SILICON GRAPHICS INC /CA/, 424B3, 1995-05-12

SILICON GRAPHICS INC /CA/
424B3, 1995-05-12
ELECTRONIC COMPUTERS

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Rule 424(b)(3)
Registration No. 033-59201

[Logo of Silicon Graphics, Inc. [Logo of Wavefront
appears here] Technologies, Inc. appears here]

WAVEFRONT TECHNOLOGIES, INC.

PROXY STATEMENT

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SILICON GRAPHICS, INC.

PROSPECTUS

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This Proxy Statement/Prospectus is being furnished to holders of common
stock, no par value ("Wavefront Common Stock"), of Wavefront Technologies,
Inc., a California corporation ("Wavefront"), in connection with the
solicitation of proxies by the board of directors of Wavefront for use at a
special meeting of Wavefront shareholders (the "Special Meeting") to be held at
10:00 a.m. local time, on June 12, 1995, at the Red Lion, 633 Cabrillo
Boulevard, Santa Barbara, California 93103, and at any adjournment or
postponement thereof for the purposes set forth herein and in the accompanying
Notice of Special Meeting of Wavefront Shareholders.

This Proxy Statement/Prospectus constitutes a prospectus of Silicon Graphics,
Inc., a Delaware corporation ("SGI"), with respect to the issuance and delivery
of shares of common stock, par value $.001 per share, of SGI ("SGI Common
Stock") in connection with the merger (the "Merger"), pursuant to the Agreement
and Plan of Merger and Reorganization, dated as of February 6, 1995, by and
among SGI, S Acquisition Corporation, a California corporation and wholly owned
subsidiary of SGI ("Merger Sub"), and Wavefront (as amended, the "Merger
Agreement"). A condition to each of SGI's and Wavefront's obligation to
consummate the Merger is the consummation of an arrangement (the "Arrangement"
and, together with the Merger, the "Transactions") under Section 182 of the
Business Corporations Act (Ontario) pursuant to which SGI will acquire Alias,
subject to the terms and conditions of the Amended and Restated Agreement and
Plan of Acquisition and Arrangement, dated as of February 6, 1995, by and among
SGI, 1103707 Ontario Inc., an Ontario corporation ("Amalgamation Sub"), Silicon
Graphics Manufacturing S.A., a Swiss corporation ("Holdco"), and Alias Research
Inc., an Ontario corporation ("Alias") (the "Acquisition Agreement" and,
together with the Merger Agreement, the "Agreements").

SEE "RISK FACTORS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN
THE SECURITIES REFERRED TO HEREIN.

THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS 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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of Wavefront on or about May 12, 1995.

The date of this Proxy Statement/Prospectus is May 10, 1995.
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
ALIAS ACCOUNTING PRINCIPLES............................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
TRADEMARKS................................................................ 2
SUMMARY................................................................... 3
Business of SGI......................................................... 3
Business of Wavefront................................................... 3
Business of Alias....................................................... 4
Date and Place of Wavefront Special Meeting............................. 4
The Merger; Purpose of the Special Meeting; The Arrangement............. 4
Shareholders Entitled to Vote........................................... 5
Vote Required........................................................... 5
Dissenters' Rights...................................................... 5
Recommendation; Fairness Opinion........................................ 6
Effective Time of the Merger............................................ 6
Conditions to the Merger................................................ 6
Termination............................................................. 6
Surrender of Certificates............................................... 6
Accounting Treatment.................................................... 7
Certain Federal Income Tax Consequences................................. 7
Regulatory Matters...................................................... 7
Interests of Certain Persons in the Merger.............................. 7
Operations Following the Merger......................................... 7
MARKET PRICE AND DIVIDEND INFORMATION..................................... 8
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 9
COMPARATIVE PER SHARE DATA................................................ 12
RISK FACTORS.............................................................. 13
Risks Relating to the Transactions...................................... 13
Risks Relating to SGI................................................... 14
THE SPECIAL MEETING....................................................... 16
General................................................................. 16
Matters to Be Considered at the Special Meeting......................... 16
Record Date; Voting at the Special Meeting; Vote Required............... 17
Proxies................................................................. 17
THE MERGER................................................................ 18
General................................................................. 18
The Arrangement......................................................... 18
Background of the Merger................................................ 19
Wavefront's Reasons for the Merger; Recommendation of the Wavefront
Board.................................................................. 21
SGI's Reasons for the Merger............................................ 21
Operations Following the Merger......................................... 22
Opinion of Wavefront's Financial Advisor................................ 22
Certain Federal Income Tax Consequences................................. 25
Accounting Treatment.................................................... 26
Interests of Certain Persons in the Merger.............................. 27
Regulatory Matters...................................................... 28
Rights of Dissenting Shareholders....................................... 28
</TABLE>

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<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE MERGER AGREEMENT AND RELATED AGREEMENTS............................... 29
Effective Time of the Merger............................................ 30
Conversion of Shares.................................................... 30
Treatment of Wavefront Common Stock Options and Employee Stock Purchase
Plan................................................................... 30
Business of Wavefront Pending the Merger................................ 31
Solicitation of Alternative Transactions................................ 32
Business of SGI Pending the Merger...................................... 32
Corporate Structure and Related Matters After the Merger................ 32
Certain Covenants....................................................... 32
Conditions to the Merger................................................ 33
Termination; Amendment.................................................. 34
Fees and Expenses....................................................... 34
Confidentiality Agreement............................................... 35
Agreements of Wavefront Affiliates...................................... 36
THE ARRANGEMENT AND THE ACQUISITION AGREEMENT............................. 36
General................................................................. 36
The Acquisition Agreement and Related Agreements........................ 37
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION........................ 37
WAVEFRONT TECHNOLOGIES, INC............................................... 46
General................................................................. 46
Business................................................................ 47
Properties.............................................................. 57
Selected Consolidated Financial Data of Wavefront....................... 57
Wavefront's Management's Discussion and Analysis of Financial Conditions
and Results of Operations.............................................. 58
Executive Compensation.................................................. 64
Security Ownership of Certain Beneficial Owners and Management.......... 70
COMPARISON OF SHAREHOLDERS' RIGHTS........................................ 71
Vote Required for Extraordinary Transactions............................ 71
Cumulative Voting....................................................... 71
Classification of Board of Directors.................................... 72
Amendment to Governing Documents........................................ 72
Dissenters' Rights...................................................... 72
Derivative Action....................................................... 73
Shareholder Consent in Lieu of Meeting.................................. 73
Fiduciary Duties of Directors........................................... 73
Indemnification of Officers and Directors............................... 73
Director Liability...................................................... 74
Anti-Takeover Provisions and Interested Stockholder Transactions........ 74
Rights Plan............................................................. 75
ADOPTION AND APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN..................... 76
Vote Required........................................................... 76
Summary of Purchase Plan................................................ 76
Tax Information......................................................... 78
Participation in Purchase Plan.......................................... 79
EXPERTS................................................................... 79
LEGAL MATTERS............................................................. 80
OTHER MATTERS............................................................. 80
SHAREHOLDER PROPOSALS..................................................... 80
INDEX TO FINANCIAL STATEMENTS............................................. F-1
ANNEX A AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
ANNEX B EMPLOYEE STOCK PURCHASE PLAN
ANNEX C OPINION OF VOLPE, WELTY & COMPANY
ANNEX D CALIFORNIA APPRAISAL RIGHTS PROVISION
</TABLE>

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AVAILABLE INFORMATION

SGI, Alias and Wavefront are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. In addition, material filed by SGI can be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, and material filed by Wavefront and Alias can be
inspected at the offices of The Nasdaq Stock Market, Reports Section, 1735 K
Street N.W., Washington, D.C. 20006.

SGI has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities to be issued by SGI to holders of
Wavefront Common Stock. This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Proxy Statement/Prospectus as to
the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

ALIAS ACCOUNTING PRINCIPLES

The financial statements of Alias incorporated by reference in this Proxy
Statement/Prospectus are reported in United States dollars and, unless
otherwise indicated, have been prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"), which conform in
all material respects with accounting principles generally accepted in the
United States ("GAAP"), except as described in Note 12 to the consolidated
financial statements of Alias included herein. The selected historical and pro
forma financial data for Alias are prepared in accordance with GAAP as
discussed in Note 4 to the SGI, Wavefront and Alias Pro Forma Combined
Condensed Financial Statements included herein.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by SGI with the Commission are incorporated by
reference in this Proxy Statement/Prospectus:

1. SGI's Annual Report on Form 10-K for the fiscal year ended June 30,
1994.

2. SGI's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994.

3. SGI's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1994.

4. SGI's Current Report on Form 8-K filed on February 13, 1995.

5. The description of SGI's capital stock contained in SGI's Registration
Statement on Form 8-B filed on March 16, 1990.

6. The description of SGI's Preferred Share Purchase Rights contained in
SGI's amendment on Form 8 to Registration Statement on Form 8-A, filed
November 12, 1992.

The following documents filed by Alias with the Commission are incorporated
by reference in this Proxy Statement/Prospectus:

1. Alias' Annual Report on Form 10-K for the fiscal year ended January
31, 1995.

2. Alias' Current Report on Form 8-K filed on February 13, 1995.

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All documents filed by SGI or Alias pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement/Prospectus and to be a part hereof from the
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement/Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST. REQUESTS FOR SGI DOCUMENTS SHOULD BE DIRECTED TO
SILICON GRAPHICS, INC., 2011 NORTH SHORELINE BOULEVARD, MOUNTAIN VIEW,
CALIFORNIA 94043-1389, ATTENTION: INVESTOR RELATIONS, MAIL STOP 645 (TELEPHONE:
(415) 390-2607). REQUESTS FOR ALIAS DOCUMENTS SHOULD BE DIRECTED TO ALIAS
RESEARCH INC., 110 RICHMOND STREET EAST, TORONTO, CANADA M5C 1P1 (TELEPHONE:
(416) 362-9181). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO
THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE PRIOR TO JUNE 1, 1995.

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED BY SGI, WAVEFRONT OR ALIAS. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

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TRADEMARKS

Silicon Graphics, the Silicon Graphics logo and Indigo are registered
trademarks of SGI, and Challenge, Indy, Indigo/2/, Onyx, POWER Challenge and
POWER Onyx are trademarks of SGI. MIPS is a registered trademark and R10000 is
a trademark of MIPS Technologies, Inc. ("MIPS"), a wholly owned subsidiary of
SGI. EXPLORE, 3DESIGN and IPR are registered trademarks of Wavefront, and
COMPOSER, DATA VISUALIZER, DYNAMATION, GAMEWARE, KINEMATION, VISUALIZER and
VISUALIZER PAINT are unregistered trademarks of Wavefront. This Proxy
Statement/Prospectus also contain trademarks of companies other than SGI, MIPS
and Wavefront.

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SUMMARY

The following is a summary of certain information about SGI, Wavefront, the
Merger Agreement and the Merger and is qualified in its entirety by reference
to the full text of this Proxy Statement/Prospectus, the exhibits hereto and
the documents incorporated by reference herein. Shareholders are urged to read
this Proxy Statement/Prospectus and the accompanying exhibits in their
entirety. See "Risk Factors" for certain information that should be considered
by the shareholders of Wavefront.

BUSINESS OF SGI

SGI is a leading supplier of visual computing systems, which provide users
with the ability to interact with their work in real-time, color, three-
dimensions ("3D"), motion, sound and video. Through its family of workstations,
servers and supercomputers, SGI delivers interactive 3D graphics, digital media
and multiprocessing supercomputing technologies to technical, scientific,
corporate and creative professionals. Since its founding in 1982, SGI has been
committed to defining new classes of visual computing and transforming these
computing processes into cost-effective solutions for a variety of industries.

At the heart of visual computing are SGI's four core technologies: (i) real-
time 3D color graphics; (ii) symmetric multiprocessing, which optimizes the
performance of the system through multiple-CPU design; (iii) digital media
technology, to integrate sound and video capability; and (iv) Reduced
Instruction Set Computing ("RISC") microprocessor technology, a key to system
performance. Through its investment in these four key technologies, SGI is
well-positioned in one of the fastest growing sectors of the computer
industry--a sector that comprises visual computing, open systems, client-server
computing, RISC computing and digital media.

SGI's graphics computer systems range from the Indigo (R) family of desktop
workstations, including the Indy (TM) and Indigo/2/ (TM), to the Onyx (TM) and
POWER Onyx (TM) systems, a family of advanced graphics supercomputers. The
Challenge (TM) and POWER Challenge (TM) family ranges from entry-level single
processor network resource servers to enterprise-wide symmetric multiprocessing
supercomputers.

SGI workstations include display, graphics and computational capabilities.
Server models are general purpose computers with the same computational
performance as their workstation counterparts, but without the graphics
capabilities. Depending on their application, servers may also have higher
levels of data storage and/or communications capabilities than comparable
workstations. The high-end multiprocessor supercomputer systems are meant to
replace or augment aging mainframe computers in compute intensive engineering,
animation and scientific environments. SGI systems generally are binary-
compatible, meaning that software applications run without modification across
the entire product line.

SGI's products all use the MIPS (R) RISC microprocessors developed by MIPS, a
subsidiary of SGI. The MIPS RISC microprocessors and related devices designed
by SGI are manufactured and sold under license by selected semiconductor
manufacturing companies, including Integrated Device Technology, Inc., LSI
Logic Corporation, NEC Corporation, NKK Corporation, Philips Semiconductors,
Siemens AG, and Toshiba Corporation (the "Semiconductor Partners"). Sales of
MIPS RISC microprocessors by the Semiconductor Partners are principally to the
computer systems and embedded control markets, for use in such products as disk
drives, laser printers and smart terminals.

SGI has extended the reach of its core technologies by forging alliances with
entertainment industry leaders and other companies at the forefront of the
developing market for interactive computing. Among SGI's partners in these
alliances are Time Warner Cable, Nintendo Co., Ltd., Walt Disney Company, AT&T
Corp. and NTT Corporation.

SGI is a Delaware corporation. Its principal executive offices are located at
2011 North Shoreline Boulevard, Mountain View, California 94043-1389, and its
telephone number is (415) 960-1980.

BUSINESS OF WAVEFRONT

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industries. Substantially all of Wavefront's products are designed to operate
on SGI workstations. Wavefront's entertainment customers use its software to
create images and special effects for movies, television programming,
advertising and electronic and CD-ROM games. Industrial customers use
Wavefront's visualization software to create images for enhancing and marketing
products through visualization of design appearance and function, presentation
of complex project concepts and illustration of engineering or scientific
phenomena that would otherwise be difficult to understand. Wavefront's software
was used in the production (including special effects, scene planning, motion
creation, character animation and image layering) of recent films including
Clear and Present Danger, Drop Zone, Speed, Stargate, Star Trek Generations and
True Lies. Wavefront's software was also used to create advertisements for
Budweiser's Bud Bowl Series, logos for NBA and NFL program introductions and
visuals for theme park attractions.

Wavefront's product line includes two core animation systems and a set of
interoperable special purpose product modules. From these components, Wavefront
packages industry-specific solutions which address specific steps of the
computer graphics imaging process. By delivering innovative and industry-
specific computer graphics software packages, Wavefront enables professional
users to generate images that meet their individual needs quickly and at
reduced cost. Wavefront's products enable customers to focus on the creative
process rather than on the technical aspects of digital image creation.
Wavefront believes its modular and open architecture development approach
allows it to bring innovative technology to market more rapidly. This
development approach also permits customers to customize Wavefront's products
or use them on a stand-alone basis or with other computer graphics products.

Worldwide, Wavefront has more than 4,000 active licenses at over 1,600
companies and educational institutions. Wavefront's customers include CBS, NBC,
Sony, Walt Disney Pictures & Television, Warner Brothers, Boeing, Ford Motor
Company, Hyundai, Kodak, Lockheed Martin, McDonnell Douglas, NASA, Renault and
Rubbermaid, each of which are active users of its products and (i) have a
significant number of licenses or (ii) depend on Wavefront products to a large
extent in their business. Wavefront sells its products through its sales force,
systems integrators, dealers and distributors. Its animation systems range in
price from $5,000 to $60,000. See "Wavefront Technologies, Inc.--Business."

Wavefront was incorporated in the state of California in June 1984.
Wavefront's principal executive offices are located at 530 East Montecito
Street, Santa Barbara, California 94103, and its telephone number is (805) 962-
8117. Unless the context otherwise requires, the term "Wavefront" as used
herein refers to Wavefront Technologies, Inc. and its wholly owned
subsidiaries. In the second quarter of 1994 Wavefront changed the name of one
of its wholly owned subsidiaries, Thomson Digital Image, to Wavefront
Technologies, SA, which is referred to throughout this Proxy
Statement/Prospectus as "TDI."

BUSINESS OF ALIAS

Alias develops, markets and supports a family of advanced computer graphics
software products which are used by creative professionals in the industrial
design and entertainment industries to create, edit, manipulate and animate
"digital media"--2D digital images and 3D models. Alias' products are based on
common core technologies that enable artists, designers, animators and film
makers, including those without previous computer experience, to rapidly create
more innovative digital media content. Alias products operate primarily on SGI
workstations, and certain of its products also run on IBM RISC System/6000
workstations and the Apple Macintosh family of personal computers.

DATE AND PLACE OF THE WAVEFRONT SPECIAL MEETING

The Special Meeting will be held on June 12, 1995 at 10:00 a.m., local time,
at the Red Lion, 633 East Cabrillo Boulevard, Santa Barbara, California 93103.

THE MERGER; PURPOSE OF THE SPECIAL MEETING; THE ARRANGEMENT

THE MERGER. As a result of the Merger, each outstanding share of Wavefront
Common Stock will be converted into the right to receive 0.49 (the "Exchange
Ratio") shares of SGI Common Stock. Upon consummation of the Merger, each then-
outstanding option to purchase Wavefront Common Stock (a "Wavefront Option")
will be assumed by SGI and will automatically be converted into an option to
purchase

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that number of shares of SGI Common Stock equal to the product of the number of
shares of Wavefront Common Stock such option was exercisable for at the time of
the Merger multiplied by the Exchange Ratio at an exercise price equal to the
quotient of the per share exercise price of the Wavefront Option at the time of
the Merger divided by the Exchange Ratio. Subject to the consummation of the
Merger and due approval and adoption of the Employee Stock Purchase Plan (the
"Purchase Plan") by the Wavefront shareholders at the Special Meeting, on the
last trading day prior to the Effective Time (the "Final Purchase Date"),
Wavefront will apply the funds then credited to each Purchase Plan
participant's payroll withholding account to the purchase of whole shares of
Wavefront Common Stock. See "The Merger Agreement and Related Agreements--
Conversion of Shares" and "--Treatment of Wavefront Common Stock Options and
Employee Stock Purchase Plan."

THE SPECIAL MEETING. At the Special Meeting, the shareholders of Wavefront
will consider and vote upon proposals (i) to approve and adopt the Merger
Agreement and to approve the Merger, (ii) to approve and adopt the Purchase
Plan and (iii) to transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof. See "The Special
Meeting--Matters to Be Considered at the Special Meeting."

