............................. 2,090 41 47
-------------- ----- -----
Total.................................................................... $ 97,768 $ 98 $ 141
-------------- ----- -----
-------------- ----- -----
Forward currency contracts purchased:
Swiss Franc............................................................ $ 1,636 $ (1) $ 16
Dutch Guilder.......................................................... 1,096 -- 5
Other (individually less than $1 million).............................. 2,208 15 12
-------------- ----- -----
Total.................................................................... $ 4,940 $ 14 $ 33
-------------- ----- -----
-------------- ----- -----
Grand Total.............................................................. $ 102,708 $ 112 $ 174
-------------- ----- -----
-------------- ----- -----

UNREALIZED
AT DECEMBER 31, 1996 CONTRACT VALUE GAIN/(LOSS) FAIR VALUE
- ------------------------------------------------------------------------- -------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Forward currency contracts sold:
Deutsche Mark.......................................................... $ 55,815 $ (24) $ 209
Japanese Yen........................................................... 41,384 (143) 329
British Pound.......................................................... 16,051 (12) (42)
French Franc........................................................... 8,252 -- 38
Malaysian Ringgit...................................................... 5,914 1 (21)
Taiwanese NT........................................................... 5,609 (2) (17)
Italian Lira........................................................... 4,555 (9) (24)
Singapore Dollar....................................................... 3,600 (8) 5
Dutch Guilder.......................................................... 3,558 1 19
Sweden Krona........................................................... 2,246 1 8
Swiss Franc............................................................ 1,622 1 --
Portuguese Escudo...................................................... 1,574 -- (3)
Other (individually less than $1 million).............................. 2,240 (1) 1
-------------- ----- -----
Total.................................................................... $ 152,420 $ (195) $ 502
-------------- ----- -----
-------------- ----- -----
Forward currency contracts purchased:
British Pound.......................................................... $ 10,501 $ (192) $ (149)
Deutsche Mark.......................................................... 4,198 6 (16)
Other (individually less than $1 million).............................. 1,472 (7) (10)
-------------- ----- -----
Total.................................................................... $ 16,171 $ (193) $ (175)
-------------- ----- -----
-------------- ----- -----
Grand Total.............................................................. $ 168,591 $ (388) $ 327
-------------- ----- -----
-------------- ----- -----
</TABLE>

F-15
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
While the contract amounts provide one measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The amounts (arising from the possible inabilities of
counterparties to meet the terms of their contracts) are generally limited to
the amounts, if any, by which the counterparties' obligations exceed the
obligations of the Company. The Company controls credit risk through credit
approvals, limits and monitoring procedures.

As of December 31, 1997, other than foreign forward exchange contracts
discussed immediately above, the Company does not currently invest in or hold
any other derivative financial instruments.

NOTE 5--NET INCOME (LOSS) PER COMMON SHARE

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (FAS 128), "Earnings per Share." FAS
128 supersedes Accounting Principles Board Opinion No. 15 (APB 15), "Earnings
per Share," and other related Interpretations and is effective for the periods
ending after December 15, 1997. Under FAS 128, basic earnings per share are
computed using the weighted average number of common shares outstanding during
the period. Diluted earnings per common share includes the incremental shares
issuable upon the assumed exercise of stock options, warrants, and convertible
preferred stock, when the effect is dilutive. As required by FAS 128, all prior
year net income (loss) per share amounts have been restated.

The following table sets forth computation of basic and diluted net income
(loss) per common share:

<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)................................... $ (356,867) $ (73,565) $ 38,600
Preferred stock dividends........................... (301) -- --
Value assigned to warrants.......................... (1,601) -- --
-------------- -------------- --------------
Numerator for basic and diluted net income (loss)
per common share.................................. $ (358,769) $ (73,565) $ 38,600
-------------- -------------- --------------
Denominator:
Denominator for basic net income (loss) per common
share--weighted-average shares.................... 151,907,041 149,310,000 145,062,000
Effect of dilutive securities:
Employee stock options............................ -- -- 5,565,000
-------------- -------------- --------------
Denominator for diluted net income (loss) per common
share--adjusted weighted-average shares and
assumed conversions............................... 151,907,041 149,310,000 150,627,000
-------------- -------------- --------------
-------------- -------------- --------------
Basic net income (loss) per common share.............. $ (2.36) $ (0.49) $ 0.27
Diluted net income (loss) per common share............ $ (2.36) $ (0.49) $ 0.26
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

Weighted average employee stock options to acquire 4,776,124 and 6,263,000
were outstanding in fiscal 1997 and 1996, respectively, but were not included in
the computation of diluted earnings per share because the effect was
antidilutive. In addition, at December 31, 1997, 8,341,238 shares of convertible
preferred stock were also excluded from the computation of diluted earnings per
share because the effect was antidilutive. See Notes 6 and 7.

F-16
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 6--PREFERRED STOCK (UNAUDITED)

In August 1997, the Company sold 160,000 shares of newly issued Series A
Convertible Preferred Stock, face value $250 per share, which shares are
generally not entitled to vote on corporate matters, to a private investor for
aggregate net proceeds of $37.6 million and issued a warrant to the same
investor to purchase up to an additional 140,000 shares of Series A Convertible
Preferred Stock at an aggregate purchase price of up to $35 million. In November
1997, the Company canceled the Series A Convertible Preferred Stock in exchange
for the same number of shares of a substantially identical Series A-1
Convertible Stock (the "A-1 Preferred") issued to the same investor, with a
corresponding change to the warrant shares. The warrant may be exercised from
August 13, 1997 through April 15, 1999.

The Series A-1 Preferred shares are convertible into common shares at any
time, at the holder's option, at a per share price equal to 101% of the average
price of the Company's common stock for the 30 days ending five trading days
prior to conversion, but not greater than the lesser of (i) 105% of the common
stock's average price of the first five trading days of such thirty day period,
or (ii) $12 per share. If not converted prior, the A-1 Preferred will
automatically convert into common shares eighteen months after their issuance,
subject to extension of the automatic conversion date in certain defined
circumstances of default. However, if at the time of conversion, the aggregate
number of shares of common stock already issued and to be issued as a result of
the conversion of the shares of the Series A-1 Convertible Preferred Stock were
to exceed 19.9% of the total number of shares of then outstanding common stock,
then such excess does not convert unless or until stockholder approval is
obtained.

The mandatory redemption provisions of the new A-1 Preferred differ from the
Series A Convertible Preferred Stock. The redemption provisions in the A-1
Preferred effectively preclude the Company from having to redeem the preferred
stock except by actions solely within its control. Accordingly, the Consolidated
Balance Sheet reflects the A-1 Preferred under stockholder's equity. On February
13, 1998, the Series A-1 convertible preferred stockholders exercised their
conversion privileges. See Note 17-- Subsequent Events.

In November 1997, the Company sold 50,000 shares of newly issued Series B
Convertible Preferred Stock ("Series B Preferred"), face value $1,000 per share,
which shares are generally not entitled to vote on corporate matters, to private
investors for aggregate proceeds of $50.0 million (excluding a $1.0 million fee
paid to a financial advisor of the Company). In connection with the sale, the
Company also agreed to issue a warrant to such investors upon conversion of such
Series B Preferred to purchase 20% of the shares of Common Stock but no less
than 1,500,000 shares at a per share exercise price which is presently
indeterminable and will depend on the trading price of the Common Stock of the
Company in the period prior to the conversion of the Series B Preferred. The
Company also agreed to issue additional warrants to purchase up to an aggregate
of 200,000 shares at a per share exercise price which is presently
indeterminable and will depend on the trading price of the Common Stock of the
Company in the period prior to the conversion of the Series B Preferred. The
Series B Preferred is convertible at the election of the holder into shares of
Common Stock beginning six months after issuance, and upon the occurrence of
certain events, including a merger. The Series B Preferred will automatically
convert into Common Stock three years following the date of its issuance. Each
Series B Preferred share is convertible into the number of shares of Common
Stock at a per share price equal to the lowest of (i) the average of the closing
prices for the Common Stock for the 22 days immediately prior to the 180th day
following the initial issuance date, (ii) 101% of the average closing price for
the 22 trading days prior to the date of actual conversions, or (iii) 101% of
the lowest closing price for the Common Stock during the five trading days
immediately prior to the date of actual conversion. The conversion price of the
Series B Preferred is subject to modification

F-17
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 6--PREFERRED STOCK (CONTINUED)
and adjustment upon the occurrence of certain events. The Series B Preferred
accrues cumulative dividends at an annual rate of 5% of per share face value.
The dividend is generally payable upon the conversion or redemption of the
Series B Preferred, and may be paid in cash or, at the holder's election, in
shares of Common Stock. The Series B is junior to the Company's outstanding
Series A-1 Preferred in respect to the right to receive dividend payments and
liquidation preferences.

The Company reserved 26.0 million shares of Common Stock for issuance upon
conversion of the A-1 Preferred (including shares of A-1 Preferred issuable upon
exercise of the Series A-1 Warrant). Of those 26.0 million shares, the Company
issued 12.8 million shares in February 1998 in connection with the conversion of
220,000 shares of A-1 Preferred (see Note 17). The Company has reserved 22.8
million shares of Common Stock for issuance upon conversion of the Series B
Preferred and upon exercise of the Series B Warrants.

The fair value of the warrants issued in connection with the A-1 Preferred
and Series B Preferred are deemed to be a discount to the conversion price of
the respective equity instruments available to the preferred stockholders. The
discounts are being recognized as a return to the preferred stockholders
(similar to a dividend) over the minimum period during which the preferred
stockholders can realize this return, immediate for the A-1 Preferred and six
months for the Series B Preferred. The portion of the discount applicable to
fiscal 1997 has been accreted to additionial paid in capital (accumulated
deficit) in the Company's December 31, 1997 financial statements and has been
disclosed as a decrease in the amount available to common stockholders on the
face of the statement of operations and for purposes of computing net income
(loss) per share. The fair value assigned to the warrants is based on an
independent appraisal performed by a nationally recognized investment banking
firm. The appraisal was completed utilizing the Black-Scholes valuation model.
This model requires assumptions related to the remaining life of the warrant,
the risk free interest rate at the time of issuance, stock volatility, and an
illiquidity factor associated with the security. These assumptions and the
values assigned to the Series A-1 and Series B Warrants were as follows:

<TABLE>
<CAPTION>
SERIES A-1 SERIES B
------------------------------ ------------------------------
<S> <C> <C>
Volatility...................................... 0.4 0.6
Expected life................................... 18 months 24 months
Risk free interest rate......................... 5.6% 5.6%
Dividend yield.................................. 0% 0%
Illiquidity discount............................ 33% 33%
Exercise price.................................. $7.59 $9.73
Assigned value.................................. $0.9 million $2.7 million
</TABLE>

In connection with the issuance of the Series B Convertible Preferred Stock
in November 1997, the Company paid a fee of $1,000,000 for financial advisory
services provided in connection with such financing. In addition, the Company
issued 100,000 shares of its Common Stock, and also agreed to issue a warrant to
purchase an additional 50,000 shares of the Company's Common Stock to the
service provider in the event that, as of May 17, 1998, the trading price of the
Company's Common Stock is less than $12.50 per share. Such warrant will be
exercisable according to the same terms as the warrants issued in connection
with the issuance of the Series B Convertible Preferred Stock.

F-18
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 7--STOCK-BASED BENEFIT PLANS

OPTION PLANS

Under the Company's 1986 Employee Stock Option Plan, options are granted at
fair market value on the date of the grant. Options are generally exercisable in
cumulative annual installments over three to five years. Payment for shares
purchased upon exercise of options may be by cash or, with Board approval, by
full recourse promissory note or by exchange of shares of the Company's common
stock at fair market value on the exercise date. Unissued options under the 1986
Plan expired on July 29, 1996, which was 10 years after adoption of the plan.