THE ARRANGEMENT. A condition to each of SGI's and Wavefront's obligation to
consummate the Merger is the consummation of the Arrangement. As a result of
the Arrangement, the holder of each outstanding share of common stock of Alias
("Alias Common Stock") will be entitled to receive 0.90 (the "Alias Exchange
Ratio") shares of SGI Common Stock or that number of Non-Voting Exchangeable
Shares of New Alias (the "Exchangeable Shares") equal to the Alias Exchange
Ratio. The surviving corporation in the amalgamation of Alias and a subsidiary
of SGI is referred to herein as "New Alias." While the Exchangeable Shares will
generally have no voting rights with respect to New Alias (other than limited
statutory voting rights with respect to New Alias, including the right to
receive notice of and vote at any meeting relating to the limitation or
elimination of rights, privileges, restrictions or conditions of the
Exchangeable Shares), the Exchangeable Shares will possess voting, liquidation
and dividend rights functionally equivalent to those of SGI Common Stock. One
of the conditions to each of SGI's and Alias' obligation to consummate the
Arrangement is the consummation of the Merger. See "The Arrangement and the
Acquisition Agreement."

SHAREHOLDERS ENTITLED TO VOTE

The close of business on May 9, 1995 is the record date for determination of
holders of Wavefront Common Stock entitled to vote at the Special Meeting. At
that date, 8,464,933 shares of Wavefront Common Stock were outstanding, held by
approximately 174 holders of record. As of such date, directors and executive
officers of Wavefront and their affiliates may be deemed to be the beneficial
owners of shares of Wavefront Common Stock representing approximately 5.9% of
the outstanding voting power of Wavefront. See "The Special Meeting--Record
Date; Voting at the Special Meeting; Vote Required."

The directors and executive officers of Wavefront have indicated that they
intend to vote the shares of Wavefront Common Stock held by them for approval
and adoption of the Merger Agreement and approval of the Merger and for
approval and adoption of the Purchase Plan.

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the Merger will
require the affirmative vote of the holders of a majority of the outstanding
shares of Wavefront Common Stock entitled to vote thereon. Approval and
adoption of the Purchase Plan will require the affirmative vote of the holders
of a majority of the shares of Wavefront Common Stock present (in person or by
proxy) at the Special Meeting and entitled to vote thereon. See "The Special
Meeting--Record Date; Voting at the Special Meeting; Vote Required."

DISSENTERS' RIGHTS

Shareholders of Wavefront who vote against the Merger may be entitled to
certain dissenters' rights under California law. See "The Merger--Rights of
Dissenting Shareholders."

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RECOMMENDATION; FAIRNESS OPINION

THE BOARD OF DIRECTORS OF WAVEFRONT (THE "WAVEFRONT BOARD") HAS APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT HOLDERS OF WAVEFRONT COMMON STOCK VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
VOLPE, WELTY & COMPANY ("VOLPE, WELTY") HAS DELIVERED TO THE WAVEFRONT BOARD
ITS WRITTEN OPINION DATED AS OF FEBRUARY 6, 1995 TO THE EFFECT THAT, BASED UPON
AND SUBJECT TO THE VARIOUS CONSIDERATIONS SET FORTH IN SUCH OPINION, AS OF THE
DATE OF SUCH OPINION, THE EXCHANGE RATIO IS FAIR TO THE HOLDERS OF WAVEFRONT
COMMON STOCK FROM A FINANCIAL POINT OF VIEW.

A copy of the opinion of Volpe, Welty, which sets forth the assumptions made,
procedures followed, matters considered and scope of review, is attached to
this Proxy Statement/Prospectus as Annex C and should be read carefully in its
entirety. See "The Merger--Opinion of Wavefront's Financial Advisor," which
contains a discussion of the fees to be paid to Volpe, Welty and the conditions
under which such fees are payable. Volpe, Welty assisted in negotiating the
Exchange Ratio, but the Exchange Ratio was established by SGI and Wavefront.
Certain portions of the fees to be paid to Volpe, Welty are contingent upon
consummation of the Merger. See "The Merger--Opinion of Wavefront's Financial
Advisor."

EFFECTIVE TIME OF THE MERGER

As promptly as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the parties thereto will file a certified
agreement of merger with the Secretary of State of California. The Merger will
become effective upon such filing (the "Effective Time"), which, assuming all
conditions are met, is anticipated to occur shortly after the Special Meeting.
See "The Merger Agreement and Related Agreements--Effective Time of the
Merger."

CONDITIONS TO THE MERGER

Consummation of the Merger is subject to the satisfaction of a number of
conditions, including but not limited to: (i) the approval and adoption of the
Merger Agreement by the requisite vote of the shareholders of Wavefront; (ii)
the consummation of the Arrangement; (iii) the absence of any restrictive court
orders or any other legal restraints or prohibitions, preventing or making
illegal the consummation of the Merger; (iv) the continuing accuracy in all
material respects of the representations and warranties made by each of
Wavefront and SGI in the Merger Agreement on and as of the Effective Time; and
(v) the receipt by SGI and Wavefront of certain opinions regarding tax and
accounting matters. See "The Merger Agreement and Related Agreements--
Conditions to the Merger" and "The Arrangement and the Acquisition Agreement."

If the Arrangement is not consummated, the Merger will occur only if SGI and
Wavefront agree to proceed and the other conditions to the consummation of the
Merger have been satisfied or waived. See "The Merger Agreement and Related
Agreements--Conditions to the Merger" and "--Fees and Expenses." If such an
agreement is reached after approval of the Merger by the holders of Wavefront
Common Stock, then Wavefront intends to resolicit its shareholders prior to
consummation of the Merger.

TERMINATION

The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the shareholders of Wavefront
under the circumstances specified in the Merger Agreement, including, without
limitation, by mutual written agreement of SGI and Wavefront and by either
party if the Merger is not consummated by August 31, 1995.

Under certain circumstances either SGI or Wavefront may be required to pay
the other a termination fee if the Merger Agreement is terminated. See "The
Merger Agreement and Related Agreements--Fees and Expenses."

SURRENDER OF CERTIFICATES

If the Merger becomes effective, SGI will mail a letter of transmittal with
instructions to all holders of record of Wavefront Common Stock as of the
Effective Time for use in surrendering their stock certificates in exchange for
certificates representing SGI Common Stock and a cash payment in lieu of
fractional shares. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED.

6
<PAGE>

ACCOUNTING TREATMENT

The Merger is expected to be accounted for as a pooling of interests, and it
is a condition to SGI's obligation to consummate the Merger that SGI and
Wavefront shall have received opinions of Ernst & Young LLP and Arthur Andersen
LLP to the effect that such accounting treatment is appropriate. See "The
Merger--Accounting Treatment." SGI does not intend to waive this condition. If
this condition is waived by either SGI or Wavefront after approval of the
Merger by the holders of Wavefront Common Stock, then Wavefront intends to
resolicit its shareholders prior to consummation of the Merger.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is expected to qualify as a tax-free reorganization under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
holders of Wavefront Common Stock will not recognize gain or loss for federal
income tax purposes by reason of the conversion of Wavefront Common Stock into
SGI Common Stock, except for cash received in lieu of fractional shares or cash
received by dissenting shareholders. It is a condition to SGI's and Wavefront's
obligations to consummate the Merger that they shall have received opinions
from their tax counsel that the Merger will qualify as a tax-free
reorganization under Section 368 of the Code. See "The Merger--Certain Federal
Income Tax Consequences." Neither SGI nor Wavefront intends to waive this
condition. If this condition is waived by SGI after approval of the Merger by
the holders of Wavefront Common Stock, then Wavefront intends to resolicit its
shareholders prior to consummation of the Merger.

REGULATORY MATTERS

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, the Merger may not be
consummated until notifications have been given and certain information has
been furnished to the United States Federal Trade Commission (the "FTC") and
the Antitrust Division of the United States Justice Department (the "Antitrust
Division"), and specified waiting period requirements have been satisfied. The
required waiting periods for the Transactions under the HSR Act were extended
by Requests for Additional Information and Documentary Material issued by the
FTC to SGI, Alias and Wavefront on March 31, 1995 (the "Requests"). SGI,
Wavefront and Alias are all in the process of responding to the Requests. The
waiting periods for the Merger and the Arrangement will expire at 11:59 p.m. on
the twentieth day following the day on which the last of SGI and Wavefront and
SGI and Alias, respectively, substantially comply with the Requests unless such
waiting periods are terminated early or extended by mutual agreement. At any
time before or after the Effective Time, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the Merger or the
Arrangement or seeking the divestiture of Wavefront or Alias by SGI, in whole
or in part, or the divestiture or compulsory licensing of substantial assets of
SGI, Wavefront, Alias or their respective subsidiaries. See "The Merger--
Regulatory Matters."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the Wavefront Board with respect to the
Merger, shareholders should be aware that certain directors and officers of
Wavefront have interests in the Merger that present them with potential
conflicts of interest. See "The Merger--Interests of Certain Persons in the
Merger."

OPERATIONS FOLLOWING THE MERGER

Following the Transactions, SGI plans to combine the businesses of Wavefront
and Alias into a single organization focused on developing a new generation of
advanced tools for the creation of digital content in the entertainment and
creative design industries. The combined business will continue to develop,
market and support the existing Alias and Wavefront product lines to a wide
range of creative professionals, including 3D animators for film and video,
game and multimedia developers, automotive stylists, industrial designers and
graphic artists.

7
<PAGE>

MARKET PRICE AND DIVIDEND INFORMATION

The following table sets forth, for the periods indicated, the range of high
and low sale prices for SGI Common Stock in the New York Stock Exchange
Composite Transactions Tape (as reported in published financial sources) giving
effect to a two-for-one stock split effective December 15, 1993. The closing
price for SGI Common Stock on the New York Stock Exchange on February 6, 1995,
the last trading day prior to the public announcement of the Merger, was $31.63
and on May 9, 1995, the latest practicable trading day before the printing of
this Proxy Statement/Prospectus, was $37.00.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30 HIGH LOW
-------------------------- ------ ------
<S> <C> <C>
1993
First Quarter.............................................. $12.00 $ 8.19
Second Quarter............................................. 14.63 8.81
Third Quarter.............................................. 16.50 13.56
Fourth Quarter............................................. 19.25 11.75
1994
First Quarter.............................................. $22.50 $16.06
Second Quarter............................................. 24.75 19.81
Third Quarter.............................................. 26.88 21.50
Fourth Quarter............................................. 25.88 18.75
1995
First Quarter.............................................. $26.75 $21.50
Second Quarter............................................. 32.75 24.88
Third Quarter.............................................. 38.00 29.13
Fourth Quarter (through May 9, 1995)....................... 39.00 33.75
</TABLE>

Wavefront Common Stock has been traded on the Nasdaq National Market since
Wavefront's initial public offering on June 2, 1994. The following table sets
forth the range of high and low sale prices reported on the Nasdaq National
Market for Wavefront Common Stock for the fiscal periods indicated. The closing
price for Wavefront Common Stock on the Nasdaq National Market on February 6,
1995, the last trading day prior to the public announcement of the Merger, was
$14.13 and on May 9, 1995, the latest practicable trading day before the
printing of this Proxy Statement/Prospectus, was $17.00. The equivalent market
price per share of Wavefront Common Stock, based upon the Exchange Ratio, would
have been $15.50 and $18.13, respectively.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31 HIGH LOW
------------------------------ ------ ------
<S> <C> <C>
1994
Second Quarter............................................. $ 7.25 $ 5.75
Third Quarter.............................................. 13.50 6.00
Fourth Quarter............................................. 13.75 9.75
1995
First Quarter.............................................. $17.88 $10.25
Second Quarter (through May 9, 1995)....................... 18.50 15.00
</TABLE>

As of May 9, 1995, SGI and Wavefront had approximately 4,964 and 174 holders
of record, respectively. Neither SGI nor Wavefront has paid any dividends on
their common stock. Each of SGI and Wavefront currently intends to retain
earnings for use in their respective businesses and does not anticipate paying
cash dividends on their common stock in the foreseeable future. In addition,
the Merger Agreement prohibits the payment of any dividends by Wavefront prior
to the Effective Time, and the Agreements each prohibit the payment of any
dividends by SGI prior to consummation of the Merger or the Arrangement, as
applicable. Covenants governing SGI's 8.98% Senior Notes due February 1, 1996
restrict the payment of dividends, except for dividends on currently
outstanding preferred stock.

8
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following selected historical financial information of SGI, Wavefront and
Alias has been derived from their respective historical consolidated financial
statements, and should be read in conjunction with such consolidated financial
statements and the notes thereto, certain of which are incorporated by
reference or included in this Proxy Statement/Prospectus. The selected pro
forma financial information of SGI and Wavefront and the selected pro forma
financial information of SGI, Wavefront and Alias are derived from the pro
forma combined condensed financial statements of SGI and Wavefront and SGI,
Wavefront and Alias, respectively, and should be read in conjunction with such
pro forma statements and notes thereto which are included in this Proxy
Statement/Prospectus.

For SGI and Wavefront pro forma purposes, SGI's historical condensed
consolidated statements of operations for each of the three years in the period
ended June 30, 1994 and SGI's unaudited condensed consolidated statements of
operations for the six months ended December 31, 1994 and 1993 have been
combined with the unaudited condensed consolidated statements of operations of
Wavefront for each of the three twelve-month periods in the period ended June
30, 1994 and the unaudited condensed consolidated statements of operations of
Wavefront for the six months ended December 31, 1994 and 1993, respectively.
For SGI, Wavefront and Alias pro forma purposes, SGI's historical condensed
consolidated statements of operations for each of the three years in the period
ended June 30, 1994 have been combined with Wavefront's unaudited condensed
consolidated statements of operations for each of the three twelve-month
periods in the period ended June 30, 1994 and the unaudited condensed
consolidated statements of operations of Alias for each of the three twelve-
month periods in the period ended July 31, 1994. Also for SGI, Wavefront and
Alias pro forma purposes, SGI's and Wavefront's unaudited condensed
consolidated statements of operations for the six months ended December 31,
1994 and 1993 have been combined with the unaudited condensed consolidated
statements of operations of Alias for the six months ended January 31, 1995 and
1994, respectively.

The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if only the Merger had been consummated (in the case of the
SGI and Wavefront pro forma information) or if both the Transactions had been
consummated (in the case of the SGI, Wavefront and Alias pro forma
information), nor is it necessarily indicative of future operating results or
financial position. No pro forma information reflecting the combination of SGI
and Alias has been presented because such information would not be relevant to
any transaction involving Wavefront.

SELECTED HISTORICAL FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
YEAR ENDED JUNE 30, (UNAUDITED)
----------------------------------------------------- ---------------------
1994 1993 1992 1991 1990 1994 1993
---------- ---------- --------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SGI
Statement of Operations
Data:
Net revenue............ $1,481,602 $1,091,200 $ 866,593 $698,488 $520,531 $ 951,389 $ 672,032
Operating income
(loss)................ 193,142 125,086 (108,570)(a) 46,064 56,057 139,243 83,272
Net income (loss)...... 140,674 87,691 (78,063)(a) 36,098 33,967 95,723 62,080
Net income (loss) per
share................. $ 0.91 $ 0.60 $ (0.74)(a) $ 0.31 $ 0.34 $ 0.61 $ 0.41
Shares used to compute
net income (loss) per
share................. 154,486 146,132 112,944 118,598 109,840 158,216 152,698
Balance Sheet Data:
Working capital........ $ 668,087 $ 418,366 $ 376,252 $469,695 $332,605 $ 868,082 $ 533,545
Total assets........... 1,518,783 1,013,027 845,320 839,293 538,510 1,794,433 1,324,538
Long-term obligations.. 241,243 44,893 61,304 40,333 54,935 280,603 245,364
Stockholders' equity... 921,261 687,696 544,960 651,219 379,894 1,047,891 771,875
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
WAVEFRONT
Statement of Operations
Data:
Net revenue............ $ 27,714 $ 17,858 $ 14,737 $ 12,045 $ 14,665
Operating income
(loss)................ 3,857 (2,983)(c) 1,488 (7,622)(d) 543
Net income (loss)...... 3,838 (3,027)(c) 1,557 (7,571)(d) 888
Pro forma net income
(loss) per share(b)... $ 0.52 $ (0.63)(c) $ -- $ -- $ --
Shares used to compute
net income (loss) per
share(b).............. 6,950 5,176 -- -- --
Balance Sheet Data:
Working capital........ $ 16,050 $ 2,255 $ 3,451 $ 968 $ 7,440
Total assets........... 32,716 16,812 10,449 9,843 15,749
Long-term debt......... -- 2,884 -- -- --
Redeemable preferred
stock................. -- 8,518 11,939 10,609 9,987
Convertible preferred
stock................. 2,467 3,800 3,800 3,800 --
Shareholders' equity
(deficit)............. 20,352 (4,978) (6,022) (6,301) 1,485
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ALIAS (U.S. GAAP)
Statement of Operations
Data:
Net revenue............ $ 55,182 $ 38,306 $ 26,932 $ 28,075 $ 22,801
Operating income (loss)
from continuing
operations............ 9,702 3,670 (6,603)(f) (19,903)(h) 3,562
Net income (loss)...... 9,824 4,167(e) (15,708)(g) (17,624)(h) 2,824
Income (loss) per share
from continuing
operations(i)......... $ 0.86 $ 0.42 $ (0.79)(f) $ (3.29)(h) $ 0.58
Net income (loss) per
share(i).............. 0.86 0.46(e) (1.92)(g) (3.26)(h) 0.58
Shares used to compute
above per share
amounts(i)............ 11,399 9,030 8,164 5,406 4,889
Balance Sheet Data:
Working capital........ $ 49,097 $ 10,453 $ 4,825 $ 3,097 $ 14,737
Total assets........... 74,024 26,307 19,668 32,360 29,095
Long-term obligations.. -- -- -- -- 1,743
Shareholders' equity... 57,635 15,736 9,825 18,408 20,897
</TABLE>
- --------
(a) Includes MIPS merger related expenses of approximately $110 million ($0.68
per share) and restructuring costs of approximately $23.4 million ($0.15
per share).

(b) Net income (loss) per share for the years ended December 31, 1994 and 1993
has been computed on a pro forma basis, giving effect to the conversion
into Wavefront Common Stock of Series C, D, 1-1 and 40,323 shares of Series
1-2 preferred stock at the beginning of the period. Historical earnings per
share are not presented for all periods since such amounts are not
meaningful in light of such conversions.

(c) Includes a charge of approximately $5.2 million for research in process
purchased in connection with the acquisition of TDI.

(d) Includes restructuring costs of approximately $2.3 million.

(e) Includes recovery on discontinued Sonata Product Division of $400,000 or
$0.04 per share.

(f) Includes restructuring costs of approximately $650,000, or $0.08 per share.

(g) Includes loss from operations and loss on discontinuance of Sonata Product
Division of approximately $9.3 million or $1.13 per share.

(h) Includes restructuring costs of approximately $3.2 million.

(i) Reflects the fully diluted number of shares using the Treasury Stock
Method.