Additionally, 1,600,000 shares were authorized for issuance under the 1989
Outside Directors Stock Option Plan, whereby non-employee directors are
automatically granted non-qualified stock options upon election or re-election
to the Board of Directors. At December 31, 1997, 645,000 shares were available
for grant under this Plan.

In April 1994, the Company adopted the 1994 Stock Option and Award Plan;
8,000,000 shares were authorized for grant under this Plan. Options can be
granted to employees on terms substantially equivalent to those described above.
The 1994 Stock Option and Award Plan also allows the Company to award
performance shares of the Company's common stock to be paid to recipients on the
achievement of certain performance goals set with respect to each recipient. In
May 1997, the Company's stockholders approved an additional 8,000,000 shares to
be reserved for issuance under the Company's 1994 Stock Option and Award Plan.
At December 31, 1997, 4,009,476 shares were available for grant under this Plan.

In July 1997, the Company's Board of Directors approved a resolution
authorizing the grant of a maximum of 500,000 non-statutory stock options to
executives and other employees, as determined by the Board, under the newly
created 1997 Non-Statutory Stock Option Plan ("the 1997 Stock Plan"). The
authorization of such shares for grant under the 1997 Stock Plan is not subject
to stockholder approval. Terms of each option are determined by the Board or
committee delegated such duties by the Board. Concurrent with the authorization
of the 1997 Stock Plan, the Board granted the Company's current chief executive
officer 500,000 options to purchase the Company's common stock thereunder. Such
options vest ratably over five years beginning with the first anniversary of the
date of grant.

In September 1997, the Company's Board of Directors authorized the repricing
of outstanding options to purchase Common Stock under the Company's stock option
plans. Employees were eligible to participate only if they remained actively
employed at the effective date of the repricing and were only permitted to
exchange options granted and outstanding prior to May 1, 1997. The
repricing/option exchange was effective November 21, 1997 (the "Repricing
Effective Date"). The repricing program offered eligible employees the
opportunity to exchange eligible outstanding options with exercise prices in
excess of the closing sales price of the Company's Common Stock on the Repricing
Effective Date for a new option with an exercise price equal to such price.
Other than the exercise price, each new option issued upon exchange has terms
substantially equivalent to the surrendered option, including the number of
shares, vesting terms and expiration except that options issued in connection
with the exchange may not be exercised for a period of one year from the
Repricing Effective Date. In addition, officers of the Company participating in
the option exchange were required to forfeit 20% of the shares subject to each
option being surrendered. The exercise price for repriced options was $7.1563,
the closing sales price of the Company's Common Stock on the Repricing Effective
Date.

F-19
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 7--STOCK-BASED BENEFIT PLANS (CONTINUED)
Following is a summary of activity for all stock option plans for the three
years ended December 31, 1997:

<TABLE>
<CAPTION>
NUMBER OPTIONS
OF SHARES PRICE PER SHARE
------------- -----------------
<S> <C> <C>
Outstanding at December 31, 1994............................ 15,013,772 $0.06 to $14.44
Options granted and assumed................................. 5,456,927 0.19 to 34.00
Options exercised........................................... (3,852,697) 0.19 to 13.88
Options canceled............................................ (864,920) 0.06 to 32.75
------------- -----------------
Outstanding at December 31, 1995............................ 15,753,082 $0.06 to $34.00
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PRICE
--------------
<S> <C> <C>
Options granted and assumed................................... 5,850,225 $ 24.3456
Options exercised............................................. (2,927,260) 4.6069
Options canceled.............................................. (1,561,800) 17.1483
------------- --------------
Outstanding at December 31, 1996.............................. 17,114,247 $ 13.4495
Options granted and assumed................................... 13,137,338 8.5926
Options exercised............................................. (1,132,484) 2.9266
Options canceled.............................................. (10,008,150) 18.8573
------------- --------------
Outstanding at December 31, 1997.............................. 19,110,951 $ 7.9906
------------- --------------
------------- --------------
</TABLE>

The following table summarizes information about options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
WEIGHTED NUMBER
NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- ---------------------------- -------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>

$0.2000 - $0.3900........... 843,276 7.19 $ 0.2927 843,276 $ 0.2927
$0.4844 - $1.7800........... 942,176 2.40 $ 0.7486 942,176 $ 0.7486
$1.8906 - $4.2188........... 1,711,539 4.35 $ 3.6708 1,707,139 $ 3.6696
$4.2500 - $7.1563........... 5,531,029 8.43 $ 7.0768 58,728 $ 5.6288
$7.2500 - $7.5000........... 1,350,140 7.19 $ 7.4560 845,890 $ 7.4929
$7.5625 - $8.6250........... 1,577,025 5.34 $ 8.6010 1,541,875 $ 8.6050
$8.6875 - $9.7813........... 4,148,565 9.33 $ 9.0885 158,500 $ 9.7069
$9.9063 - $18.2500.......... 2,438,057 8.61 $ 12.7550 779,961 $ 16.1924
$18.5625 - $24.5000......... 489,921 8.24 $ 23.4102 342,310 $ 23.4008
$24.6250 - $34.2500......... 79,223 7.97 $ 30.4673 67,723 $ 30.6235
-------------- --- ------------- ------------- ---------------
$0.2000 - $34.2500.......... 19,110,951 7.58 $ 7.9906 7,287,577 $ 7.0538
-------------- --- ------------- ------------- ---------------
-------------- --- ------------- ------------- ---------------
</TABLE>

F-20
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 7--STOCK-BASED BENEFIT PLANS (CONTINUED)
In connection with all stock option plans, 23,765,427 shares of Common Stock
were reserved for issuance as of December 31, 1997, and 7,287,577 options were
exercisable. At December 31, 1996, 18,750,708 shares of common stock were
reserved for issuance, and 7,988,176 options were exercisable.

EMPLOYEE STOCK PURCHASE PLAN

The Company also has a qualified Employee Stock Purchase Plan (ESPP) under
which 7,600,000 shares of common stock, in the aggregate, have been authorized
for issuance. Under the terms of the Plan, employees may contribute, through
payroll deductions, up to 10 percent of their base pay and purchase up to 500
shares per quarter (with the limitation of purchases of $25,000 annually in fair
market value of the shares). Employees may elect to withdraw from the Plan
during any quarter and have their contributions for the period returned to them.
Also, employees may elect to reduce the rate of contribution one time in each
quarter. The price at which employees may purchase shares is 85 percent of the
lower of the fair market value of the stock at the beginning or end of the
quarter. The Plan is qualified under Section 423 of the Internal Revenue Code of
1986, as amended. During 1997, 1996, and 1995 the Company issued 573,343 shares,
616,128 shares, and 347,743 shares, respectively, under this Plan. The Plan was
terminated on July 1, 1997, which was 10 years after the offering date for the
Plan's first offering period.

In May 1997, the Company's stockholders approved the 1997 Employee Stock
Purchase Plan (the "1997 ESPP"). The Company has reserved 4,000,000 shares of
Common Stock for issuance under the 1997 ESPP. The 1997 ESPP permits
participants to purchase Common Stock through payroll deductions of up to 15
percent of an employee's compensation, including commissions, overtime, bonuses
and other incentive compensation. The price of Common Stock purchased under the
1997 ESPP is equal to 85 percent of the lower of the fair market value of the
Common Stock at the beginning or at the end of each quarter in which an eligible
employee participates. The Plan qualifies as an employee stock purchase plan
under Section 423 of the Internal Revenue Code of 1986, as amended. As of
December 31, 1997, the Company has not issued any shares of Common Stock under
the 1997 ESPP.

STOCK-BASED COMPENSATION

As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) in accounting for stock-based awards to employees. Under APB
25, the Company generally recognizes no compensation expense with respect to
such awards.

Pro forma information regarding the net income (loss) and earnings per share
(loss) is required by FASB 123 for awards granted or modified after December 31,
1994 as if the Company had accounted for its stock based awards to employees
under the fair value method of FASB 123. The fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes option
pricing model.

F-21
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 7--STOCK-BASED BENEFIT PLANS (CONTINUED)
The fair value of the Company's stock-based awards was estimated assuming no
expected dividends and the following weighted-average assumptions:

<TABLE>
<CAPTION>
OPTIONS ESPP
------------------------------------------ ----------------------------------------------
1997 1996 1995 1997 1996 1995
---------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Expected life
(years)......... 4.5 years 4.5 year 4.5 year .25 years .25 year .25 year
Expected
volatility
(percent)....... .7900 .5822 - .6327 .5642 - .6239 .5066 - .8954 .5765 - .9662 .4170 - .7295
Risk-free interest
rate
(percent)....... 5.71 5.20 - 6.09 5.82 - 7.72 5.23 - 5.40 5.01 - 5.85 5.49 - 6.07
</TABLE>

For pro forma purposes, the estimated fair value of the Company's stock
based awards is amortized over the award's vesting period (for options) and the
three month purchase period (for stock purchases under the ESPP). The Company's
pro forma information follows, (in thousands except for per share information):

<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C> <C>
Net income (loss)......................... As reported $ (358,769) $ (73,565) $ 38,600
Pro forma (387,594) (94,196) 28,652

Net income (loss) per share:
Basic................................... As reported $ (2.36) $ (0.49) $ 0.27
Pro forma (2.55) (0.63) 0.20
Diluted................................. As reported $ (2.36) $ (0.49) $ 0.26
Pro forma (2.55) (0.63) 0.19
</TABLE>

Calculated under FASB 123, the weighted-average fair value of the options
granted during fiscal 1997, 1996 and 1995 was $5.26, $13.04 and $10.39 per
share, respectively. The weighted average fair value of employee stock purchase
rights granted under the ESPP during 1997, 1996 and 1995 were $3.83, $7.47 and
$5.27, respectively.

401(K) PLAN

The Company has a 401(k) plan covering substantially all of its U.S.
employees. Under this plan, participating employees may defer up to 15 percent
of their pre-tax earnings, subject to the Internal Revenue Service annual
contribution limits. In fiscal 1997, the Company matched 50 percent of each
employee's contribution up to a maximum of $2,000. The Company's matching
contributions to this 401(k) plan for 1997, 1996 and 1995 were $4.2 million,
$3.8 million and $2.5 million, respectively.

F-22
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 8--COMMITMENTS

The Company leases certain computer and office equipment under capital
leases having terms of three-to-five years. Amounts capitalized for such leases
are included on the consolidated balance sheets as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment............................................... $ 6,939 $ 8,825
Office equipment................................................. 349 2,474
------ ------
7,288 11,299
Less: accumulated amortization................................... 1,489 8,985
------ ------
$ 5,799 $ 2,314
------ ------
------ ------
</TABLE>

During fiscal 1997, 1996 and 1995, the Company financed approximately $10.5
million, $1.8 million and $1.7 million, respectively, of equipment purchases
under capital lease arrangements. Amortization with respect to leased equipment
is included in depreciation expense.

The Company leases certain of its office facilities and equipment under
non-cancelable operating leases and total rent expense was $34.7 million, $42.4
million and $19.7 million in 1997, 1996 and 1995, respectively.

In November 1996, the Company leased approximately 200,000 square feet of
office space in Santa Clara, California. The lease term is for fifteen years and
minimum lease payments amount to $96.0 million over the term. The minimum lease
payments increase within a contractual range based on changes in the Consumer
Price Index. In the fourth quarter of 1997, the Company assigned the lease to an
unrelated third party. The Company remains contingently liable for minimum lease
payments under this assignment.