10
<PAGE>

SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED DECEMBER 31,
--------------------------------- -----------------------
1994 1993 1992 1994 1993
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SGI AND WAVEFRONT
Statement of Operations
Data: (a)
Net revenue........... $1,505,787 $1,105,862 $880,075 $ 965,615 $ 682,729
Operating income
(loss)............... 190,915 126,874 (111,735) 141,588 79,533
Net income (loss)..... 138,267 89,497 (81,091) 98,175 58,287
Net income (loss) per
share................ $ 0.88 $ 0.60 $ (0.76) $ 0.61 $ 0.37
Shares used to compute
net income (loss) per
share................ 157,187 148,085 114,362 161,824 155,262
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------
SGI WAVEFRONT ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data: (a)
Working capital....... $ 868,082 $ 16,050 $(30,000) $ 854,132
Total assets.......... 1,794,433 32,716 -- 1,827,149
Long-term obligations. 280,603 -- -- 280,603
Stockholders' equity.. 1,047,891 20,352 (30,000) 1,038,243
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED DECEMBER 31,
--------------------------------- -----------------------
1994 1993 1992 1994 1993
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SGI, WAVEFRONT AND ALIAS
Statement of Operations
Data: (a)
Net revenue........... $1,551,582 $1,135,583 $905,492 $ 998,074 $ 705,801
Operating income
(loss) from
continuing
operations........... 196,804 121,779 (133,706) 148,413 82,545
Net income (loss)..... 144,385 76,638 (101,481) 104,939 61,345
Income (loss) per
share from continuing
operations........... $ 0.87 $ 0.54 $ (0.89) $ 0.61 $ 0.37
Net income (loss) per
share................ 0.87 0.49 (0.90) 0.61 0.37
Shares used to compute
net income (loss) per
share................ 166,210 155,539 120,397 172,902 163,975
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------
SGI WAVEFRONT ALIAS(B) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: (a)
Working capital....... $ 868,082 $ 16,050 $ 49,097 $ (35,000) $ 898,229
Total assets.......... 1,794,433 32,716 74,024 -- 1,901,173
Long-term obligations. 280,603 -- -- -- 280,603
Stockholders' equity.. 1,047,891 20,352 57,635 (35,000) 1,090,878
</TABLE>
- --------
(a) It is expected that following the Transactions, SGI will incur a
substantial charge to operations, currently estimated to be in the range
of $30 million to $35 million to reflect the combination of SGI, Wavefront
and Alias, including the elimination of duplicative facilities, severance
costs and the write-off of certain intangibles, property and equipment and
transaction costs. This range is management's best current estimate of the
full charge for the combination. For pro forma purposes, reductions to
retained earnings and increases to other accrued liabilities have been
reflected in the above pro forma balance sheet data. See SGI and Wavefront
and SGI, Wavefront and Alias Pro Forma Combined Condensed Financial
Information and the accompanying notes thereto.

(b) Balance sheet data at January 31, 1995.

11
<PAGE>

COMPARATIVE PER SHARE DATA

The following table sets forth certain historical per share data of SGI,
Wavefront and Alias and combined per share data on an unaudited pro forma basis
after giving effect to the Merger or the Transactions on a pooling of interests
basis assuming that .49 of a share of SGI Common Stock is issued in exchange
for each share of Wavefront Common Stock in the Merger and that .90 of a share
of SGI Common Stock is issued in exchange for each share of Alias Common Stock
in the Arrangement. This data should be read in conjunction with the selected
financial data, the pro forma combined condensed financial statements and the
separate historical financial statements of SGI, Wavefront and Alias and the
notes thereto, incorporated in or included elsewhere in the Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the Merger or the Transactions been in effect as of the beginning of the
periods presented and should not be construed as representative of future
operations.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- -----------------
1994 1993 1992 1994 1993
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Historical--SGI
Income (loss) from continuing
operations................... $ 0.91 $ 0.60 $ (0.74) $ 0.61 $ 0.41
Book value.................... $6.37 $ 4.96 $ 4.13 $ 7.07 $ 5.45
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Pro Forma--Wavefront
Income (loss) from continuing
operations(a)................ $ 0.52 $ (0.63) --
Book value(b)................. $ 2.42 $ (1.21) $ (2.04)
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Historical--Alias (U.S. GAAP)
Income (loss) from continuing
operations................... $ 0.86 $ 0.42 $ (0.79)
Book value.................... $ 5.26 $ 1.86 $ 1.20
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- -----------------
1994 1993 1992 1994 1993
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SGI AND WAVEFRONT
Pro Forma Combined--Per SGI
Share:
Income (loss) from continuing
operations................... $ 0.88 $ 0.60 $ (0.76) $ 0.61 $ 0.37
Book value(c)................. $ 6.28 $ 6.81
Equivalent Pro Forma Combined--
Per Wavefront Share:
Income (loss) from continuing
operations................... $ 0.43 $ 0.29 $ (0.37) $ 0.30 $ 0.18
Book value(c)................. $ 3.08 $ 3.34
SGI, WAVEFRONT AND ALIAS
Pro Forma Combined--Per SGI
Share:
Income (loss) from continuing
operations................... $ 0.87 $ 0.54 $ (0.89) $ 0.61 $ 0.37
Book value(c)................. $ 6.20 $ 6.72
Equivalent Pro Forma Combined--
Per Wavefront Share:
Income (loss) from continuing
operations................... $ 0.42 $ 0.26 $ (0.43) $ 0.30 $ 0.18
Book value(c)................. $ 3.04 $ 3.29
</TABLE>

(a) Income (loss) from continuing operations per share for the years ended
December 31, 1994 and 1993 has been computed on a pro forma basis, giving
effect to the conversion into Wavefront Common Stock of Series C, D, 1-1
and 40,323 shares of Series 1-2 preferred stock at the beginning of the
period. Historical earnings per share are not presented for all periods
since such amounts are not meaningful in light of such conversions.

(b) Book value per share for the years ended December 31, 1994, 1993 and 1992
has been computed assuming the conversion of outstanding convertible
preferred stock into approximately 418,000, 774,000 and 774,000 shares,
respectively, of Wavefront Common Stock.

(c) Book value per share for the six months ended December 31, 1994 has been
computed on the basis of the pro forma combined condensed balance sheet,
which reflects an estimated charge to operations of $30 million to $35
million relating to the proposed Transactions. See note 8 and note 9 to the
SGI and Wavefront and the SGI, Wavefront and Alias, respectively, Pro Forma
Combined Condensed Financial Statements.

12
<PAGE>

RISK FACTORS

The following risk factors should be considered by holders of Wavefront
Common Stock in evaluating whether to approve the Merger Agreement and the
Merger and thereby become holders of SGI Common Stock. Certain of these factors
relate directly to the Merger while others are present in SGI's general
business environment independent of the Merger. These factors should be
considered in conjunction with the other information included and incorporated
by reference in this Proxy Statement/Prospectus.

RISKS RELATING TO THE TRANSACTIONS

INTEGRATION OF OPERATIONS. SGI, Wavefront and Alias have entered into the
Agreements with the expectation that the Transactions will result in beneficial
synergies. These include the combination of the companies' technologies to
create better, more cost-effective products, the combined business' ability to
offer integrated solutions, and some anticipated savings. Achieving these
anticipated benefits will depend in part on whether the operations of Wavefront
and Alias can be integrated with each other and with SGI's business in an
efficient and effective manner. There is no assurance that this will occur. The
combination of the companies will require, among other things, integration of
the companies' respective product offerings and coordination of the three
companies' sales and marketing and research and development efforts. The
success of this process will be significantly influenced by the ability of the
combined business to retain key management, sales and research and development
personnel. There is no assurance that this integration will be accomplished
smoothly or successfully. The integration of operations following the
Transactions will require the dedication of management resources, which may
temporarily distract attention from the day-to-day business of the combined
business. The inability of management to successfully integrate the operations
of the companies could have an adverse effect on the business and results of
operations of the combined business.

MANAGEMENT OF APPLICATIONS SOFTWARE BUSINESS. Management of the combined
business will involve several challenges for SGI. These challenges include the
management of a significant software tools business with a dedicated sales
force and the integration of a number of geographically separated research and
development centers. To date, SGI has developed and marketed directly only a
very limited set of applications software and has concentrated its research and
development efforts at its corporate headquarters in Mountain View, California.
There can be no assurance that SGI will be successful in coordinating the
efforts of the combined business.

NEW AND RAPIDLY CHANGING INDUSTRY. The computer graphics software industry is
relatively new and is characterized by rapid growth and technological change
and changes in customer requirements. The near-term success of the combined
business in this industry will depend in part on the continued acceptance of
its current products and its ability to enhance and support those products. The
future sales of the combined business will depend substantially on its ability
to create an effective, integrated organization to develop and introduce new
products that address changing customer needs on a timely basis, and to
establish and maintain effective distribution channels for its products. There
can be no assurance that the combined business will be successful in developing
new or enhanced products that respond to technological advances by others, or
that its products will continue to adequately address the changing needs of the
marketplace. The future growth of the combined business also depends in part on
sustained growth in the demand for interactive media applications, which in
turn depends on a number of factors including product acceptance, price point
sensitivities, consumer demand for content and the proliferation of cable
television, interactive media, arcade and theme park attractions. There can be
no assurance that the demand for these applications will develop at the pace or
in the direction anticipated by the combined business.

13
<PAGE>

acquired SOFTIMAGE in June 1994 and RenderMorphics Ltd. in February 1995, is a
significant competitor, as are a number of other companies. Numerous computer
and software companies, such as Autodesk, Inc., offer solutions that compete
with those offered by Wavefront or Alias. As the trend towards more powerful
personal computers ("PCs") accelerates, software suppliers are increasingly
likely to introduce improved products for PCs with enhanced graphics and
price/performance capabilities. The ability of the combined business to compete
successfully will depend on elements both within and outside its control,
including the success and timing of new solutions developed and introduced by
it and its competitors, the price/performance characteristics of those
solutions, distribution and customer support. The life cycle of a product is
dependent in part on timely updates to keep pace with technological advances
and the needs of customers. Wavefront seeks to enhance its software products
typically on an annual basis. There can be no assurance that the combined
business will be able to compete successfully.

CUSTOMERS. There is no assurance that the present and potential customers of
Wavefront and Alias will continue their current buying patterns without regard
to the Transactions, and any significant delay or reduction in orders could
have an adverse effect on the near-term business and results of operations of
the combined business.

RISKS RELATING TO SGI

As is true for technology companies generally, SGI operates in a rapidly
changing environment that involves a number of risks, some of which are beyond
its control. The following discussion highlights some of these risks.

PERIOD-TO-PERIOD FLUCTUATIONS. SGI has experienced substantial revenue growth
in recent years, and it plans its operating expenses, many of which are
relatively fixed in the short term, on the basis that its revenues will
continue to grow. As a result it may not be possible for management to quickly
adjust expense levels in response to revenue shortfalls. Further, because of
short delivery cycles SGI generally does not have a large order backlog, which
makes the forecasting of revenue inherently less certain. This uncertainty is
compounded because each quarter's revenue results predominantly from orders
received and shipments made during the last month of the quarter, with a
disproportionate amount occurring in the latter half of that month. This
pattern sharply limits SGI's ability to react to revenue shortfalls within a
particular quarter. Accordingly, even relatively minor shipment disruptions,
which could result from factors such as supply constraints, delays in the
availability of new products, an unanticipated change in product mix, transit
interruptions or natural disasters, may cause a particular period's results to
be substantially below expectations.

SGI's results have followed a seasonal pattern, with stronger second and
fourth fiscal quarters and weaker first and third fiscal quarters, reflecting
the buying patterns of SGI's customers. A variety of other factors may cause
period-to-period fluctuations in revenues and profitability, including changes
in the mix of high-end and desktop products, the mix of configurations within a
product line, the geographic mix of sales, the mix between direct and indirect
channels of distribution, the level of SGI's product discounts, and the
percentage of revenues derived from services and non-recurring engineering
contracts during any fiscal period.

INTERNATIONAL SALES. Because approximately half of SGI's revenue is derived
from sales outside the United States, and many key components for its products
are produced outside the United States, SGI's results could be negatively
affected by such factors as changes in foreign currency exchange rates, trade
protection measures, generally longer accounts receivable collection patterns
for foreign customers, and changes in regional or worldwide economic or
political conditions, or natural disasters. For example, a marked appreciation
in the value of the U.S. dollar relative to the Japanese yen could have an
adverse impact on the SGI's short-term results, which have been affected in
recent quarters by the relative weakness of the U.S. dollar. SGI's sales to
foreign customers also are subject to export regulations, with sales of some of
SGI's high-end products requiring clearance and export licenses from the U.S.
Department of Commerce. SGI's export sales would be adversely affected if such
regulations were tightened, or if they are not modified over time to reflect
the increasing performance of SGI's products.

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Sales in foreign countries are generally priced in local currencies and
therefore are subject to the effects of currency exchange fluctuations. Changes
in foreign currency exchange rates can have either a positive or negative
effect on revenue and/or net income in any given period. SGI attempts to reduce
the impact of currency fluctuations on net income primarily through the use of
forward exchange contracts and foreign currency options that hedge foreign
currency denominated receivables between the parent and its international
subsidiaries. SGI has generally not hedged capital expenditures, investments in
subsidiaries, inventory purchases or the anticipated sales or net income of its
international subsidiaries, although it periodically evaluates its hedging
practices.

STOCK PRICE VOLATILITY OF SGI COMMON STOCK. SGI's stock price, like that of
other technology companies, is subject to significant volatility. If revenues
or earnings in any quarter fail to meet expectations of the investment
community, there could be an immediate impact on SGI's stock price. In
addition, SGI's stock price may be affected by broader market trends that may
be unrelated to SGI's performance.

PRODUCT DEVELOPMENT AND INTRODUCTION. SGI has achieved revenue growth and
profitability that are well above average within the computer industry because
it has been able to develop and rapidly bring to volume production highly
differentiated, technologically complex and innovative products. SGI's future
results depend on its ability to sustain this competitive advantage. SGI
continues to introduce new products, including products that will replace
products in SGI's current product offering. A number of risks are inherent in
this process.

The process of developing new technology and incorporating it in SGI's
products is increasingly complex and uncertain, which raises the potential for
delays in new product introduction. The introduction of a new computer system
requires close collaboration and continued technological advancement involving
multiple hardware and software design and manufacturing teams within SGI as
well as teams at outside suppliers of key components such as semiconductor and
storage products. The failure of any one of these elements could cause SGI's
new products to fail to meet specifications or to miss the aggressive
timetables that SGI establishes. As the variety and complexity of SGI's product
offering increases, the process of planning production and inventory levels
also becomes more difficult.

SGI generally has derived a substantial portion of its revenues in any fiscal
period from its most recently introduced products. SGI's results could be
adversely affected by such factors as development or manufacturing delays,
variations in product costs, and delays in customer purchases of existing
products in anticipation of the introduction of new products.

SGI relies on the availability of key third-party applications software
addressing a wide range of customer requirements and actively manages programs
to promote the development of such applications. SGI remains strongly committed
to these programs, but there is no assurance that all competitively important
applications will be available for SGI's systems.

DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE. All of SGI's system
products incorporate microprocessors based upon SGI's MIPS RISC microprocessor
architecture. SGI licenses the manufacturing and distribution rights to these
microprocessors to the Semiconductor Partners. SGI and the Semiconductor
Partners generally have jointly funded the development of new MIPS RISC
microprocessors, including the recently announced R10000(TM) microprocessor.
Changes in the timing, level or availability of such funding could adversely
affect the continued development of the MIPS RISC architecture or increase the
portion of the development budget that is borne by SGI. SGI believes that the
continued development and broad acceptance of the MIPS architecture are
critical to its future success.

NEW VENTURES. SGI has entered into several ventures with other companies to
address new and emerging markets, including ventures with Time-Warner Cable,
Nintendo Co., Ltd., Walt Disney Company, AT&T Corp. and NTT Corporation. While
SGI believes that these new ventures are strategically important, there are
substantial uncertainties associated with the development of new products and
technologies for evolving markets. The success of these ventures will be
determined not only by SGI's efforts, but also by those of its venture
partners. Initial timetables for the development and introduction of new
technologies,

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products or services may not be achieved, and price/performance targets may not
prove feasible. External factors, such as the development of competitive
alternatives or government regulation, may cause new markets to evolve in an
unanticipated direction.

In May 1995, Nintendo announced that the final chipset for its Ultra 64 (TM)
home video game system has been completed by SGI and Nintendo, but that product
shipments of the Ultra 64 system in North America and Europe have been deferred
until April 1996. SGI does not expect to achieve material revenues from
shipments of this product during fiscal 1996.

MANAGEMENT INFORMATION SYSTEM. SGI is planning to replace its current
information management systems with a comprehensive system that will be used to
manage the entire revenue cycle, including manufacturing, order administration,
billing and collection. SGI expects that this system will allow it to realize
significant operational efficiencies and facilitate future growth, and it is
devoting significant resources to system design and testing. SGI's operations
could be disrupted, however, if the transition to the new system is not
effected smoothly or if the system does not perform as expected. Initial
implementation is currently scheduled for the second quarter of fiscal 1996.

COMPETITION. The computer industry is highly competitive and is characterized
by rapid technological advances in both hardware and software development,
which results in steadily improving price/performance and shortening product
life cycles. SGI continually enhances product families during their life cycle
by adding features such as faster microprocessors and improved graphics
components as they become available. SGI also periodically introduces new
product families that replace older families or that target new market
segments. The life cycle of a product family can generally be expected to be
between eighteen and thirty-six months. SGI does not believe that any of its
current product families that provide a material portion of revenues are in a
terminal stage of their life cycle. As the segments in which SGI operates
continue to grow faster than the industry as a whole, SGI is experiencing an
increase in competition, and it expects this trend to continue. Many of SGI's
competitors have substantially greater technical, marketing and financial
resources than SGI, as well as a larger installed base of customers and a wider
range of general purpose applications software available for their platforms.
The strong competition faced throughout SGI's product line could result in
significant discounting of sales prices which would decrease SGI's gross
margins.

BUSINESS DISRUPTION. SGI's corporate headquarters, including its research and
development operations and most of its manufacturing facilities, are located in
the Silicon Valley area of Northern California, a region known for seismic
activity. While SGI's business has not been interrupted to date due to an
earthquake, operating results could be materially affected by a significant
earthquake. SGI is predominantly self-insured for losses and business
interruptions of this kind.

THE SPECIAL MEETING

GENERAL

This Proxy Statement/Prospectus is being furnished to holders of Wavefront
Common Stock in connection with the solicitation of proxies by the Wavefront
Board for use at the Special Meeting to be held at the Red Lion, 633 East
Cabrillo Boulevard, Santa Barbara, California 93103 at 10:00 a.m., local time,
on June 12, 1995, or at any adjournments or postponements thereof, for the
purposes set forth herein and in the accompanying Notice of Special Meeting of
Shareholders of Wavefront.

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

At the Special Meeting, shareholders of record of Wavefront as of the close
of business on May 9, 1995, will be asked to consider and vote upon proposals
(i) to approve and adopt the Merger Agreement and to approve the Merger, (ii)
to approve and adopt the Purchase Plan and (iii) to transact such other
business as may properly come before the Special Meeting or any postponements
or adjournments thereof.

THE WAVEFRONT BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE AND IN THE
BEST INTERESTS OF WAVEFRONT AND ITS SHAREHOLDERS AND HAS THEREFORE UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER, AND

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RECOMMENDS A VOTE BY THE SHAREHOLDERS OF WAVEFRONT FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. THE WAVEFRONT BOARD HAS ALSO
UNANIMOUSLY APPROVED THE PURCHASE PLAN AND RECOMMENDS A VOTE BY THE
SHAREHOLDERS OF WAVEFRONT FOR APPROVAL AND ADOPTION OF THE PURCHASE PLAN.

RECORD DATE; VOTING AT THE SPECIAL MEETING; VOTE REQUIRED

The Wavefront Board has fixed May 9, 1995 as the record date for the
determination of the shareholders of Wavefront entitled to notice of and to
vote at the Special Meeting. Only holders of record of Wavefront Common Stock
on the record date will be entitled to notice of and to vote at the Special
Meeting. As of May 9, 1995, there were 8,464,933 shares of Wavefront Common
Stock outstanding and entitled to vote, which were held by approximately 174
holders of record. Each record holder of Wavefront Common Stock on the record
date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
shareholders of Wavefront at the Special Meeting.

The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Wavefront Common Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting. The approval of the Merger Agreement and the Merger will require the
affirmative vote of the holders of at least a majority of the outstanding
shares of Wavefront Common Stock entitled to vote thereon. Approval and
adoption of the Purchase Plan will require the affirmative vote of the holders
of a majority of the outstanding shares of Wavefront Common Stock present (in
person or by proxy) at the Special Meeting and entitled to vote thereon.
Abstentions and broker non-votes will not be counted, but will have the
practical effect of a vote against the Merger Agreement and the Merger since
they represent one less vote for approval.

As of May 9, 1995, directors and executive officers of Wavefront and their
affiliates may be deemed to be the beneficial owners of approximately 5.9% of
the outstanding shares of Wavefront Common Stock. Each of the directors and
executive officers of Wavefront plans to vote or direct the vote of all shares
of Wavefront Common Stock over which he has voting control in favor of the
Merger Agreement and the Merger and the Purchase Plan.

PROXIES

This Proxy Statement/Prospectus is being furnished to holders of Wavefront
Common Stock in connection with the solicitation of proxies by and on behalf of
the Wavefront Board for use at the Special Meeting.

All shares of Wavefront Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting and not duly and timely revoked, will be voted at
the Special Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted FOR
approval and adoption of the Merger Agreement and approval of the Merger and
FOR approval and adoption of the Purchase Plan.

IF ANY OTHER MATTERS ARE PROPERLY PRESENTED FOR CONSIDERATION AT THE SPECIAL
MEETING (OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF), INCLUDING, AMONG OTHER
THINGS, CONSIDERATION OF A MOTION TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO
ANOTHER TIME AND/OR PLACE, THE PERSONS NAMED IN THE ENCLOSED FORMS OF PROXY AND
VOTING THEREUNDER WILL HAVE DISCRETION TO VOTE ON SUCH MATTERS IN ACCORDANCE
WITH THEIR BEST JUDGMENT. HOWEVER, IF AN INSUFFICIENT NUMBER OF VOTES ARE CAST
TO APPROVE THE MERGER AND A QUORUM IS PRESENT, THEN THE PERSONS NAMED IN THE
ENCLOSED FORMS OF PROXIES WILL NOT VOTE PROXIES CAST AGAINST THE MERGER IN
FAVOR OF ADJOURNMENT OR POSTPONEMENT OF THE MEETING.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Wavefront at or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Wavefront before taking the vote at the
Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy). Any written

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notice of revocation or subsequent proxy should be sent so as to be delivered
to Wavefront Technologies, Inc., at 530 East Montecito Street, Santa Barbara,
California 93103, Attention: Secretary, or hand-delivered to the Secretary of
Wavefront at or before taking the vote at the Special Meeting.

In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Wavefront in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Wavefront has retained Georgeson & Company at an estimated cost of $5,000, plus
reimbursement of expenses, to assist in its solicitations of proxies from
brokers, nominees, institutions and individuals. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Wavefront will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.

SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.

THE MERGER

GENERAL

Under the Merger Agreement, Merger Sub will merge with and into Wavefront,
which will continue as the surviving corporation. At the Effective Time of the
Merger, (i) each outstanding share of Wavefront Common Stock (other than shares
of Wavefront Common Stock to be cancelled and Dissenting Shares (as defined
below)) will be converted into the right to receive 0.49 shares of SGI Common
Stock, (ii) each treasury share of Wavefront and each share of Wavefront Common
Stock owned by Merger Sub, SGI or any wholly owned subsidiary of SGI or
Wavefront will be cancelled and (iii) each outstanding share of common stock of
Merger Sub will be converted into one share of Wavefront Common Stock. No
fractional shares of SGI Common Stock will be issued in the Merger. Wavefront
will become a wholly owned subsidiary of SGI, and the shareholders of Wavefront
will become shareholders of SGI. See "The Merger Agreement and Related
Agreements--Conversion of Shares."

Upon consummation of the Merger, each then-outstanding Wavefront Option will
be assumed by SGI and will automatically be converted into an option to
purchase that number of shares of SGI Common Stock that the holder of such
Wavefront Option would have been entitled to receive pursuant to the Merger had
such holder exercised such Wavefront Option in full immediately prior to the
Effective Time. The per share exercise price for the SGI Common Stock issuable
upon exercise of such assumed Wavefront Option will be equal to the quotient of
the per share exercise price of such Wavefront Option at the Effective Time
divided by the Exchange Ratio. SGI will file a Registration Statement on Form
S-8 with the Commission with respect to the issuance of SGI Common Stock to be
issued upon exercise of the assumed Wavefront Options. See "The Merger
Agreement and Related Agreements--Treatment of Wavefront Common Stock Options
and Employee Stock Purchase Plan."

Subject to the consummation of the Merger and due approval of the Purchase
Plan by the Wavefront shareholders at the Special Meeting, on the Final
Purchase Date, Wavefront will apply the funds then credited to each Purchase
Plan participant's payroll withholding account to the purchase of whole shares
of Wavefront Common Stock. See "The Merger Agreement and Related Agreements--
Treatment of Wavefront Common Stock Options and Employee Stock Purchase Plan."

THE ARRANGEMENT

A condition to each of SGI's and Wavefront's obligation to consummate the
Merger is the consummation of the Arrangement. As a result of the Arrangement,
each holder of a share of Alias common stock will be entitled to receive that
number of shares of SGI Common Stock equal to the Alias Exchange Ratio or,
subject to the number of Exchangeable Shares not exceeding 49% of the product
of the Alias Exchange Ratio and the number of shares of Alias common stock
outstanding immediately prior to the

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Arrangement, that number of Exchangeable Shares equal to the Alias Exchange
Ratio. The Exchangeable Shares will have voting, liquidation and dividend
rights functionally equivalent to those of SGI Common Stock. A condition to
each of SGI's and Alias' obligation to consummate the Arrangement is the
consummation of the Merger. See "The Arrangement and the Acquisition
Agreement." SGI and Alias and SGI and Wavefront have agreed in the Acquisition
Agreement and the Merger Agreement, respectively, that the Merger and the
Arrangement will be consummated substantially contemporaneously.

BACKGROUND OF THE MERGER

Wavefront and Alias have been key application providers for SGI's
workstations for many years. SGI has had a close working relationship with both
companies through its support of their software development efforts and their
roles as value-added resellers ("VARs") of SGI products. On December 30, 1994,
Wavefront and SGI agreed to extend Wavefront's current VAR agreement through
June 30, 1995.

In July 1994, SGI formed its Silicon Studio, Inc. subsidiary to focus on
enabling applications development for the emerging interactive digital media
industries. In the Fall of 1994, SGI began to consider one or more acquisitions
in the software tools industry as a complementary way of addressing increasing
customer demand for integrated solutions in the entertainment market. SGI's
familiarity with Alias and Wavefront, the complementary technological strengths
of the two companies, the high regard that SGI has for the technical abilities
of both companies' management and personnel and the relationships of both
companies with key customers in the entertainment market led SGI to consider a
strategic combination with both companies.

The possibility of a strategic combination was first raised in general terms
in several conversations in October and November 1994 between senior executives
of SGI and Alias.

On December 7, 1994, Michael Ramsay, President of Silicon Studio, met with
Robert K. Burgess of Alias to indicate SGI's interest in pursuing exploratory
discussions with both companies. On December 14, 1994, Mr. Ramsay met with
Michael S. Noling, President and Chief Executive Officer of Wavefront, to raise
the possibility of a merger with SGI, and advised him that SGI was considering
a concurrent transaction with Alias. Each party indicated a willingness to
consider further discussion in early January 1995.

On December 27, 1994, the Wavefront Board met and established a committee
(the "Wavefront Committee") comprised of Michael S. Noling, Martin H. Plaehn
and Lawrence S. Barels. The Wavefront Committee's primary responsibility
involved considering the potential strategic combination of Wavefront, SGI and
Alias and keeping the Wavefront Board members informed of the status of
negotiations.

During the second week in January 1995, the parties agreed in a series of
telephone conversations to meet in Mountain View for further discussion of the
potential benefits of a strategic combination. In mid-January, Wavefront
retained Volpe, Welty as its financial advisor in connection with the possible
Merger. Volpe, Welty's role as a financial adviser included participation in
discussions and subsequent negotiations relative to the proposed Merger.

On January 16, 1995, several senior executives of SGI met with senior
executives of Alias, and on January 17th, they met with senior executives of
Wavefront. The discussions at these meetings focused on long-term business and
product strategies and the possible synergies that could be realized through a
business combination. On January 19, 1995, the board of directors of Alias (the
"Alias Board") formed a committee (the "Alias Independent Committee") to
negotiate the terms of any agreement with SGI. On January 19, 1995, SGI and
Wavefront executed a nondisclosure agreement providing for the exchange of
nonpublic information. Over the following two weeks, Wavefront and SGI each
continued to conduct due diligence regarding each other. On January 26, 1995,
SGI and Alias executed a nondisclosure agreement providing for the exchange of
nonpublic information.

On January 26 and 27, 1995, senior executives of SGI and Alias and their
respective advisors met to discuss the basis for a possible business
combination. Similar meetings were held separately on January 27th between
senior executives of SGI and Wavefront and their respective financial and legal
advisors. At each of

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these meetings, the management and financial advisors of Alias and Wavefront
made presentations concerning their respective businesses.

During the week of January 30, 1995, representatives of SGI, Wavefront and
Alias, and their respective counsel, accountants and financial advisors
conducted business, legal and financial due diligence and exchanged draft
merger agreements.

At the regular meeting of the Board of Directors of SGI (the "SGI Board") on
February 1, 1995, the SGI Board authorized the acquisition of Wavefront and
Alias and delegated to the Audit Committee of the SGI Board the authority to
negotiate the final terms of, and definitive documentation relating to, the
Merger and the Arrangement.

Members of SGI's management and its financial advisors met separately with
members of the Alias Independent Committee, management, and its financial
advisors and with Wavefront's financial advisors on February 3, 1995 for a
financial presentation and other discussions regarding SGI's business.

On February 3, 1995, the Wavefront Board met and heard presentations from
management and from its financial and legal advisors concerning the ongoing
negotiations with SGI. Wavefront's financial advisor presented a preliminary
evaluation of the proposed exchange ratio in the draft merger agreement and the
Wavefront Board discussed various factors and alternatives to the proposed
Merger. The Wavefront Board reviewed the terms of the draft merger agreement
and related valuation issues. The Wavefront Board concluded that it was
reasonable and appropriate for the Wavefront Committee to proceed with
negotiations.

Negotiations regarding the terms of the proposed merger agreements were held
in separate sessions on Saturday, February 4, 1995 and continued through the
weekend. The SGI Audit Committee met by telephone conference on the morning of
February 5, 1995 with SGI's management and financial and legal advisors to
review the results of SGI's due diligence investigation of Alias and Wavefront,
the status of the negotiations and the terms of the proposed agreements and
directed management to continue with negotiations. On February 5, 1995, the
Wavefront Board met and reviewed the status of the negotiations with SGI,
merger conditions, valuation of Wavefront, the terms of the proposed merger
agreement and discussed various other factors regarding the proposed merger
with its financial and legal advisors. The Wavefront Board directed the
Wavefront Committee to continue its negotiations with SGI.

On February 6, 1995, SGI reached preliminary agreement with Alias on the
terms of the proposed Arrangement, including an exchange ratio of 0.90 shares
of SGI Common Stock, or its equivalent, for each share of Alias Common Stock,
and reached preliminary agreement with Wavefront on the terms of the proposed
Merger, including an exchange ratio of 0.49 shares of SGI Common Stock for each
share of Wavefront Common Stock, subject in each case to the approval of the
respective boards of directors. The Merger and the Arrangement were unanimously
approved at a telephone meeting of the SGI Audit Committee held at midday
California time on February 6, 1995. At a meeting of the Wavefront Board on
February 6, 1995, Volpe, Welty reviewed in detail its financial analysis of the
proposed Merger. The Wavefront Board received an opinion from Volpe, Welty that
the Exchange Ratio, as of February 6, 1995, was fair to the shareholders of
Wavefront from a financial point of view. The Wavefront Board reviewed and
fully discussed the terms of the Merger Agreement and then unanimously approved
the Merger Agreement and the Merger. At a meeting of the Alias Board on
February 6, 1995, the Alias Board received the recommendation of the Alias
Independent Committee that the proposed transaction be consummated on the
agreed terms and approved the Acquisition Agreement and the Arrangement.

On the evening of February 6, 1995, SGI and Wavefront executed and delivered
the Merger Agreement, and SGI and Alias executed and delivered the Acquisition
Agreement. The Merger Agreement and the Acquisition Agreement were announced by
the issuance of a joint press release at 7:50 a.m. New York time, on February
7, 1995.

On May 9, 1995, SGI and Wavefront executed and delivered a technical
amendment to the Merger Agreement.

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WAVEFRONT'S REASONS FOR THE MERGER; RECOMMENDATION OF THE WAVEFRONT BOARD

The Wavefront Board has unanimously approved the Merger and determined that
the Merger is advisable and fair and in the best interests of Wavefront and its
shareholders. The Wavefront Board unanimously recommends to Wavefront
shareholders that they vote FOR the approval of the Merger and the approval and
adoption of the Merger Agreement. The Wavefront Board based its approval of the
Merger and its determination that the Exchange Ratio is fair to Wavefront and
its shareholders upon a number of factors, including its views regarding the
following.

(i) The consideration to be received by Wavefront's shareholders in the
Merger, including the fact that the Exchange Ratio represented a premium of
28% over the average of the closing market price of Wavefront Common Stock
for the ten trading days prior to the execution of the Merger Agreement.

(ii) The Merger will provide Wavefront shareholders with a security that
has a significantly larger market float, greater liquidity and greater
business diversification than Wavefront Common Stock.

(iii) The Merger will create a combined business with significantly
greater financial and business resources, a more diversified product line
and greater sales and marketing capabilities than those of Wavefront alone
and may enable the combined business to compete more effectively with
competitors having greater resources and broader product offerings than
Wavefront.

(iv) The combination of Wavefront with SGI and Alias will provide
Wavefront with additional financial and technological resources to meet
Wavefront's commitment to an ongoing program of rapid technological
innovation. With SGI's financial strength and Alias's complementary
software technology, and the operational synergies that should result from
the Transactions, the combined business will be better able to develop and
market cutting edge products and product features such as real time 3D
graphics, asset flow control and multimastering.

(v) The Merger will result in the combined business having a highly
complementary technology base allowing it to create and provide its
customers with a complete graphics and animation solution resulting in
improved productivity and ease of use.

The Wavefront Board also considered the following information in concluding
that the Merger and the Exchange Ratio are fair to Wavefront and its
shareholders: (i) its knowledge of the business, operations, property, assets,
financial condition, operating results and prospects of Wavefront, SGI and
Alias; (ii) current industry, economic and market conditions and trends; (iii)
the opinion of Volpe, Welty as to the fairness of the Exchange Ratio to the
shareholders of Wavefront; (iv) the terms of the Merger Agreement; (v) the
structure and accounting and tax treatment of the Transactions; (vi) the
respective corporate cultures and strategies of Wavefront, SGI and Alias; and
(vii) Wavefront's alternatives.

In its deliberations the Wavefront Board also considered the potential ef-
fects on Wavefront in the event that SGI and Alias merged and Wavefront re-
mained independent including the possible negative consequences of Wavefront
not being a part of a combined business with greater financial, technical, man-
ufacturing and marketing resources than Wavefront alone. These concerns were
addressed by the inclusion in the Merger Agreement of a covenant to close the
Arrangement and the Merger substantially contemporaneously and the condition to
each of SGI's and Wavefront's obligation to close the Merger that the Arrange-
ment has been consummated.

In view of the variety of factors considered in connection with its
evaluation of the Merger, the Wavefront Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination.

SGI'S REASONS FOR THE MERGER

SGI believes that the Merger and the Arrangement will enhance its position as
a leading technology supplier to the entertainment and industrial design
industries, and will facilitate the creation of what SGI has termed the
"digital studio for the 21st century." The entertainment industry, encompassing
movies, film, animation, location-based entertainment, music and interactive
entertainment, represents a large and fast-growing opportunity. SGI believes
that the growth of this industry is likely to accelerate in the coming years

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with the increasing availability of powerful, cost-effective digital solutions
that will replace the huge installed base of analog-based equipment.
Integrated, high-performance digital media authoring solutions will be a key
enabler for this anticipated growth.

SGI believes that the combined business will be able to deliver tightly
integrated, high-performance hardware and software solutions that will allow
filmmakers and other entertainment authors to create multimedia content in less
time, at lower costs, and in a format that can easily be deployed to other
interactive media. For example, content developed for a feature film could also
easily be used for interactive television programming, CD-ROMs, and location-
based entertainment. SGI also expects significant benefits for industrial
design users. For all users, the solution must be complete and integrated,
allowing individuals as well as large computer graphics production departments
to move fluidly through the entire process of turning ideas into images. As
fast-growing companies with complementary established technological expertise,
Alias and Wavefront are well-positioned to join SGI in pursuit of this
objective.

OPERATIONS FOLLOWING THE MERGER

Following the Transactions, SGI plans to combine the businesses of Wavefront
and Alias into a single organization focused on developing a new generation of
advanced tools for the creation of digital content by entertainment and
creative design users. The combined business will continue to develop, market
and support the existing Alias and Wavefront product lines to a wide range of
creative professionals, including 3D animators for film and video, game and
multimedia developers, automotive stylists, industrial designers and graphic
artists.

OPINION OF WAVEFRONT'S FINANCIAL ADVISOR

As described above under "--Background of the Merger", Wavefront retained
Volpe, Welty to act as its financial advisor in connection with the Merger. As
part of its engagement by Wavefront, Volpe, Welty rendered its oral opinion on
February 6, 1995, which was confirmed in writing as of the same date, to the
Wavefront Board, that, as of such date, the consideration to be received by the
holders of Wavefront Common Stock in the Merger (the "Merger Consideration")
was fair to such holders from a financial point of view. A copy of Volpe,
Welty's opinion, dated February 6, 1995, which sets forth the assumptions made,
matters considered, and the scope and limitations of the review undertaken by
Volpe, Welty, is attached as Annex C to this Proxy Statement/Prospectus.
Wavefront's shareholders are advised to read the opinion in its entirety. The
following description of Volpe, Welty's opinion is qualified in its entirety by
reference to the full text of such opinion. Volpe, Welty's opinion (i)
addresses only the fairness of the Merger Consideration from a financial point
of view to the holders of Wavefront Common Stock and (ii) speaks only as of the
date of the opinion. Such opinion is not a recommendation to any shareholder of
Wavefront as to how to vote at the Special Meeting.