F-23
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 8--COMMITMENTS (CONTINUED)

Future minimum payments, by year and in the aggregate, under the capital and
non-cancelable operating leases as of December 31, 1997, are as follows:

<TABLE>
<CAPTION>
CAPITAL NON-CANCELABLE
YEAR ENDING DECEMBER 31 LEASES OPERATING LEASES
- ------------------------------------------------------------------ --------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1998.............................................................. $ 4,838 $ 34,329
1999.............................................................. 3,904 26,944
2000.............................................................. 1,887 21,430
2001.............................................................. -- 17,427
2002.............................................................. -- 12,875
Thereafter........................................................ -- 4,364
--------- --------
Total payments.................................................... 10,629 $ 117,369
--------
--------
Less: amount representing interest................................ 1,185
---------
Present value of minimum lease payments........................... 9,444
Less current portion.............................................. 3,627
---------
$ 5,817
---------
---------
</TABLE>

As of December 31, 1997, the Company was contractually obligated to purchase
approximately $4.4 million of various computer equipment.

F-24
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 9--GEOGRAPHIC INFORMATION

Net revenues, operating income, and identifiable assets for the Company's
North American, European, Asia/Pacific and Latin American operations are
summarized below by year:

<TABLE>
<CAPTION>
LATIN
NORTH AMERICA EUROPE ASIA/PACIFIC AMERICA ELIMINATIONS TOTAL
-------------- ---------- ----------- --------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1997:
Net revenues..................... $ 358,532 $ 220,654 $ 81,129 $ 50,064 $ (46,487) $ 663,892
Operating income (loss).......... (227,783) (78,005) (49,067) 3,541 (4,428) (355,742)
Identifiable assets.............. 555,476 130,174 61,875 38,948 (223,229) 563,244

1996:
Net revenues..................... $ 413,604 $ 233,224 $ 93,622 $ 50,829 $ (56,741) $ 734,538
Operating income (loss).......... (35,276) (20,520) (11,576) 4,693 1,353 (61,326)
Identifiable assets.............. 734,852 218,196 101,203 44,803 (217,058) 881,996

1995:
Net revenues..................... $ 367,373 $ 201,762 $ 80,667 $ 39,549 $ (52,804) $ 636,547
Operating income (loss).......... 70,971 (537) (3,005) 2,045 (749) 68,725
Identifiable assets.............. 579,306 216,530 85,158 25,618 (224,699) 681,913
</TABLE>

Sales and transfers between geographic areas are accounted for at prices
which the Company believes are arm's length prices, and which in general are in
accordance with the rules and regulations of the respective governing tax
authorities.

Export revenues consisting of sales from the Company's U.S. operating
subsidiary to non-affiliated customers were as follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Canada........................................................ $ 2,033 $ 7,521 $ 6,299
Latin America................................................. 4,494 6,556 6,817
Asia/Pacific.................................................. 11 3,391 5,887
Other......................................................... 364 3,437 1,301
--------- --------- ---------
Total......................................................... $ 6,902 $ 20,905 $ 20,304
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-25
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 10--INCOME TAXES

The provision for income taxes applicable to income (loss) before income
taxes consists of the following:

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal.................................................. $ (2,264) $ 1,540 $ 40,582
State.................................................... -- 565 6,463
Foreign.................................................. 10,415 6,216 9,325
--------- ---------- ----------
$ 8,151 $ 8,321 $ 56,370
--------- ---------- ----------
--------- ---------- ----------

Deferred:
Federal.................................................. $ (3,857) $ (1,748) $ (13,747)
State.................................................... (189) (2,983) (1,204)
Foreign.................................................. 3,712 8,941 (9,325)
--------- ---------- ----------
(334) 4,210 (24,276)
--------- ---------- ----------
$ 7,817 $ 12,531 $ 32,094
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

In 1996 and 1995, the Company recognized tax benefits related to stock
option plans of $14.8 million and $21.3 million, respectively. Such benefits
were recorded as an increase to additional paid-in capital. Income (loss) before
income taxes consists of the following:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.................................................. $ (227,266) $ (26,510) $ 83,937
Foreign................................................... (121,784) (34,524) (13,243)
----------- ---------- ---------
$ (349,050) $ (61,034) $ 70,694
----------- ---------- ---------
----------- ---------- ---------
</TABLE>

F-26
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 10--INCOME TAXES (CONTINUED)

The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income (loss) before income taxes. The
sources and tax effects of the differences are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- --------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate....... $ (122,167) (35.0)% $ (21,362) (35.0)% $ 24,743 35.0%
Valuation allowance.......................... 116,978 33.5% 41,192 67.5% 4,239 6.0%
Research and development credits............. -- -- (1,457) (2.4)% (935) (1.3)%
State income taxes, net of federal tax
benefit.................................... -- -- (1,572) (2.6)% 3,418 4.8%
Foreign taxes................................ 10,415 3.0% -- -- -- --
Other, net................................... 2,591 0.7% (4,270) (7.0)% 629 0.9%
----------- --------- ---------- ----- ----------- -----
$ 7,817 2.2% $ 12,531 20.5% $ 32,094 45.4%
----------- --------- ---------- ----- ----------- -----
----------- --------- ---------- ----- ----------- -----
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Reserves and accrued expenses.......................................... $ 13,457 $ 7,703
Deferred revenue....................................................... 34,786 33,875
Foreign net operating loss carryforwards............................... 77,149 38,067
Domestic net operating loss carryforwards.............................. 93,003 9,800
Foreign taxes in excess of taxes at U.S. rate.......................... 7,682 9,014
Valuation of investment portfolio under FAS 115........................ 307 --
Other.................................................................. 1,632 555
---------- ---------
Total deferred tax assets.............................................. 228,016 99,014
Valuation allowance for deferred tax assets............................ (178,353) (46,339)
---------- ---------
Deferred tax assets, net of valuation allowance........................ 49,663 52,675

DEFERRED TAX LIABILITIES:
Capitalized software................................................... 14,051 17,704
Revenue recognition.................................................... 1,612 1,612
Valuation of investment portfolio FAS 115.............................. -- 6,454
---------- ---------
Total deferred tax liabilities......................................... 15,663 25,770
---------- ---------
Net deferred tax assets................................................ $ 34,000 $ 26,905
---------- ---------
---------- ---------
</TABLE>

F-27
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 10--INCOME TAXES (CONTINUED)
At December 31, 1997, the Company had approximately $220.4 million, $237.2
million and $159.3 million of foreign, federal and state net operating loss
carryforwards. The foreign and state net operating loss carryovers expire at
various dates beginning in 1999. The federal net operating loss carryovers
expire at various dates beginning in 2007. Income taxes paid amounted to $11.3
million, $22.7 million and $18.6 million in 1997, 1996 and 1995, respectively.
The valuation allowance for deferred tax assets increased by $132.0 million,
$41.2 million and $4.2 million in 1997, 1996 and 1995, respectively.

NOTE 11--BUSINESS COMBINATIONS

In February 1996, the Company acquired Illustra Information Technologies,
Inc. (Illustra), a company that provides dynamic content management database
software and tools for managing complex data in the Internet,
multimedia/entertainment, financial services, earth sciences and other markets.
Approximately 12.7 million shares of Informix common stock were issued to
acquire all outstanding shares of Illustra common stock. An additional 2.3
million shares of Informix common stock were reserved for issuance in connection
the assumption of Illustra's outstanding stock options and warrants. The
transaction has been accounted for as a pooling of interests, and accordingly,
the consolidated financial statements for all prior periods presented have been
restated to include the accounts and operations of Illustra as if the merger was
consummated at the beginning of the earliest period presented. Merger fees of
approximately $5.9 million were recorded in the first quarter of 1996. The
following table presents the separate operating results for Informix Corporation
and Illustra for the periods prior to the acquisition date (because the
operating results of Illustra for the period January 1, 1996 to the effective
date of the merger were immaterial to the combined Company, for the purposes of
this table an acquisition date of January 1, 1996 is assumed).

<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Income Statement
Net revenues
Informix.................................................................... $ 631,313
Illustra.................................................................... 5,234
--------------
Combined.................................................................... $ 636,547
--------------
--------------
Net income (loss)
Informix.................................................................... $ 46,289
Illustra.................................................................... (7,689)
--------------
Combined.................................................................... $ 38,600
--------------
--------------
</TABLE>

In January 1995, the Company acquired a 90 percent interest in the database
division of ASCII Corporation ("ASCII"), a distributor of its products in Japan.
The Company acquired the remaining 10 percent interest in January 1996. The
total purchase price, which consisted of cash and direct acquisition costs, was
approximately $46.0 million, of which approximately $35.4 million exceeded the
net tangible assets acquired. Intangible assets acquired included customer
lists, sales and marketing workforce, business tradenames, and goodwill. These
intangible assets are being amortized over seven years.

F-28
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 11--BUSINESS COMBINATIONS (CONTINUED)
In April 1995, the Company acquired an 80 percent interest in the database
division of Daou Corporation ("Daou"), a distributor of its products in Korea.
The Company acquired the remaining 20 percent interest in January 1997. The
total purchase price, which consisted of cash and direct acquisition costs, was
approximately $7.6 million, of which approximately $7.0 million exceeded the net
tangible assets acquired. Intangible assets acquired included customer lists,
sales and marketing workforce, business tradenames, and goodwill. These
intangible assets are being amortized over seven years.

In February 1997, the Company acquired all of the outstanding capital stock
of CenterView Software, Inc. ("CenterView"), a privately-owned company which
develops and sells software application development tools. The aggregate
purchase price paid was approximately $8.7 million, which included cash plus
direct costs of acquisition. The transaction has been accounted for as a
purchase and, based on an independent appraisal of the assets acquired and
liabilities assumed, the purchase price has been allocated to the net tangible
and intangible assets acquired including developed software technology, acquired
workforce, in-process technology, and goodwill. The in-process technology, which
based on the independent appraisal has been valued at $7 million, had not, at
the date of acquisition, reached technological feasibility and had no
alternative future uses in other research and development projects.
Consequently, its value was charged to operations in the period the acquisition
was consummated (the first quarter of 1997). The remaining identifiable
intangible assets are being amortized over three to five years.

The operating results of these businesses have not been material in relation
to those of the Company and are included in the Company's consolidated results
of operations from the date of acquisition.

NOTE 12--LITIGATION

Commencing in April 1997, a series of class action lawsuits purportedly by
or on behalf of stockholders and a separate but related stockholder action were
filed in the United States District Court for the Northern District of
California. These actions name as defendants the Company, certain of its present
and former officers and directors and, in some cases, its independent auditors.
The complaints allege various violations of the federal securities laws and seek
unspecified but potentially significant damages. Similar actions were also filed
in California state court and in Newfoundland, Canada.

Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants and the Company's independent
auditors, were also filed, commencing in August 1997, in California state court.
While these actions allege various violations of state law, any monetary
judgments in these derivative actions would accrue to the benefit of the
Company.

Pursuant to Delaware law and certain indemnification agreements between the
Company and each of its current and former officers and directors, the Company
is obligated to indemnify its current and former officers and directors for
certain liabilities arising from their employment with or service to the
Company. This includes the costs of defending against the claims asserted in the
above-referenced actions and any amounts paid in settlement or other disposition
of such actions on behalf of these individuals. The Company's obligations do not
permit or require it to provide such indemnification to any such individual who
is adjudicated to be liable for fraudulent or criminal conduct. Although the
Company has purchased directors' and officers' liability insurance to reimburse
it for the costs of indemnification for its directors and officers, the coverage
under its policies is limited. Moreover, although the directors' and officers'
insurance coverage presumes that 100 percent of the costs incurred in defending
claims asserted jointly

F-29
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 12--LITIGATION (CONTINUED)
against the Company and its current and former directors and officers are
allocable to the individuals' defense, the Company does not have insurance to
cover the costs of its own defense or to cover any liability for any claims
asserted against it. The Company has not set aside any financial reserves
relating to any of the above-referenced actions.

In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.