The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to particular
circumstances, and, therefore, such an opinion is not readily susceptible to a
partial analysis or summary description. The summary of the Volpe, Welty
analyses set forth below does not purport to be a complete description of the
presentation by Volpe, Welty to the Wavefront Board. In arriving at its
opinion, Volpe, Welty did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Volpe,
Welty believes that its analyses and the summary set forth below must be
considered as a whole, and that considering any portion of such analyses and
summary of the factors considered, without considering all such analyses and
factors, could create a misleading or incomplete view of the processes
underlying the analyses set forth in the Volpe, Welty presentation to the
Wavefront Board and to Volpe, Welty's opinion. In performing its analyses,
Volpe, Welty made numerous assumptions with respect to industry performance,
general business and other conditions and matters, many of which are beyond the
control of Wavefront and SGI. In performing its analyses, Volpe, Welty relied,
without assuming responsibility for verification, upon estimates by the
managements of Wavefront and SGI of potential cost savings that may be achieved
if the Merger and the Arrangement are consummated. The analyses performed by
Volpe, Welty are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less

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favorable than suggested by such analyses. Additionally, analyses relating to
the values of assets or businesses do not purport to be appraisals thereof or
to reflect the prices at which businesses or assets actually may be sold.
Furthermore, Volpe, Welty did not express an opinion as to prices at which the
SGI Common Stock that constitute the Merger Consideration may trade at any
future date.

In rendering its opinion, Volpe, Welty relied, without assuming
responsibility for verification, upon the accuracy and completeness of all of
the financial and other information reviewed by Volpe, Welty for purposes of
its opinion. With respect to financial projections, estimates and analyses
provided to Volpe, Welty by Wavefront and SGI, Volpe, Welty assumed that such
projections, estimates and analyses were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Wavefront and SGI, respectively. With respect to SGI, Volpe,
Welty relied on data derived by it and by Wavefront and its advisors from
discussions with SGI management. Volpe, Welty was not provided with financial
projections, estimates or analyses by Alias and did not engage in discussions
with the management of Alias. In addition, Volpe, Welty did not make an
independent evaluation or appraisal of any assets and liabilities (contingent
or otherwise) of Wavefront, SGI or Alias or any of their respective
subsidiaries and was not furnished with any such evaluation or appraisal, nor
did Volpe, Welty conduct a physical inspection of the properties of Wavefront,
SGI or Alias. Volpe, Welty assumed that the Arrangement will be consummated
contemporaneously with the Merger and that in the Arrangement each issued and
outstanding share of common stock of Alias will be converted into the right to
receive no more that 0.90 shares of SGI
Common Stock. In its opinion, Volpe, Welty noted that, among other things, its
opinion was necessarily based upon economic, monetary, market, and other
conditions existing as of the date of its opinion. Shareholders are urged to
read the opinion in its entirety for assumptions made, matters considered and
limits of the review by Volpe, Welty.

In conducting its analysis and arriving at its opinion, Volpe, Welty held
discussions with the managements of Wavefront and SGI concerning the
businesses, financial statements, operations and prospects of their respective
companies and the prospects of a combined entity involving Wavefront, Alias and
SGI. Volpe, Welty also reviewed and analyzed, among other things:

(i) the Merger Agreement;

(ii) the financial statements and other information of Wavefront, SGI and
Alias filed with the Commission or distributed to their respective
shareholders for recent years and interim periods up to the date of its
opinion, as well as certain other publicly available information, including
analyst reports, news articles, and product information, regarding
Wavefront, SGI and Alias;

(iii) certain internal historical and other relevant financial and
operating data regarding Wavefront and SGI prepared by the managements of
Wavefront and SGI, respectively;

(iv) certain projected financial information derived from discussions
with the managements of Wavefront and SGI, respectively;

(v) the valuation of publicly traded companies Volpe, Welty deemed
comparable to Wavefront and SGI;

(vi) the financial terms, to the extent publicly available, of certain
merger and acquisition transactions which Volpe, Welty deemed comparable
and relevant to the Merger; and

(vii) the recent reported prices and trading activity of the Wavefront
Common Stock, SGI Common Stock and Alias Common Stock.

Volpe, Welty also performed such other studies, analyses and inquiries and
considered such other information as it considered relevant. In particular, in
conducting its analysis and arriving at its opinion, Volpe, Welty performed and
considered the following financial comparative analyses:

(i) Premium Analysis. Volpe, Welty reviewed publicly available
information for premiums paid over market prices in 15 pending and
completed merger and acquisition transactions involving publicly traded
computer hardware and software companies since January 1, 1993 (the
"Selected Transactions"). The premiums were calculated based upon the
transaction prices per share divided by the closing price

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per share one day and four weeks before announcement of the transaction.
Volpe, Welty's analysis indicated a range of premiums to the targets'
trading prices of 16.20% to 47.50% for the date one day prior to
announcement of the transaction and 29.10% to 41.60% for the date four
weeks prior to announcement of the transaction. Based upon the trading
prices of Wavefront Common Stock on February 3, 1995 ($12.63 per share) and
January 6, 1995 ($11.38 per share), the dates Volpe, Welty used as one day
and four weeks prior to announcement of the Merger, the implied premiums to
Wavefront's stock price to be paid by SGI were 21.22% and 34.53% for the
day prior to and four weeks prior to the Merger, respectively. Volpe, Welty
noted that the premiums to be paid in the Merger were within the range of
the premiums of the Selected Transactions. In addition, Volpe, Welty
reviewed the average moving premiums for such transactions occurring in
1994 based on stock prices 10 days, 20 days and 30 days before announcement
of the transaction. Volpe, Welty regarded the conclusions with respect to
such data as favorable to its opinion with respect to the fairness of the
consideration to be received in the Merger.

(ii) Comparable Transaction Analysis. Volpe, Welty reviewed publicly
available information for 25 pending and completed merger and acquisition
transactions involving computer hardware and software companies since
January 1, 1993. Volpe, Welty compared the proposed consideration in the
Merger to the following information in such other transactions (to the
extent such information was publicly available): (a) multiples of the
transaction price compared to revenues for the last twelve months (an
average multiple of 2.9 times); (b) multiples of the transaction price
compared to earnings before interest, taxes, depreciation and amortization
for the last twelve months (an average multiple of 32.8 times); and (c)
multiples of the transaction price compared to net income for the last
twelve months (an average multiple of 49.7 times). These average multiples,
when applied to Wavefront's historic financial results for comparable
periods, resulted in a valuation range for Wavefront Common Stock of $13.35
to $17.95 per share. Volpe, Welty noted that the price contemplated by the
Exchange Ratio for Wavefront Common Stock was within this range of values.

(iii) Comparable Publicly Traded Companies Analysis. Volpe, Welty
reviewed stock market prices of publicly traded multimedia tools companies
that it deemed comparable to Wavefront: Adobe Systems, Alias Research,
Autodesk, Avid Technology, Data Translation, Macromedia, Pinnacle and Sonic
Solutions (the "Selected Companies"). Volpe, Welty compared the multiples
of the stock prices of the Selected Companies to revenues, operating income
and net income for the twelve months ended December 31, 1994, as well as
December 31, 1995 and 1996 net income as projected by IBES. The range of
multiples of revenues for the twelve months ended December 31, 1994 was 2.3
times to 3.2 times. The range of multiples of operating income for such
period was 16.9 times to 22.9 times. The range of multiples of net income
for such period was 25.9 times to 35.0 times. The ranges of multiples for
projected net income for the years ended December 31, 1995 and 1996 were
17.9 times to 24.2 times and 13.2 times to 17.9 times, respectively. Volpe,
Welty also compared Wavefront's five-year projected growth rate (as
estimated by Zack's Investment Research and IBES) and price-earnings
multiples to those of the Selected Companies, yielding a range of price-
earnings multiples to growth rate ratios of 60.5% to 90.5%. Volpe, Welty
also included a control premium in this analysis based on the average
control premium paid in 15 pending and completed merger and acquisition
transactions involving publicly traded computer hardware and software
companies since January 1, 1993. Based upon historical and projected
financial results for Wavefront, the above analyses resulted in a range of
$13.31 to $17.90 per share of Wavefront Common Stock. Volpe, Welty noted
that the price per share of Wavefront Common Stock contemplated by the
Exchange Ratio was within this range of values.

(iv) Discounted Cash Flow Analysis. Volpe, Welty conducted a discounted
cash flow analysis, relying on internal projections of future earnings,
operating assumptions and capital requirements prepared by Wavefront's
management for the years ending December 31, 1995 and 1996 and
extrapolations of those projections for years 1997, 1998 and 1999, for the
purpose of valuing Wavefront Common Stock. Volpe, Welty computed the
terminal value of Wavefront using projected 1999 operating income
multiplied by a range of multiples of operating income, which varied from
10.0 times to 14.0 times. The terminal value of the business, as well as
cash flows for the preceding years, were then

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<PAGE>

discounted at a range of discount rates from 20.0% to 30.0%. This analysis
indicated a range of values of Wavefront Common Stock of $14.19 to $16.83
per share. Volpe, Welty noted that the price contemplated by the Exchange
Ratio for Wavefront Common Stock was within this range of values. The
usefulness of a discounted cash flow analysis depends in part on the degree
of reliability of the projections used in the analysis. Volpe, Welty
concluded this analysis was less useful because of the lack of certainty
associated with Wavefront projections due to the rapidly changing
environment in which Wavefront operates.

No company or transaction used in the above analyses is identical to
Wavefront, SGI or Alias or the proposed transaction. Accordingly, an analysis
of the results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies or company to which they are compared.

The foregoing description of Volpe, Welty's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex C to this Proxy Statement/Prospectus.

Volpe, Welty is an investment banking firm. As part of its investment banking
business, Volpe, Welty is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and other purposes. The Wavefront Board selected Volpe,
Welty to serve as its financial advisor based on Volpe, Welty's qualifications,
expertise and familiarity with Wavefront's business. The terms of Volpe,
Welty's engagement to Wavefront are set forth in an engagement letter dated
February 1, 1995. Volpe, Welty was not authorized to solicit and did not
solicit interest from any party with respect to an acquisition of Wavefront.
Volpe, Welty's role as financial advisor included participation in discussions
and subsequent negotiations relative to the proposed Merger and rendering an
opinion that the Exchange Ratio as of February 6, 1995 was fair to the
shareholders of Wavefront from a financial point of view.

Pursuant to the terms of the engagement letter, Wavefront paid Volpe, Welty a
retainer fee of $25,000 upon execution of such letter and an additional fee of
$300,000 upon delivery of its fairness opinion to the Wavefront Board.
Wavefront has agreed to pay to Volpe, Welty an additional fee (against which
the $325,000 in fees described above will be credited) based upon the aggregate
market value of the Merger. Such fee is estimated to equal approximately
$1,200,000 (based on a per share price of SGI Common Stock of $37.00 multiplied
by the number of fully diluted shares of Wavefront Common Stock). Wavefront
also has agreed to reimburse Volpe, Welty for its reasonable out-of-pocket
expenses, including fees and expenses of counsel, and to indemnify Volpe, Welty
against certain liabilities, including liabilities under the federal securities
laws or relating to or arising out of Volpe, Welty's engagement as financial
advisor.

Volpe, Welty acted as a co-managing underwriter for the initial public
offering of the Wavefront Common Stock in June 1994 and subsequent public
offering in December 1994 and received customary compensation for such
services. In the ordinary course of business, Volpe, Welty acts as a market
maker and broker in the publicly traded securities of Wavefront and Alias and
receives customary compensation in connection therewith, and also provides
published research coverage of Wavefront and Alias. In the ordinary course of
business, Volpe, Welty may from time to time trade in the equity and derivative
securities of Wavefront, SGI and Alias for its own account or the accounts of
customers, and hold short or long positions in securities or options on
securities of Wavefront, SGI and Alias.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes the material federal income tax
consequences of the Merger to Wavefront and holders of Wavefront Common Stock
and reflects the opinions of tax counsel attached as Exhibits 8.1 and 8.2 to
Registration Statement of which this Proxy Statement/Prospectus is a part. Such
tax opinions are based on certain assumptions noted in such opinions. The
discussion is based on current law. The discussion does not address aspects of
federal taxation other than income taxation, nor does it address all aspects of
federal income taxation including, without limitation, aspects of federal
income taxation that may be applicable to particular shareholders, such as
shareholders who are dealers in securities, foreign

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<PAGE>

persons or persons who acquired their Wavefront Common Stock in a compensation
transaction. In addition, it does not address the state, local or foreign tax
consequences of the Merger, if any.

HOLDERS OF WAVEFRONT COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER.

The principal federal income tax consequences of the Merger to Wavefront and
holders of Wavefront Common Stock will be as follows:

(a) the Merger will qualify as a reorganization within the meaning of
Section 368 of the Code;

(b) no gain or loss will be recognized by Wavefront, Merger Sub or SGI
solely as a result of the Merger;

(c) no gain or loss will be recognized by holders of Wavefront Common
Stock upon their receipt of SGI Common Stock in exchange for their
Wavefront Common Stock, except that holders of Wavefront Common Stock who
receive cash proceeds in lieu of fractional shares of SGI Common Stock will
recognize gain or loss equal to the difference, if any, between such
proceeds and the tax basis of Wavefront Common Stock allocated to their
fractional share interests (see, however, discussion of the treatment of
dissenters in (h) below);

(d) such gain or loss, if any, will constitute capital gain or loss if
the fractional share interests exchanged are held as capital assets at the
time of the Merger;

(e) such capital gain or loss will be long-term capital gain or loss if
the holding period for the fractional share interests (including the
holding period of Wavefront Common Stock attributed thereto) exceeds one
year at the Effective Time;

(f) the tax basis of SGI Common Stock received by holders of Wavefront
Common Stock will be the same as the tax basis of the Wavefront Common
Stock exchanged therefor less the tax basis, if any, allocated to
fractional share interests;

(g) the holding period of SGI Common Stock in the hands of holders of
Wavefront will include the holding period of their Wavefront Common Stock
exchanged therefor, provided that such Wavefront Common Stock is held as a
capital asset at the Effective Time;

(h) in general, a dissenting holder of Wavefront Common Stock receiving
solely cash in exchange therefor will recognize gain or loss equal to the
difference, if any, between the cash received and the dissenting holder's
tax basis of the Wavefront Common Stock;

(i) such gain or loss, if any, will generally constitute capital gain or
loss if the Wavefront Common Stock for which the dissenting shareholder
receives cash is held as a capital asset at the Effective Time; and

(j) such capital gain or loss will be long-term capital gain or loss if
the dissenting holder has held the Wavefront Common Stock for more than one
year at the Effective Time.

It is a condition to SGI's and Wavefront's obligations to effect the Merger
that SGI and Wavefront receive opinions (the "Tax Opinions") from Shearman &
Sterling and Wilson, Sonsini, Goodrich & Rosati, respectively, to the effect
that, on the basis of certain facts, including facts derived from officers'
certificates delivered by SGI and Wavefront, and certain assumptions stated in
the Tax Opinions, the Merger will be treated as a reorganization within the
meaning of Section 368 of the Code. Neither SGI nor Wavefront intends to waive
this condition. If this condition is waived by either SGI or Wavefront after
approval of the Merger by the holders of Wavefront Common Stock, then Wavefront
intends to resolicit its shareholders prior to consummation of the Merger.

No ruling has been or will be obtained from the Internal Revenue Service (the
"Service") with respect to the Merger. The Tax Opinions are not binding on the
Service or the courts, and no assurance can be given that the Tax Opinions
would be followed if challenged by the Service.

ACCOUNTING TREATMENT

The Merger is expected to be treated as a "pooling of interests" for
accounting purposes. This accounting method permits the recorded assets and
liabilities of both SGI and Wavefront to be carried forward to the

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surviving corporation at their recorded historical amounts and no recognition
of goodwill in the combination is required of either company in the Merger.

It is a condition to SGI's obligation to effect the Merger that SGI and
Wavefront receive opinions from Ernst & Young LLP and Arthur Andersen LLP, the
independent auditors of SGI and Wavefront, respectively, based upon certain
material facts and certain representations and warranties described in such
opinions, to the effect that pooling of interests accounting treatment for the
Merger is appropriate. In the event that greater than 10% of the shareholders
of Wavefront properly exercise their dissenters' rights, the Merger may not
qualify for treatment as a pooling of interests under applicable accounting
rules and SGI's or Wavefront's independent auditors may not be able to render
an opinion regarding such qualification. Under the Merger Agreement, SGI's
obligation to consummate the Merger is conditioned on the delivery of such
opinions; therefore, the inability of SGI's or Wavefront's independent auditors
to deliver such opinion would entitle SGI to abandon the Merger. SGI does not
intend to waive this condition. If this condition is waived by SGI after
approval of the Merger by the holders of Wavefront Common Stock, then Wavefront
intends to resolicit its shareholders prior to consummation of the Merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the Wavefront Board with respect to the
Merger, shareholders of Wavefront should be aware that certain officers and
directors of Wavefront had interests in the Merger, including those referred to
below, that presented them with potential conflicts of interests. The Wavefront
Board was aware of these potential conflicts and considered them along with the
other matters described in "--Wavefront's Reasons for the Merger;
Recommendation of the Wavefront Board."

In July 1994, shortly after completing the initial public offering of
Wavefront Common Stock, the Wavefront Board authorized Wavefront to enter into
employment agreements with its executive officers and key employees. In October
1994, the Company entered into employment agreements with Michael S. Noling,
Martin H. Plaehn, David P. Swan, Andrew J. DeNecochea, Michael J. Wilson, Bruce
A. Sinclair and Carmine J. Napolitano. The employment agreements provide that
upon a change in control, one-third of the unvested stock options held by each
officer will accelerate and the officer shall have the right to exercise all or
a portion of such stock options so vested. If the officer remains in
Wavefront's employ for six months after the change in control, an additional
one-third of the unvested portion of any stock options held by the officer will
accelerate. If the officer's employment is involuntarily terminated within a
period beginning two months before and ending 18 months after a change in
control (a "Control Termination"), the officer will be entitled to severance
pay in an amount equal to six months of the officer's then current base cash
salary. In addition, all remaining unvested stock options held by the officer
will automatically accelerate (subject to certain limitations). Each employment
agreement terminates upon the earlier of the date that all obligations of the
parties under such employment agreement have been satisfied, or 18 months after
a change in control. In addition, the employment agreements with Mr. Noling and
Mr. Plaehn further provide that in the event of a Control Termination, Mr.
Noling and/or Mr. Plaehn may be retained by the acquiring company as
consultants for twelve months following the Control Termination, at the rate of
$500 per month for up to ten hours per month. During this time, certain of
their unvested options (if any) which were not accelerated will continue to
vest.

The Merger Agreement provides that Wavefront will, and after the Effective
Time, the surviving corporation and SGI will, to the fullest extent permitted
under applicable law or under the relevant Articles of Incorporation or Bylaws,
indemnify and hold harmless each present and former director, officer,
employee, fiduciary and agent of Wavefront or any of its subsidiaries against
any costs or expenses, judgments, fines, losses, claims, damages, liability and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to any action or
omission occurring at or prior to the Effective Time for a period of six years
after the Effective Time.