NOTE 13--NONRECURRING CHARGES

In accordance with Financial Accounting Standards Board Statement No. 121
(FAS121), "Accounting for the Impairment of Long Lived Assets and for Long-Lived
Assets to be Disposed of", the Company records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the estimated future undiscounted cash flows to be
generated by those assets are less than the assets' carrying amounts. During the
first quarter of 1997, the Company's Japanese subsidiary experienced a
significant shortfall in business activity compared to historical levels.
Accordingly, the Company evaluated the ongoing value of the subsidiary's
long-lived assets (primarily computer and other equipment) and related goodwill.
Based on this evaluation, the Company determined that the subsidiary's assets
had been impaired and wrote them down by $30.5 million to their estimated fair
values. Fair value was determined using estimated future discounted cash flows
and/or resale market quotes as appropriate.

In February 1997 the Company acquired CenterView Software (see Note 11) and,
as a direct result, revised its database application tool business strategy to
incorporate CenterView's developed technology and "Data Director" product. This
revision to the tools business strategy significantly altered the Company's
current and future marketing plans for its own NewEra family of application
tools including projected future NewEra product revenues. As a result, the
Company reevaluated the net realizable value of its NewEra products and found it
to be significantly below the net balance of related capitalized software
development costs. Accordingly, the Company recorded a charge during the first
quarter 1997 of $14.7 million to reduce the carrying value of these capitalized
product development costs to the revised estimated net realizable value of the
NewEra products.

F-30
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 13--NONRECURRING CHARGES (CONTINUED)

In June and again in September 1997, the Company approved plans to
restructure its operations to bring expenses in line with forecasted revenues.
In connection with the restructurings, the Company substantially reduced its
worldwide headcount and consolidated facilities and operations to improve
efficiency. The following analysis sets forth the significant components of the
restructuring reserve at December 31, 1997:

<TABLE>
<CAPTION>
NON- ACCRUAL BALANCE
RESTRUCTURING CASH CASH AT
EXPENSE COSTS PAYMENTS DECEMBER 31, 1997
------------- --------- ----------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and benefits.......................... $ 21.9 $ -- $ 19.5 $ 2.4
Write-off of assets............................. 48.2 48.2 -- --
Facility charges................................ 34.7 7.7 3.8 23.2
Other........................................... 3.4 2.2 .2 1.0
------ --------- ----- -----
$ 108.2 $ 58.1 $ 23.5 $ 26.6
------ --------- ----- -----
------ --------- ----- -----
</TABLE>

Severance and related costs represented the reduction of approximately 670
employees, primarily sales and marketing personnel, on a worldwide basis.
Temporary employees and contractors were also reduced. Write-off of assets
include the write-off or write-down in carrying value of equipment as a result
of the Company's decision to reduce the number of Information Superstores
throughout the world, as well as the write-off of equipment associated with
headcount reductions. The equipment subject to the write-offs and write-downs
consists primarily of computer servers, workstations, and personal computers
that will no longer be utilized in the Company's operations. These assets were
written down to their fair value less cost to sell. The carrying value at
December 31, 1997, of computer equipment included in the restructuring
activities during the second and third quarters of 1997 and intended to be
disposed of, is approximately $2.2 million. Facility charges included early
termination costs associated with the closing of certain domestic and
international sales offices.

The total restructuring expense decreased by $1.2 million during the fourth
quarter of 1997 primarily due to adjusting the original estimate of the loss to
be incurred on the sale of land to the actual loss.

The Company expects to complete most of the actions associated with its
restructuring by the end of the second quarter of fiscal 1998.

NOTE 14--SENIOR SECURED CREDIT AGREEMENT

Company entered into a Senior Secured Credit Agreement with a syndicate of
commercial banks, providing for a revolving credit facility of up to $75 million
(the "Credit Facility"). The actual amount available under the Credit Facility,
for either direct borrowings or issuances of letters of credit, is based on
certain eligibility criteria. As a result, the aggregate amount available under
the Credit Facility will vary from time to time based on the amount and
eligibility of the Company's receivables. As of December 31, 1997, no borrowings
were outstanding under the Credit Facility, the Company's net accounts
receivable totaled $142 million and its borrowing base under the Credit Facility
was $47 million. The term of the Credit Facility is two years and is secured by
all of the assets of Informix Software and the capital stock of the Company's
domestic subsidiaries. The availability of the Credit Facility is subject to the
Company's compliance with certain covenants, including the following financial
covenants requiring the Company to:

F-31
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 14--SENIOR SECURED CREDIT AGREEMENT (CONTINUED)
(a) maintain a ratio of 1.25 to 1.00 in respect of the sum of cash and accounts
receivable to the difference of current liabilities less deferred and unearned
revenues, (b) maintain quarterly revenues of $150 million through June 1998 and
$160 million thereafter, (c) maintain quarterly operating loss of no more than
$10 million through the quarter ending March 31, 1998 and a quarterly operating
profit of at least $10 million for the quarter ending June 30, 1998 and a
quarterly operating profit of at least $15 million thereafter, (d) maintain, for
the quarter ending June 30, 1998 and each quarter thereafter, a positive
quarterly cash flow consisting of operating income which does not include any
restated revenue resulting from the Company's November 1997 restatement of its
financial statements, capitalized software costs, capital expenditures or cash
outlays in respect of accrued expenses arising from restructuring charges (but
which income figure does take into account depreciation and amortization
expenses), (e) maintain an interest coverage ratio of 1.25 to 1.00 in respect of
quarterly operating cash flow to interest expense plus scheduled amortization of
debt, (f) refrain from making additional investments in fixed or capital assets,
in any fiscal year, in excess of $15 million, plus any carry forward amount
which carry forward amount cannot exceed $5 million, and (g) refrain from
entering into any merger, consolidation, reorganization or other transaction
resulting in a fundamental change. At December 31, 1997, the Company was in
compliance with all financial covenants under the Credit Facility.

F-32
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 15--SUMMARY QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER
------------------------ ----------------------- -----------------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED
------------ ---------- ------------ --------- ------------ ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Net revenues............................... $ 133,664 $ 149,902 $ 182,012 $ 182,527 $ 149,911 $ 150,184
Gross profit (2)........................... 63,185 79,616 123,527 124,042 97,625 97,898
Net income (loss) (1)(2)................... (140,107) (144,161) (111,377) -- (110,523) --
Preferred stock dividend................... -- -- -- -- -- --
Value assigned to warrants................. -- -- -- -- -- --
------------ ---------- ------------ --------- ------------ ---------
Net income (loss) applicable to common
stockholders............................. (140,107) (144,161) (111,377) -- (110,523) --
Net income (loss) per common share:
Basic.................................... $ (0.93) $ (0.95) $ (0.73) $ -- $ (0.73) $ --
Diluted.................................. (0.93) (0.95) (0.73) -- (0.73) --

Year ended December 31, 1996
Net revenues............................... $ 204,021 $ 164,985 $ 226,282 $ 160,290 $ 238,180 $ 190,600
Gross profit............................... 160,584 121,758 178,474 113,041 189,003 141,619
Net income (loss).......................... 15,891 (15,377) 21,628 (34,083) 26,181 (17,095)
Net income (loss) per share:
Basic.................................... $ 0.11 $ (0.10) $ 0.15 $ (0.23) $ 0.17 $ (0.11)
Diluted.................................. 0.10 (0.10) 0.14 (0.23) 0.17 (0.11)

Year ended December 31, 1995
Net revenues............................... $ 148,037 $ 146,325 $ 164,068 $ 142,381 $ 182,701 $ 168,002
Gross profit............................... 121,839 120,343 134,042 112,432 150,183 137,668
Net income (loss).......................... 17,646 16,177 20,184 (2,731) 23,896 7,759
Net income (loss) per share:
Basic.................................... $ 0.12 $ 0.11 $ 0.14 $ (0.02) $ 0.16 $ 0.05
Diluted.................................. 0.12 0.11 0.14 (0.02) 0.16 0.05
Year ended December 31, 1994
Net revenues............................... $ 96,242 $ 92,763 $ 106,214 $ 96,217 $ 117,081 $ 111,428
Gross profit............................... 81,429 77,950 89,765 79,768 98,106 92,453
Net income (loss).......................... 11,540 8,922 12,210 4,686 15,446 11,191
Net income (loss) per share:
Basic.................................... $ 0.09 $ 0.07 $ 0.09 $ 0.03 $ 0.11 $ 0.08
Diluted.................................. 0.08 0.06 0.09 0.03 0.11 0.08

<CAPTION>
FOURTH QUARTER
-----------------------
AS REPORTED RESTATED
------------ ---------

<S> <C> <C>
Year ended December 31, 1997
Net revenues............................... $ 181,152 $ 181,279
Gross profit (2)........................... 132,266 132,393
Net income (loss) (1)(2)................... 9,194 --
Preferred stock dividend................... (301) --
Value assigned to warrants................. (1,601) --
------------ ---------
Net income (loss) applicable to common
stockholders............................. 7,292 --
Net income (loss) per common share:
Basic.................................... $ 0.05 $ --
Diluted.................................. 0.04 --
Year ended December 31, 1996
Net revenues............................... $ 270,828 $ 218,665
Gross profit............................... 218,342 166,486
Net income (loss).......................... 34,118 (7,010)
Net income (loss) per share:
Basic.................................... $ 0.23 $ (0.05)
Diluted.................................. 0.22 (0.05)
Year ended December 31, 1995
Net revenues............................... $ 219,413 $ 179,839
Gross profit............................... 178,396 136,971
Net income (loss).......................... 35,918 17,372
Net income (loss) per share:
Basic.................................... $ 0.24 $ 0.12
Diluted.................................. 0.23 0.11
Year ended December 31, 1994
Net revenues............................... $ 150,575 $ 151,561
Gross profit............................... 129,520 130,506
Net income (loss).......................... 22,752 23,494
Net income (loss) per share:
Basic.................................... $ 0.16 $ 0.17
Diluted.................................. 0.16 0.16
</TABLE>

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

(1) The Company recorded in the second quarter and again in the third quarter of
1997, restructuring charges of $59.6 million and $49.7 million,
respectively. The total restructuring expense decreased by $1.2 million
during the fourth quarter of 1997 primarily due to adjusting the original
estimate of the loss to be incurred on the sale of land to the actual loss.
(See Note 13)

(2) In the first quarter of 1997, the Company recorded a charge of $30.5 million
to write down the carrying values of certain of its Japanese subsidiary's
long-lived assets to their fair values. During the same quarter, the Company
also recorded a charge of $14.7 million to write down the carrying value of
capitalized software development costs for certain products to their net
realizable values.

NOTE 16--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (UNAUDITED)

F-33
<PAGE>
INFORMIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

NOTE 16--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (UNAUDITED) (CONTINUED)
the Company will likely change its business practices, and, consequently, the
Company cannot quantify the effect the SOPs' will have on its operating results,
financial position or cash flows.

In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income (FAS No. 130) and Statement No. 131,
Disclosures About Segments of An Enterprise and Related Information (FAS No.
131). FAS No. 130 establishes rules for reporting and displaying comprehensive
income. FAS No. 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during 1998. The Company does not believe that the adoption of either FAS No.
130 or FAS No. 131 will have a material impact on the Company's results of
operations, financial position or cash flows.

NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)

In December 1997, the Company's Board of Directors authorized a second
option repricing to be effective January 9, 1998 (the "Second Repricing
Effective Date") based upon the closing sales price of the Company's Common
Stock as of the Second Repricing Effective Date. Under the terms of the second
repricing, each employee, excluding officers and directors of the Company, could
exchange any option outstanding as of May 1, 1997 for a new option with an
exercise price equal to the closing sales price on the Second Repricing
Effective Date. Options exchanged in the second repricing may not be exercised
for a period of one year from the Second Repricing Effective Date. The exercise
price for repriced options was $5.094, the closing sales price of the Company's
Common Stock on the Repricing Effective Date.

On February 13, 1998, the A-1 Preferred Stockholders exercised warrants to
purchase 60,000 additional shares of A-1 Preferred at $250 per share for net
proceeds to the Company of $14.1 million, and simultaneously converted 220,000
shares of A-1 Preferred into 12,769,908 shares of the Company's common stock.

F-34
<PAGE>
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