In addition, the Articles of Incorporation of the surviving corporation will
contain the indemnification provisions currently set forth in the Bylaws of
Wavefront, which shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the

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rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of Wavefront, unless such modification is
required by law.

REGULATORY MATTERS

Under the HSR Act and the rules promulgated thereunder by the FTC, certain
acquisition transactions may not be consummated unless notice has been given
and certain information has been furnished to the Antitrust Division and the
FTC and specified waiting period requirements have been satisfied. SGI and
Wavefront each filed with the Antitrust Division and the FTC a Notification and
Report Form (an "HSR Notice") with respect to the Merger on March 2, 1995. SGI
and Alias each filed with the Antitrust Division and the FTC an HSR Notice with
respect to the Arrangement on March 2, 1995. The required waiting periods for
the Transactions under the HSR Act were extended by Requests for Additional
Information and Documentary Material issued by the FTC to SGI, Wavefront and
Alias on March 31, 1995. SGI, Wavefront and Alias are all in the process of
responding to the Requests. The waiting periods for the Merger and the
Arrangement will expire at 11:59 p.m. on the twentieth day following the day on
which the last of SGI and Wavefront and SGI and Alias, respectively,
substantially comply with the Requests unless such waiting periods are
terminated early or extended by mutual agreement. At any time before or after
the Effective Time, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or the Arrangement or seeking
the divestiture of Wavefront or Alias by SGI, in whole or in part, or the
divestiture or compulsory licensing of substantial assets of SGI, Wavefront,
Alias or their respective subsidiaries. State attorneys general and private
parties may also bring legal actions under the federal or state antitrust laws
under certain circumstances.

RIGHTS OF DISSENTING SHAREHOLDERS

If the Merger is consummated, holders of Wavefront Common Stock who have
properly exercised dissenters' rights in connection with the Merger under
Sections 1300-1312 ("Chapter 13") of the California Corporations Code (the
"CCC") will have the right to receive such consideration as may be determined
to be due with respect to Dissenting Shares (as defined below) pursuant to the
laws of the State of California, so long as demands for such consideration are
properly filed at or before the Special Meeting with respect to 5% or more of
the outstanding shares of Wavefront Common Stock.

The following summary of the provisions of Chapter 13 is not intended to be a
complete statement of such provisions, and Wavefront shareholders are urged to
read the full text of Chapter 13, a copy of which is attached to this Proxy
Statement/Prospectus as Annex D.

If the Merger is approved by the required vote of the holders of Wavefront
Common Stock and is not abandoned or terminated, each holder of shares of
Wavefront Common Stock who votes against the Merger and who follows the
procedures set forth in Chapter 13 will be entitled to have his or her shares
of Wavefront Common Stock purchased by Wavefront for cash at their fair market
value, so long as demands for such consideration are properly filed at or
before the Special Meeting with respect to 5% or more of the outstanding shares
of Wavefront Common Stock. The fair market value of shares of Wavefront Common
Stock will be determined as of the day before the first announcement of the
terms of the Merger, excluding any appreciation or depreciation resulting as a
consequence of the Merger, but adjusted for any stock split, reverse stock
split or share dividend that becomes effective thereafter. The shares of
Wavefront Common Stock with respect to which holders have perfected their
purchase demand in accordance with Chapter 13 and have not effectively
withdrawn or lost such rights are referred to as the "Dissenting Shares."

Within 10 days after approval of the Merger by Wavefront's shareholders,
Wavefront must, if demands for purchase have been properly filed by the holders
of 5% or more of the outstanding shares of Wavefront Common Stock, mail a
notice of such approval (the "Approval Notice") to all shareholders who have
voted against the approval of the Merger and followed the procedures set forth
in Chapter 13, together with a statement of the price determined by Wavefront
to represent the fair market value of the applicable Dissenting Shares
(determined in accordance with the immediately preceding paragraph), a brief
description of the procedures to be followed in order for the shareholder to
pursue his or her dissenters' rights, and a copy of Sections 1300-1304 of the
CCC. The statement of price by Wavefront constitutes an offer by Wavefront to
purchase all Dissenting Shares at the stated amount.

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A shareholder of Wavefront electing to exercise dissenters' rights must,
within the time period provided in Section 1301(b) of the CCC, demand in
writing from Wavefront the purchase of his or her shares of Wavefront Common
Stock and payment to the shareholder at their fair market value. A holder who
elects to exercise dissenters' rights should mail or deliver his or her written
demand to Wavefront at 530 East Montecito Street, Santa Barbara, California
93103, Attention: Secretary. The demand should specify the holder's name and
mailing address and the number of shares of Wavefront Common Stock held of
record by such shareholder and state that such holder is demanding purchase of
his or her shares and payment of their fair market value, and must also contain
a statement as to what the shareholder claims to be the fair market value of
such shares as of the day before the first announcement of the terms of the
proposed Merger. Such statement of the fair market value of the shares of
Wavefront Common Stock constitutes an offer by the shareholder to sell the
Dissenting Shares held by such shareholder at that price.

Within the time period provided in Section 1302 of the CCC, the shareholder
must also submit the certificates representing the Dissenting Shares to
Wavefront for endorsement as Dissenting Shares.

If Wavefront and the Wavefront shareholder agree that the shares are
Dissenting Shares and agree upon the purchase price of the shares, the
dissenting shareholder is entitled to the agreed-upon price with interest
thereon at the legal rate on judgments from the date of such agreement. Payment
for the Dissenting Shares must be made within 30 days after the later of the
date of such agreement or the date on which all statutory and contractual
conditions to the Merger are satisfied, and is subject to surrender to
Wavefront of the certificates representing the Dissenting Shares.

If Wavefront denies that the shares are Dissenting Shares or if Wavefront and
the shareholder fail to agree upon the fair market value of the shares of
Wavefront Common Stock, then within the time period provided in Section 1304(a)
of the CCC, any shareholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the Merger Agreement may
file a complaint in the superior court of Santa Barbara County requesting a
determination as to whether the shares are Dissenting Shares or as to the fair
market value of such holder's shares of Wavefront Common Stock or both, or may
intervene in any pending action brought by any other Wavefront shareholder. If
the fair market value of the Dissenting Shares is at issue, the court may
appoint one or more impartial appraisers to determine the fair market value of
such Dissenting Shares.

Except as expressly limited by Chapter 13, holders of Dissenting Shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A holder of
Dissenting Shares may not withdraw a demand for payment unless Wavefront
consents thereto.

Dissenting Shares lose their status as Dissenting Shares, and dissenting
shareholders cease to be entitled to require Wavefront to purchase their Shares
if: (a) the Merger is abandoned; (b) the shares are transferred prior to their
submission to Wavefront for the required endorsement; (c) the dissenting
shareholder and Wavefront do not agree upon the status of the shares as
Dissenting Shares or do not agree on the purchase price, but neither Wavefront
nor the shareholder files a complaint or intervenes in a pending action within
six months after mailing of the Approval Notice; or (d) with Wavefront's
consent, the holder delivers to Wavefront a written withdrawal of such holder's
demand for purchase of his or her shares.

WAVEFRONT SHAREHOLDERS WILL HAVE NO APPRAISAL RIGHTS UNLESS DEMANDS FOR
PURCHASE AND PAYMENT ARE RECEIVED AT OR PRIOR TO THE DATE OF THE WAVEFRONT
SPECIAL MEETING FROM HOLDERS OF 5% OR MORE OF THE OUTSTANDING SHARES OF
WAVEFRONT COMMON STOCK.

All officers and directors of Wavefront have agreed not to exercise
dissenters' rights with respect to the Merger.

THE MERGER AGREEMENT AND RELATED AGREEMENTS

The following paragraphs summarize, among other things, the material terms of
the Merger Agreement, which is attached hereto as Annex A and incorporated by
reference herein. Shareholders of Wavefront are urged to read the Merger
Agreement in its entirety for a more complete description of the Merger.

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EFFECTIVE TIME OF THE MERGER

As promptly as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, including consummation of the Arrangement,
the parties thereto will file a certified agreement of merger with the
Secretary of State of the State of California. The Merger will become effective
upon such filing.

CONVERSION OF SHARES

At the Effective Time, each outstanding share of Wavefront Common Stock
(other than Dissenting Shares and shares owned by Merger Sub, SGI, Wavefront or
any subsidiary of SGI or Wavefront) will be converted into the right to receive
0.49 shares of SGI Common Stock. Merger Sub will merge with and into Wavefront,
which will be the surviving corporation and a wholly owned subsidiary of SGI.
Each share of Merger Sub common stock issued and outstanding immediately prior
to the Effective Time will be converted into one share of common stock of the
surviving corporation. For information regarding rights of dissenting
shareholders see "The Merger--Rights of Dissenting Shareholders."

As promptly as practicable after the Effective Time, SGI will cause to be
sent to each shareholder of record of Wavefront as of the Effective Time (other
than Dissenting Shares) transmittal materials for use in exchanging
certificates of Wavefront Common Stock for certificates of SGI Common Stock.
The transmittal materials will contain information and instructions with
respect to the surrender of Wavefront Common Stock certificates in exchange for
new certificates representing SGI Common Stock and cash in payment for any
fractional shares resulting from the exchange. CERTIFICATES SHOULD NOT BE
SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. Pending delivery to
SGI of Wavefront Common Stock certificates, any dividends on the SGI Common
Stock to be issued as a result of the Merger that are payable prior to the
delivery of such certificates will be held by SGI. Such dividends will be paid,
without interest, to the persons entitled thereto upon delivery of such
Wavefront Common Stock certificates to SGI.

Fractional shares of SGI Common Stock will not be issued in the Merger.
Instead, each shareholder of Wavefront who would otherwise be entitled to a
fractional share will receive cash in lieu thereof, calculated on the basis of
the average closing price of SGI Common Stock for the 30 most recent trading
days prior to the Effective Time, as quoted in The Wall Street Journal or other
reliable financial newspaper or publication.

TREATMENT OF WAVEFRONT COMMON STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

1990 STOCK OPTION PLAN. At the Effective Time, each outstanding Wavefront
Option under its 1990 Stock Option Plan (the "Stock Option Plan"), whether
vested or unvested, will be assumed by SGI. Each Wavefront Option assumed by
SGI under the Merger Agreement will continue to have, and be subject to, the
same terms and conditions set forth in the Stock Option Plan immediately prior
to the Effective Time, except for the number of shares of SGI Common Stock to
be purchased under such Wavefront Option and the exercise price thereof. Each
Wavefront Option will be exercisable for that number of shares of SGI Common
Stock rounded up to the nearest whole number of shares of SGI Common Stock that
the holder of such Wavefront Option would have been entitled to receive
pursuant to the Merger had such holder exercised such Wavefront Option in full
immediately prior to the Effective Time. The per share exercise price for the
shares of SGI Common Stock issuable upon exercise of such assumed Wavefront
Option will be equal to the quotient of the per share exercise price of
Wavefront Common Stock at which such option was exercisable immediately prior
to the Effective Time divided by the Exchange Ratio and rounding the resulting
exercise price up to the nearest whole cent.

After the Effective Time, SGI will issue to each holder of an outstanding
Wavefront Option a document evidencing SGI's assumption of such Wavefront
Option. It is the intention of SGI and Wavefront that the Wavefront Options
assumed by SGI qualify following the Effective Time as incentive stock options
as defined in Section 422 of the Code to the extent (and only to the extent)
such Wavefront Options qualified as incentive stock options prior to the
Effective Time.

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WAVEFRONT EMPLOYEE STOCK PURCHASE PLAN. Subject to the consummation of the
Merger and due approval and adoption of the Purchase Plan by the Waverfront
shareholders at the Special Meeting, on the Final Purchase Date, Wavefront will
apply the funds then credited to each Purchase Plan participant's payroll
withholding account to the purchase of whole shares of Wavefront Common Stock.
The cost to each participant in the Purchase Plan for the shares of Wavefront
Common Stock purchased shall be the lower of 85% of the closing sale price of
Wavefront Common Stock on the Nasdaq National Market on (i) the first day of
the then current offering period or (ii) the Final Purchase Date. Shares of
Wavefront Common Stock purchased on the Final Purchase Date will be converted
to SGI Common Stock in the same manner as described above under "--Conversion
of Shares." Employees of Wavefront as of the Effective Time will be permitted
to participate in SGI's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility requirements of SGI's Employee Stock Purchase Plan (with Wavefront
employees receiving credit, for purposes of such eligibility, for service with
Wavefront).

BUSINESS OF WAVEFRONT PENDING THE MERGER

Pending consummation of the Merger, and except as otherwise consented to or
approved in advance by SGI in writing, Wavefront has agreed that Wavefront and
its subsidiaries will, among other things, operate their businesses in
accordance with their ordinary course of business and in a manner consistent
with past practices, and use reasonable commercial efforts to preserve
substantially intact their respective business organizations, to keep available
the services of their present officers, employees and consultants, to take all
reasonable action to prevent the loss, cancellation, forfeiture or expiration
of any Wavefront intellectual property and to preserve their present
relationships with customers and suppliers and other persons with whom they
have significant business relations.

In particular, Wavefront and its subsidiaries have agreed not to take any of
the following actions without the prior written consent of SGI: (i) amend or
otherwise change Wavefront's Articles of Incorporation (the "Wavefront
Articles") or By-laws; (ii) issue, sell, pledge, dispose of or encumber any
shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest of Wavefront, any of its subsidiaries or
affiliates (except for the issuance of shares of the Wavefront Common Stock
issuable pursuant to employee stock options under the Stock Option Plan or
pursuant to rights to purchase such shares under the Purchase Plan, which
options or rights, as the case may be, were outstanding on the date of the
Merger Agreement); (iii) sell, pledge, dispose of or encumber any assets of
Wavefront or any of its subsidiaries (except for (a) sales of assets in the
ordinary course of business and in a manner consistent with past practice and
(b) dispositions of obsolete or worthless assets); (iv) amend or change the
period (or permit any acceleration) of exercisability of options granted under
any employee plans (including the Stock Option Plan) or authorize cash payments
in exchange for any options granted under any of such plans; (v) declare or pay
any dividend or other distribution with respect to any of its capital stock,
except for certain intracompany distributions; (vi) sell, transfer, license,
sublicense or otherwise dispose of any Wavefront intellectual property, or
amend or modify any existing agreements with respect to any Wavefront
intellectual property or third party intellectual property rights, other than
nonexclusive object and source code licenses in the ordinary course of business
consistent with past practice; (vii) (a) acquire any business organization; (b)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or otherwise become responsible for, the obligations of any
person, or make any loans or advances, except in the ordinary course of
business consistent with past practice; (c) enter into or amend any contract or
agreement other than in the ordinary course of business; (d) authorize any
capital expenditures or purchase of fixed assets which are, in the aggregate,
in excess of $1,000,000 for Wavefront and its subsidiaries, taken as a whole;
or (e) enter into or amend any contract, agreement, commitment or arrangement
to effect any of the matters prohibited by this item (vii); (viii) increase the
compensation payable to its officers or employees, except for increases in
salary or wages of employees of Wavefront or its subsidiaries who are not
officers of Wavefront in accordance with past practices, or grant any severance
or termination pay to, or enter into any employment or severance agreement with
any director, officer (except for officers who are terminated on an involuntary
basis) or other employee of Wavefront or any of its subsidiaries, or establish,
adopt, enter into or amend any Wavefront employee plan; (ix) take any action,
other

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than as required by GAAP, to change accounting policies or procedures; (x) make
any material tax election inconsistent with past practices or settle or
compromise any material tax liability; (xi) pay, discharge or satisfy any
claims, liabilities or obligations, other than liabilities reflected or
reserved against in the financial statements of Wavefront or incurred in the
ordinary course of business and consistent with past practice; (xii) except as
may be required by law, take any action to terminate or amend any of its
employee plans other than in connection with the Merger; (xiii) take or allow
to be taken or fail to take any act or omission which would jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes under
GAAP; or (xiv) take, or agree in writing or otherwise to take, any of the
actions described in items (i) through (xiii) above, or any action which would
make any of the representations or warranties of Wavefront contained in the
Merger Agreement untrue or incorrect or prevent Wavefront from performing or
cause Wavefront not to perform its covenants thereunder or result in any of the
conditions to the Merger not being satisfied.

SOLICITATION OF ALTERNATIVE TRANSACTIONS

The Merger Agreement provides that Wavefront shall not, directly or
indirectly, solicit or encourage the initiation of inquiries or proposals
regarding any merger, sale of substantial assets or stock, or similar
transaction involving Wavefront or any of its subsidiaries. The Merger
Agreement does not prevent the Wavefront Board from considering, negotiating,
approving and recommending to Wavefront shareholders an unsolicited merger or
acquisition proposal that the Wavefront Board determines in good faith, after
consultation with its financial advisors and upon advice of counsel that its
fiduciary duties require it to do so, would result in a transaction more
favorable to the Wavefront shareholders than the Merger. Wavefront must inform
SGI of any such competing proposal or request for nonpublic information, and
Wavefront may provide access to nonpublic information (subject to the execution
of a confidentiality and standstill agreement) only after Wavefront has
determined that the competing proposal is superior to the Merger.

BUSINESS OF SGI PENDING THE MERGER

Pending the consummation of the Merger, and except as otherwise consented to
or approved in advance by Wavefront in writing, SGI has agreed that SGI and its
subsidiaries will, among other things, operate their businesses in accordance
with their ordinary and usual course of business and in a manner consistent
with past practices. In particular SGI has agreed not to take any of the
following actions without the prior written consent of Wavefront: (i) amend or
otherwise change SGI's Restated Certificate of Incorporation (the "SGI Restated
Certificate"), or amend the terms of the SGI Common Stock, except as provided
in the Merger Agreement; (ii) except for the Arrangement, acquire any business
organization or assets of any other person if doing so would delay or prevent
the consummation of the Merger; (iii) declare, set aside, make or pay any
dividend or other distribution in respect of any of its capital stock; (iv)
sell, transfer, license, sublicense or otherwise dispose of any material
assets; or (v) take any action which would make any of SGI's representations or
warranties untrue or incorrect or prevent SGI from performing or cause SGI not
to perform its covenants under the Merger Agreement.

CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER

At the Effective Time, Merger Sub will be merged with and into Wavefront,
which will be the surviving corporation and will thereby become a wholly owned
subsidiary of SGI. Each share of Merger Sub common stock issued and outstanding
immediately prior to the Effective Time will be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock of
the surviving corporation.

Unless otherwise determined by SGI prior to the Effective Time, at the
Effective Time the Articles of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, will be the Articles of Incorporation
of the surviving corporation, until thereafter amended. The Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, will be the Bylaws
of the surviving corporation, until thereafter amended.

CERTAIN COVENANTS

The Merger Agreement provides that the Articles of Incorporation of the
surviving corporation will contain the indemnification provisions set forth in
Wavefront's Bylaws, and that such provisions will not be modified for six years
from the Effective Time in any manner that would adversely affect the rights
thereunder

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of individuals who at the Effective Time were Wavefront's directors, officers,
employees or agents, unless such modification is required by law.

Wavefront has agreed that, regardless of whether the Merger becomes
effective, it will indemnify each present and former director, officer,
employee, fiduciary and agent of Wavefront or any of its subsidiaries
(collectively, the "Indemnified Parties"), to the fullest extent permitted
under applicable law or under its Articles of Incorporation or Bylaws, against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring at or prior to the Effective Time, or arising out of or
pertaining to the transactions contemplated by the Merger Agreement (the
"Liabilities"), for six years after the date of the Effective Time.

SGI has agreed that after the Effective Time, it will indemnify the
Indemnified Parties to the fullest extent permitted under applicable law or
under the SGI Restated Certificate or Bylaws, against the Liabilities for six
years after the date of the Effective Time.

CONDITIONS TO THE MERGER

Consummation of the Merger is subject to the satisfaction of various
conditions, including (i) the approval and adoption of the Merger Agreement and
the Merger by the requisite vote of the shareholders of Wavefront; (ii) the
effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus is a part pursuant to which the SGI Common Stock to be
issued in the Merger will be registered and the absence of any stop order or
proceedings seeking a stop order relating to such Registration Statement; (iii)
the absence of any temporary restraining order, preliminary or permanent
injunction or other legal restraints, or prohibitions, statutes, rules,
regulations or orders preventing consummation of the Merger, and of any
proceedings brought by any governmental authority making consummation of the
Merger illegal; (iv) the receipt of an officer's certificate by each of SGI and
Wavefront from the other party to the effect that certain representations and
warranties made by the respective party are true and correct in all respects on
and as of the Effective Time, except where the failure to be true and correct
would not have a Material Adverse Effect (as defined below), and to the effect
that the respective party has performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement on or prior
to the Effective Time; (v) the obtaining by SGI and Wavefront of all material
consents, waivers, approvals, authorizations or orders required to be obtained
and filings required to be made for the authorization, execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby; (vi) consummation of the Arrangement; (vii) the receipt
by SGI and Wavefront of an opinion of Ernst & Young LLP and Arthur Andersen
LLP, respectively, as independent public accountants, to the effect that
pooling of interests accounting treatment is appropriate for the Merger; (viii)
the receipt by SGI and Wavefront of the Tax Opinions; and (ix) the receipt by
SGI of the Affiliate Agreements (as defined below). In addition, it is a
condition to the obligations of each of SGI and Wavefront to consummate the
Merger that the other party shall not have experienced any change, occurrence
or circumstance (individually or taken together) that is reasonably likely to
be materially adverse to its business, assets, financial condition or results
of operations (a "Material Adverse Effect"). A decline in Wavefront's
consolidated gross sales revenues after the date of the Merger Agreement shall
not be considered a Material Adverse Effect with respect to Wavefront, if (i)
such decline can most reasonably be directly attributable to (a) a decrease in
sales associated with customers delaying orders or purchases pending completion
of the Merger and the Arrangement or (b) a significant price reduction by any
major competitor of Wavefront, (ii) Wavefront has complied with its obligations
to conduct its business in conformity with the provisions described under "--
Business of Wavefront Pending the Merger" and (iii) Wavefront has continued to
develop, market, supply and service its products in accordance with past
practice.

If all conditions to the Merger are met or waived except the consummation of
the Arrangement, SGI and Wavefront may mutually agree to consummate the Merger
even though the Arrangement between SGI and Alias has not occurred or has been
terminated. If such an agreement is reached after approval of the Merger by the
holders of Wavefront Common Stock, then Wavefront intends to resolicit its
shareholders

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prior to consummation of the Merger. In addition, a condition to the
consummation of the Arrangement is the consummation of the Merger. In the event
all other conditions of the Arrangement are met or waived, SGI and Alias may
mutually agree to consummate the Arrangement even though the Merger between SGI
and Wavefront has not occurred or has been terminated. See "--Termination;
Amendment" and "--Fees and Expenses."

TERMINATION; AMENDMENT

The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the shareholders of
Wavefront, under the circumstances specified therein, including (i) by mutual
written agreement of SGI and Wavefront; (ii) by either SGI or Wavefront, if the
Merger shall not have been consummated by August 31, 1995 and if the
terminating party has not caused the failure of the Merger to be consummated by
its own failure to fulfill any of its obligations under the Merger Agreement;
(iii) by either SGI or Wavefront if a court or a governmental agency shall have
issued a non-appealable final order, decree, ruling or any other action
permanently prohibiting the Merger; (iv) by either SGI or Wavefront, if the
shareholders of Wavefront fail to approve the Merger Agreement; (v) by SGI if
the Wavefront Board has withdrawn or changed its recommendation of the Merger
or the Merger Agreement in a manner adverse to SGI, or has taken a "neutral"
position with respect to an alternative proposal by a third party for (a) the
acquisition of more than 50% of the outstanding shares of Wavefront, whether
from Wavefront or pursuant to a tender offer or exchange offer, (b) a business
combination involving Wavefront pursuant to which any third party acquires more
than 50% of the outstanding equity securities of Wavefront or the entity
surviving such business combination or (c) any other transaction pursuant to
which any third party acquires control of assets of Wavefront and its
subsidiaries having a fair market value equal to more than 50% of the fair
market value of all the assets of Wavefront and its subsidiaries, taken as a
whole, immediately prior to such transaction (any of the above transactions
shall constitute an "Alternative Transaction", and any of the above
transactions with regard to Alias shall constitute an "Alias Alternative
Transaction"); (vi) by SGI or Wavefront if the Wavefront Board has resolved to
accept a proposal from a third party that would result in a transaction more
favorable to Wavefront's shareholders than the Merger; (vii) by either SGI or
Wavefront, in the event of a breach by the other party of any representation or
warranty, or failure to perform any covenant, term or provision of the Merger
Agreement, in each case that would have a Material Adverse Effect on such party
or result in a failure to comply in any material respect with the Merger
Agreement (provided that if such breach or failure to perform is curable prior
to the expiration of 30 days from its occurrence (but in no event later than
August 31, 1995) neither SGI nor Wavefront may terminate the Merger Agreement
on this basis as long as the other party continues to exercise reasonable
efforts to cure such breach or failure unless such 30 day period expires
without such breach having been cured); (viii) by Wavefront, at any time after
the tenth business day following termination of the Arrangement; and (ix) by
SGI, at any time after the tenth business day following termination of the
Arrangement.

The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; provided, however,
that, after approval of the Merger by the shareholders of Wavefront, no
amendment may be made which by law requires further approval of such
shareholders, without such further approval; provided, further, that, prior to
the Effective Time, SGI may, by an instrument signed only by SGI, amend the
Merger Agreement to cause the Merger to be effected as a forward merger of
Wavefront with and into SGI.

FEES AND EXPENSES

Except as described herein, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses, whether or not the Merger is consummated.

Wavefront has agreed to pay SGI a fee of $6,000,000 if the Merger Agreement
is terminated because (i) the Wavefront Board has withdrawn or changed its
recommendation of the Merger Agreement or the Merger in a manner adverse to SGI
or taken a "neutral" position with respect to an Alternative Transaction,

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(ii) Wavefront has willfully and materially breached a representation,
warranty, covenant or agreement such that (A) such breach of representation or
warranty would have a Material Adverse Effect on Wavefront or (B) such breach
of covenant or agreement would result in the failure by Wavefront to comply in
all material respects with all agreements and covenants required under the
Merger Agreement, (iii) if the Wavefront Board has resolved to accept a third
party proposal which the Wavefront Board determines in good faith would result
in a transaction more favorable to Wavefront's shareholders, or (iv)
Wavefront's shareholders fail to approve the Merger if, at the time of the
termination, an Alternative Transaction was outstanding or a proxy statement
recommending such Alternative Transaction was published or sent to Wavefront
shareholders and such Alternative Transaction is closed within twelve months of
such termination.

Wavefront has agreed to pay SGI a fee of $5,000,000 if Wavefront terminates
the Merger Agreement following the termination of the Arrangement; provided,
that this fee shall not be payable unless (i) the Arrangement has been
terminated as a result of a third party having engaged in an Alias Alternative
Transaction with Alias, (ii) on or prior to the tenth business day following
termination of the Acquisition Agreement SGI has waived in writing the
condition to the Merger Agreement requiring consummation of the Arrangement,
and (iii) during such period Wavefront has failed to deliver a similar written
waiver.

SGI has agreed to pay Wavefront a fee of $5,000,000 if SGI terminates the
Merger Agreement following the termination of the Arrangement; provided, that
this fee shall not be payable unless (i) the Arrangement has been terminated as
a result of a third party having engaged in an Alias Alternative Transaction
with Alias, (ii) on or prior to the tenth business day following termination of
the Acquisition Agreement Wavefront has waived in writing the condition to the
Merger Agreement requiring consummation of the Arrangement, and (iii) during
such period SGI has failed to deliver a similar written waiver.

However, these fees will not be payable if the party to whom the fee would be
due was in material breach of its obligations under the Merger Agreement
immediately prior to the termination of the Agreement.

CONFIDENTIALITY AGREEMENT

SGI and Wavefront each has agreed to keep confidential, pursuant to the
confidentiality agreement dated January 19, 1995, (the "Confidentiality
Agreement"), information provided to the other party with respect to the
business, properties and personnel of the party furnishing such information.
The Confidentiality Agreement contains terms restricting the disclosure and use
of confidential information exchanged between the two parties in evaluating the
Merger and otherwise.

In addition, the Confidentiality Agreement provides that until the earlier of
six months after the date of a notice of termination of the Confidentiality
Agreement or January 19, 1996, each party and its affiliates will not (and each
party and its affiliates will not assist or encourage others to), directly or
indirectly, unless specifically requested to do so in writing by the other
party's Board of Directors: (a) acquire or agree, offer, seek or propose to
acquire or cause to be acquired, ownership of any of the other party's assets
or businesses or any voting securities issued by the other party, or any rights
or options to acquire such ownership, including from a third party; (b) make,
or in any way participate in, any solicitation of proxies or consents with
respect to any securities of the other party which are, or may be, entitled to
vote in the election of the other party's directors ("Voting Securities"),
become a "participant" in any "election contest" (as such terms are defined in
the Exchange Act) with respect to the other party; or seek to advise, encourage
or influence any person or entity with respect to the voting of any Voting
Securities; or demand a copy of the other party's stock ledger, list of
stockholders or other books and records; or call or attempt to call any meeting
of the stockholders of the other party; or (c) enter into any discussions,
negotiations, arrangements or understandings with any third party (other than
Alias) with respect to any of the matters described in (a) or (b) above;
provided, however, that the foregoing restrictions shall not apply if (i)
another person or entity (including Wavefront) shall have commenced a tender or
exchange offer for more than 40% of such party's securities or (ii) another
person or entity or Wavefront has made public disclosure of a transaction to
acquire more than 40% of the securities of such party.

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AGREEMENTS OF WAVEFRONT AFFILIATES

Rule 145 promulgated under the Securities Act regulates the disposition of
securities of "affiliates" of Wavefront in connection with the Merger.
Wavefront has delivered to SGI a letter (the "Affiliate Letter") identifying
all persons who are or may be deemed to be, at the time of the Special Meeting,
"affiliates" of Wavefront for purposes of Rule 145 under the Securities Act.
Such Affiliate Letter may be further updated prior to the Effective Time.
Wavefront has also agreed to use its best efforts to cause each person (an
"Affiliate") who is identified as an Affiliate in the Affiliate Letter to
deliver to SGI, prior to the Effective Time, a written agreement (an "Affiliate
Agreement"). Under such Affiliate Agreements, every Affiliate will represent
that he or she has been advised that the Affiliate may not sell, transfer or
otherwise dispose of SGI Common Stock issued to the Affiliate in the Merger
unless such sale, transfer or other disposition (i) has been registered under
the Securities Act, (ii) is made in compliance with the requirements of Rule
145 under the Securities Act, or (iii) in the opinion of counsel reasonably
acceptable to SGI, is otherwise exempt from registration under the Securities
Act.

In addition, all executive officers and directors of Wavefront have confirmed
that they intend to vote their respective shares of Wavefront Common Stock in
favor of the Merger. They have also agreed to restrict sales of such shares
prior to and following the Merger to comply with the requirements of pooling-
of-interests accounting treatment.

THE ARRANGEMENT AND THE ACQUISITION AGREEMENT

GENERAL

Upon consummation of the Arrangement, Alias shareholders (other than
dissenting Alias shareholders) will receive, depending upon the election of the
Alias shareholder and the effects of proration, that number of shares of either
SGI Common Stock or Exchangeable Shares equal to the Alias Exchange Ratio in
exchange for each of their shares of Alias Common Stock. The Exchangeable
Shares provide a holder with a security of New Alias having liquidation,
dividend and voting rights which are functionally equivalent to those of SGI
Common Stock. Exchangeable Shares generally may be received on a tax-deferred
rollover basis for Canadian residents.

The Acquisition Agreement provides that the Merger and the Arrangement be
consummated substantially contemporaneously. Pursuant to the Arrangement, Alias
will be amalgamated with two subsidiaries of SGI to form New Alias. Each share
of Alias Common Stock in respect of which the holder has made no election will
be exchanged for that number of shares of SGI Common Stock equal to the Alias
Exchange Ratio. Each share of Alias Common Stock in respect of which the holder
has elected to receive Exchangeable Shares will be converted into that number
of Exchangeable Shares equal to the Alias Exchange Ratio, subject to the number
of electing shares of Alias Common Stock not exceeding 49% of the number of
shares of Alias Common Stock outstanding immediately prior to the Arrangement.

The Exchangeable Shares will be exchangeable at any time at the option of the
holder, and will be exchangeable upon the occurrence of certain events,
including the liquidation, dissolution or winding-up of SGI or New Alias, for
(i) one share of SGI Common Stock, plus (ii) the sum of the amount of any
declared and unpaid dividends on each such Exchangeable Share and the amount of
dividends declared on SGI Common Stock that have not been declared on such
Exchangeable Share in accordance with the terms of the Exchangeable Shares, per
Exchangeable Share. Dividends will be payable on the Exchangeable Shares at the
same time and in the same amount per share as dividends on the SGI Common
Stock.

Pursuant to a voting and exchange trust agreement, SGI will issue to a
Canadian trust company, as trustee (the "Trustee"), for the benefit of the
holders of the Exchangeable Shares, one share of Series E Preferred Stock, par
value $.001 per share, of SGI. The Trustee will be entitled at SGI stockholder
meetings to that number of votes equal to the number of votes that the
Exchangeable Shares outstanding at such time not owned by SGI or any entity
controlled by SGI would be entitled to on a fully exchanged basis. These voting
rights will be exercised by the Trustee only on instructions received from time
to time from the holders of the Exchangeable Shares other than SGI and entities
controlled by SGI.

36
<PAGE>

THE ACQUISITION AGREEMENT AND RELATED AGREEMENTS.

The provisions of the Acquisition Agreement are substantially similar to
those of the Merger Agreement with certain exceptions such as the difference
between the Exchange Ratio and the Alias Exchange Ratio and technical
provisions related to the mechanics of the Arrangement attributable to
differences in Canadian corporate and tax law, including the availability of
Exchangeable Shares in addition to SGI Common Stock. For example, (i) the
representations and warranties and covenants of each of SGI and Alias in the
Acquisition Agreement are substantially similar to those of SGI and Wavefront,
respectively, in the Merger Agreement; (ii) the treatment of outstanding Alias
stock options and of the Alias employee stock purchase plan pursuant to the
Acquisition Agreement is identical to that of the Wavefront Options and the
Purchase Plan pursuant to the Merger Agreement (although the Alias stock
options will, by their terms, all accelerate as a result of the Arrangement);
(iii) the respective conditions to SGI's and Alias' obligation to close the
Arrangement pursuant to the Acquisition Agreement are identical (other than
certain technical differences due to Alias being a Canadian corporation and the
obligation to close the Arrangement being conditioned on the consummation of
the Merger) to those of SGI and Wavefront pursuant to the Merger Agreement and
include, without limitation, receipt by SGI and Alias of opinions from Ernst &
Young LLP and KPMG Peat Marwick Thorne, the independent auditors of SGI and
Alias, respectively, to the effect that pooling of interests accounting
treatment is appropriate for the Arrangement; and (iv) the termination events
and circumstances under which termination fees are payable pursuant to the
Acquisition Agreement are identical to those pursuant to the Merger Agreement
(although a $10,000,000 rather than $6,000,000 fee is payable by Alias under
the circumstances analogous to those set forth in the second paragraph of "The
Merger Agreement and Related Agreements--Fees and Expenses"). SGI does not
intend to waive the condition related to its receipt of pooling of interests
opinions.

Alias has agreed to use its best efforts to cause each affiliate of Alias to
deliver to SGI, prior to the Effective Date, an Affiliate Agreement with the
same terms as those agreements to be delivered by Affiliates of Wavefront.

SGI AND WAVEFRONT

PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)

The following unaudited pro forma combined condensed financial statements
give effect to the Merger of SGI and Wavefront on a pooling of interests basis.
The pro forma combined condensed balance sheet assumes the Merger took place on
December 31, 1994 and combines SGI's unaudited condensed consolidated balance
sheet with Wavefront's historical condensed consolidated balance sheet at that
date. The pro forma combined condensed statements of operations assume that the
Merger took place as of the beginning of each of the periods presented and
combine SGI's historical condensed consolidated statements of operations for
each of the three years in the period ended June 30, 1994 and SGI's unaudited
condensed consolidated statements of operations for the six months ended
December 31, 1994 and 1993 with the unaudited condensed consolidated statements
of operations of Wavefront for each of the three twelve-month periods in the
period ended June 30, 1994 and the unaudited condensed consolidated statements
of operations of Wavefront for the six months ended December 31, 1994 and 1993,
respectively. SGI has not yet determined which periods will be combined for
inclusion in its audited consolidated statement of operations after the Merger.

The pro forma combined condensed statements of operations are not necessarily
indicative of operating results which would have been achieved had the Merger
been consummated as of the beginning of such periods and should not be
construed as representative of future operations.

These pro forma combined condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of SGI and Wavefront which are incorporated in or included elsewhere in
this Proxy Statement/Prospectus.

37
<PAGE>

SGI AND WAVEFRONT PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SGI WAVEFRONT
DECEMBER 31, DECEMBER 31, PRO FORMA
1994 1994 ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents..... $ 348,202 $ 18,579 $ 366,781
Short-term investments...... 229,657 1,747 231,404
---------- -------- -------- ----------
Total cash and short-term
investments.............. 577,859 20,326 598,185
Accounts receivable, net.... 481,167 6,520 487,687
Inventories................. 202,798 119 202,917
Prepaid expenses and other
current assets............. 72,197 1,449 73,646
---------- -------- -------- ----------
Total current assets...... 1,334,021 28,414 1,362,435
Long-term financial
instruments.................. 113,244 -- 113,244
Property and equipment, net... 200,256 1,883 202,139
Other assets.................. 146,912 2,419 149,331
---------- -------- -------- ----------
$1,794,433 $ 32,716 -- $1,827,149
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable............ $ 144,760 $ 2,794 $ 147,554
Accrued compensation........ 53,189 1,874 55,063
Income taxes payable........ 71,956 262 72,218
Other accrued liabilities
(note 8)................... 92,248 1,864 30,000 124,112
Long-term debt due within
one year................... 28,023 2,046 30,069
Deferred revenue............ 75,763 3,524 79,287
---------- -------- -------- ----------
Total current liabilities. 465,939 12,364 30,000 508,303
Long-term debt and other...... 280,603 -- 280,603
Stockholders' Equity:
Preferred stock............. 33,996 2,467 36,463
Common stock (note 3)....... 143 31,011 (31,007) 147
Additional paid-in capital
(note 3)................... 713,163 -- 31,007 744,170
Retained earnings
(accumulated deficit) (note
8)......................... 291,183 (12,970) (30,000) 248,213
Accumulated translation
adjustment................. 9,406 (156) 9,250
---------- -------- -------- ----------
Total stockholders'
equity................... 1,047,891 20,352 (30,000) 1,038,243
---------- -------- -------- ----------
$1,794,433 $ 32,716 $ -- $1,827,149
========== ======== ======== ==========
</TABLE>

See Accompanying Notes to Pro Forma Combined Condensed Financial Statements

38
<PAGE>

SGI AND WAVEFRONT PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- ------------------
1994 1993 1992 1994 1993
---------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue................ $1,505,787 $1,105,862 $ 880,075 $965,615 $682,729
Cost and expenses:
Cost of goods sold....... 724,056 520,945 428,120 453,275 329,346
Research and development. 187,432 139,281 130,573 113,261 89,044
Selling, general and
administrative.......... 403,384 318,762 297,994 257,491 184,806
Merger-related expenses . -- -- 110,000 -- --
Restructuring costs...... -- -- 25,123 -- --
---------- ---------- --------- -------- --------
Total costs and
expenses.............. 1,314,872 978,988 991,810 824,027 603,196
---------- ---------- --------- -------- --------
Operating income (loss).... 190,915 126,874 (111,735) 141,588 79,533
Interest and other, net.... 4,532 278 6,119 (2,218) 2,130
---------- ---------- --------- -------- --------
Income (loss) before taxes. 195,447 127,152 (105,616) 139,370 81,663
Provision for income taxes
(note 9).................. 57,180 37,655 (24,525) 41,195 23,376
---------- ---------- --------- -------- --------
Net income (loss).......... 138,267 89,497 (81,091) 98,175 58,287
Preferred stock dividend
requirement............... 230 696 6,310 93 123
---------- ---------- --------- -------- --------
Net income (loss) available
to common stockholders.... $ 138,037 $ 88,801 $ (87,401) $ 98,082 $ 58,164
========== ========== ========= ======== ========
Net income (loss) per
common share
(note 10)................. $ 0.88 $ 0.60 $ (0.76) $ 0.61 $ 0.37
========== ========== ========= ======== ========
Shares used to compute
earnings per share........ 157,187 148,085 114,362 161,824 155,262
========== ========== ========= ======== ========
</TABLE>

See Accompanying Notes to Pro Forma Combined Condensed Financial Statements

39
<PAGE>

SGI AND WAVEFRONT

NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. The pro forma combined condensed financial statements reflect the issuance
of up to 4,123,576 shares of SGI Common Stock for an aggregate of up to
8,415,462 shares of Wavefront Common Stock (based on shares of Wavefront Common
Stock outstanding (giving effect to the conversion of all outstanding Wavefront
preferred stock) as of December 31, 1994) in connection with the Merger based
upon an Exchange Ratio of 0.49 shares of SGI Common Stock for each share of
Wavefront Common Stock. The actual number of shares of SGI Common Stock to be
issued will be determined at the Effective Time of the Merger based on the
Exchange Ratio and the number of shares of Wavefront Common Stock then
outstanding.

2. On a combined basis, there were no material transactions between SGI and
Wavefront during any period presented.

3. Adjustment relates to reflection of Wavefront as a Delaware corporation
and recognition as additional paid-in capital amounts in excess of the par
value of $0.001 per share of SGI Common Stock.

4. There are no material differences between the accounting policies of SGI
and Wavefront.

5. In September 1993, Wavefront acquired all of the outstanding stock of TDI.
The transaction was accounted for under the purchase method of accounting and
the accompanying pro forma combined condensed statement of operations for
fiscal 1994 includes the results of TDI from the acquisition date. The fiscal
1994 results also include a charge of approximately $5.2 million for research
in process purchased in connection with the acquisition.

6. In fiscal 1992, SGI merged with MIPS in a transaction accounted for as a
pooling of interests. Included in the accompanying pro forma combined condensed
statement of operations for fiscal 1992 are merger-related expenses of $110
million, consisting primarily of charges for elimination of duplicative
facilities, discontinuance of duplicate product lines and related supporting
assets, professional fees and personnel severance costs.

8. It is expected that following the Transactions, SGI will incur a
substantial charge to operations, currently estimated to be in the range of $30
million to $35 million, to reflect the combination of SGI, Wavefront and Alias,
including the elimination of duplicative facilities, severance costs relating
to the termination of certain employees, the write-off of certain intangibles,
property and equipment and transaction costs. This range is management's best
current estimate of the full charge for the combination. It is expected that a
significant portion of such amounts will be charged to operations in the period
in which the Transactions are consummated. For pro forma purposes, a reduction
to retained earnings of $30 million and an increase to other accrued
liabilities of $30 million to reflect the combination of SGI and Wavefront has
been recorded in the pro forma combined condensed balance sheet.

9. The pro forma combined provisions for income taxes do not represent the
amounts that would have resulted had SGI and Wavefront filed consolidated
income tax returns during the periods presented. Upon consummation of the
Merger, any unrecognized future deductible temporary differences will be
evaluated on a quarterly basis based upon the income tax attributes of the
combined company.

10. Income (loss) per share is computed after taking into consideration the
dilutive effect of convertible preferred stock and stock options.

40
<PAGE>

SGI, WAVEFRONT AND ALIAS

PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)

The following unaudited pro forma combined condensed financial statements
give effect to the combination of SGI, Wavefront and Alias on a pooling of
interests basis. The pro forma combined condensed balance sheet assumes the
Transactions took place on December 31, 1994 and combines SGI's unaudited
condensed consolidated balance sheet and Wavefront's historical condensed
consolidated balance sheet at that date with the historical condensed
consolidated balance sheet of Alias at January 31, 1995. The pro forma combined
condensed statements of operations assume that the Transactions took place as
of the beginning of each of the periods presented and combine SGI's historical
condensed consolidated statements of operations for each of the three years in
the period ended June 30, 1994 with Wavefront's unaudited condensed
consolidated statements of operations for each of the three twelve-month
periods in the period ended June 30, 1994 and the unaudited condensed
consolidated statements of operations of Alias for each of the three twelve-
month periods in the period ended July 31, 1994. The pro forma combined
condensed statements of operations also combine SGI's and Wavefront's unaudited
condensed consolidated statements of operations for the six months ended
December 31, 1994 and 1993 with the unaudited condensed consolidated statements
of operations of Alias for the six months ended January 31, 1995 and 1994,
respectively. SGI has not yet determined which periods will be combined for
inclusion in its audited consolidated statement of operations after the
Transactions.

The pro forma combined condensed statements of operations are not necessarily
indicative of operating results which would have been achieved had the
Transactions been consummated as of the beginning of such periods and should
not be construed as representative of future operations.

These pro forma combined condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of SGI, Wavefront and Alias which are incorporated in or included
elsewhere in this Proxy Statement/Prospectus.

41
<PAGE>

SGI, WAVEFRONT AND ALIAS PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SGI WAVEFRONT ALIAS
DECEMBER 31, DECEMBER 31, JANUARY 31, PRO FORMA
1994 1994 1995 ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 348,202 $ 18,579 $ 54,211 $ 420,992
Short-term
investments.......... 229,657 1,747 -- 231,404
---------- -------- -------- -------- ----------
Total cash and
short-term
investments........ 577,859 20,326 54,211 652,396
Accounts receivable,
net.................. 481,167 6,520 9,771 497,458
Inventories........... 202,798 119 523 203,440
Prepaid expenses and
other current assets. 72,197 1,449 981 74,627
---------- -------- -------- -------- ----------
Total current
assets............. 1,334,021 28,414 65,486 1,427,921
Long-term financial
instruments............ 113,244 -- -- 113,244
Property and equipment,
net.................... 200,256 1,883 6,869 209,008
Other assets............ 146,912 2,419 1,669 151,000
---------- -------- -------- -------- ----------
$1,794,433 $ 32,716 $ 74,024 $1,901,173
========== ======== ======== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...... $ 144,760 $ 2,794 $ 10,117 $ 157,671
Accrued compensation.. 53,189 1,874 -- 55,063
Income taxes payable.. 71,956 262 1,643 73,861
Other accrued
liabilities (note 9). 92,248 1,864 -- 35,000 129,112
Long-term debt due
within one year...... 28,023 2,046 -- 30,069
Deferred revenue...... 75,763 3,524 4,629 83,916
---------- -------- -------- -------- ----------
Total current
liabilities........ 465,939 12,364 16,389 35,000 529,692
Long-term debt and
other.................. 280,603 -- -- 280,603
Stockholders' Equity:
Preferred stock....... 33,996 2,467 -- 36,463
Common stock (note 3). 143 31,011 74,084 (105,081) 157
Additional paid-in
capital (note 3)..... 713,163 -- -- 105,081 818,244
Retained earnings
(accumulated deficit)
(note 9)............. 291,183 (12,970) (16,449) (35,000) 226,764
Accumulated
translation
adjustment........... 9,406 (156) -- 9,250
---------- -------- -------- -------- ----------
Total stockholders'
equity............. 1,047,891 20,352 57,635 (35,000) 1,090,878
---------- -------- -------- -------- ----------
$1,794,433 $ 32,716 $ 74,024 -- $1,901,173
========== ======== ======== ======== ==========
</TABLE>

See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.

42
<PAGE>

SGI, WAVEFRONT AND ALIAS PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------- ------------------
1994 1993 1992 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue.............. $1,551,582 $1,135,583 $ 905,492 $998,074 $705,801
Cost and expenses:
Cost of goods sold..... 739,872 530,254 436,674 463,371 337,768
Research and
development........... 192,694 144,010 137,406 117,071 91,440
Selling, general and
administrative........ 422,212 338,890 326,796 269,219 194,048
Merger-related expenses
...................... -- -- 110,000 -- --
Restructuring costs.... -- 650 28,322 -- --
---------- ---------- ---------- -------- --------
Total costs and
expenses............ 1,354,778 1,013,804 1,039,198 849,661 623,256
---------- ---------- ---------- -------- --------
Operating income (loss)
from continuing
operations.............. 196,804 121,779 (133,706) 148,413 82,545
Interest and other, net.. 5,131 445 6,094 (1,044) 2,226
---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations
before taxes............ 201,935 122,224 (127,612) 147,369 84,771
Provision for income
taxes (note 10)......... 57,550 37,696 (27,298) 42,430 23,426
---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations... 144,385 84,528 (100,314) 104,939 61,345
Loss from discontinued
operations.............. -- (7,890) (1,167) -- --
---------- ---------- ---------- -------- --------
Net income (loss)........ 144,385 76,638 (101,481) 104,939 61,345
Preferred stock dividend
requirement............. 230 696 6,310 93 123
---------- ---------- ---------- -------- --------
Net income (loss)
available to common
stockholders............ $ 144,155 $ 75,942 $ (107,791) $104,846 $ 61,222
========== ========== ========== ======== ========
Net income (loss) per
common share
(note 11)............... $ 0.87 $ 0.49 $ (0.90) $ 0.61 $ 0.37
========== ========== ========== ======== ========
Shares used to compute
earnings per share...... 166,210 155,539 120,397 172,902 163,975
========== ========== ========== ======== ========
</TABLE>

See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.

43
<PAGE>

SGI, WAVEFRONT AND ALIAS

NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. The pro forma combined condensed financial statements reflect the issuance
of up to 13,989,754 shares of SGI Common Stock (inclusive of any Exchangeable
Shares issued in the Arrangement, which will be accounted for as SGI Common
Stock equivalents) for an aggregate of up to 8,415,462 shares of Wavefront
Common Stock (based on shares of Wavefront Common Stock outstanding (giving
effect to the conversion of all outstanding Wavefront preferred stock) as of
December 31, 1994 and an aggregate of up to 10,962,420 shares of Alias Common
Stock (based on shares of Alias Common Stock outstanding as of January 31,
1995) in connection with the Transactions based upon an Exchange Ratio of 0.49
shares of SGI Common Stock for each share of Wavefront Common Stock and 0.90
shares of SGI Common Stock or Exchangeable Shares for each share of Alias
Common Stock. The actual number of shares of SGI Common Stock and Exchangeable
Shares to be issued will be determined at the effective time of the
Transactions based on the Exchange Ratio and the Alias Exchange Ratio and the
number of shares of Wavefront Common Stock and Alias Common Stock,
respectively, then outstanding.

The fiscal years presented in the pro forma combined statements of operations
represent SGI's fiscal years ended June 30, 1994, 1993 and 1992 and Wavefront's
three twelve-month periods ended June 30, 1994, 1993 and 1992 combined with
Alias' three twelve-month periods ended July 31, 1994, 1993 and 1992,
respectively. SGI's and Wavefront's six months ended December 31, 1994 and 1993
have been combined with Alias' six month periods ended January 31, 1995 and
1994, respectively.

2. On a combined basis, there were no material transactions among SGI,
Wavefront and Alias during any period presented.

3. Adjustment relates to reflection of Wavefront and Alias as Delaware
corporations and recognition as additional paid-in capital amounts in excess of
the par value of $0.001 per share of SGI Common Stock.

4. The financial data for Alias, a Canadian company, are prepared in
accordance with GAAP for inclusion in the pro forma combined condensed
financial statements. Differences between Alias GAAP financial data and that
prepared in accordance with Canadian GAAP are not significant.

There are no material differences between the accounting policies of SGI,
Wavefront and Alias.

5. In September 1993, Wavefront acquired all of the outstanding stock of a
French corporation, TDI. The transaction was accounted for under the purchase
method of accounting and the accompanying pro forma combined condensed
statement of operations for fiscal 1994 includes the results of TDI from the
acquisition date. The fiscal 1994 results also include a charge of
approximately $5.2 million for research in process purchased in connection with
the acquisition.

7. In fiscal 1992 prior to its merger with SGI, MIPS recorded a restructuring
charge of approximately $23.4 million as a result of aligning programs and
projects to focus on its Advanced Computing Environment initiative and as a
result of lowering its cost structure. Also in fiscal 1992, Wavefront recorded
a restructuring charge of approximately $1.7 million to terminate its efforts
related to an OEM product, reorganize management and close certain locations.
In fiscal 1992, Alias recorded a restructuring charge of approximately $3.2
million relating to employee severance and terminations, office closures,
reorganizations and the costs of a withdrawn public offering.

44
<PAGE>

8. The accompanying pro forma combined condensed statements of operations
reflect the loss on operations and the loss on discontinuance of the Sonata
Product Division as loss on discontinued operations of approximately $7.9
million and $1.2 million in the twelve months ended July 31, 1993 and July 31,
1992, respectively.

9. It is expected that following the Transactions, SGI will incur a
substantial charge to operations, currently estimated to be in the range of $30
million to $35 million, to reflect the combination of SGI, Wavefront and Alias,
including the elimination of duplicative facilities, severance costs relating
to the termination of certain employees, the write-off of certain intangibles,
property and equipment and transaction costs. This range is management's best
current estimate of the full charge for the combination. It is expected that a
significant portion of such amounts will be charged to operations in the period
in which the Transactions are consummated. For pro forma purposes, a reduction
to retained earnings of $35 million and an increase to other accrued
liabilities of $35 million to reflect the combination of SGI, Wavefront and
Alias has been recorded in the pro forma combined condensed balance sheet.

10. The pro forma combined provisions for income taxes do not represent the
amounts that would have resulted had SGI, Wavefront and Alias filed
consolidated income tax returns during the periods presented. Upon consummation
of the Transactions, any unrecognized future deductible temporary differences
will be evaluated on a quarterly basis based upon the income tax attributes of
the combined company.

11. Income (loss) per share is computed after taking into consideration the
dilutive effect of convertible preferred stock and stock options.

45
<PAGE>

WAVEFRONT TECHNOLOGIES, INC.

GENERAL

Wavefront develops, markets and supports a line of workstation-based 3D and
2D computer graphics imaging and animation software products for professional
users in the entertainment and industrial design industries. Substantially all
of Wavefront's products are designed to operate on SGI workstations.
Wavefront's entertainment customers use its software to create images and
special effects for movies, television programming, advertising and electronic
and CD-ROM games. Industrial customers use Wavefront's visualization software
to create images for enhancing and marketing products through visualization of
design appearance and function, presentation of complex project concepts and
illustration of engineering or scientific phenomena that would otherwise be
difficult to understand. Wavefront's software was used in the production
(including special effects, scene planning, motion creation, character
animation and image layering) of recent films including Clear and Present
Danger, Drop Zone, Speed, Stargate, Star Trek Generations and True Lies.
Wavefront's software was also used to create advertisements for Budweiser's Bud
Bowl Series, logos for NBA and NFL program introductions and visuals for theme
park attractions.

In 1985 Wavefront shipped its first packaged animation software product which
was designed for the SGI line of workstations. Early users of this software
included NBC, Walt Disney Pictures & Television and NASA. Wavefront continued
to advance its technology by taking advantage of industry developments, such as
the proliferation of RISC-based workstations, to provide more sophisticated
products to end users. In mid-1993, Wavefront brought to market DYNAMATION(TM),
the first of its physically-based animation software products which enables the
user to create motion in accordance with the physical laws of nature. In late
1993, Wavefront launched KINEMATION(TM), its second physically-based animation
solution, which enables the creation of lifelike character movement, including
3D skeleton, skin and muscle control. In September 1993, Wavefront acquired
TDI, a division of Thomson SA, to broaden its product line and increase its
penetration of international markets. Wavefront introduced its entry-level
GAMEWARE(TM) package in January 1994 to address the specific needs of the
developers of electronic games and other multimedia applications in interactive
media markets.

Wavefront's product line includes two core animation systems and a set of
interoperable special purpose product modules. From these components Wavefront
packages industry-specific solutions which address specific steps of the
computer graphics imaging process. By delivering innovative, and market
specific computer graphics software packages, Wavefront enables professional
users to generate images that meet their individual needs more quickly and at
reduced cost. Wavefront's products enable customers to focus on the creative
process rather than on the technical aspects of digital image creation.
Wavefront believes its modular and open architecture development approach
allows it to bring innovative technology to market rapidly. This development
approach also permits users to customize Wavefront's products or use them on a
stand-alone basis or with other computer graphics products. Wavefront is
committed to meeting the needs of its customers by making its products more
accessible, or easier to use, while simultaneously increasing the depth of
functionality available to the experienced user.

Wavefront believes that trends in software, hardware, and communications
technology provide strong growth opportunities for its products in both the
entertainment and industrial design industries. These trends include the
expanded programming needs of television, the growth of digital film and video
production techniques, the emergence of interactive media applications such as
electronic games and multimedia titles spurred in part by the rapid
proliferation of CD-ROM devices, and the growing opportunity to bring products
to market more rapidly by visualizing proposed designs without the need to
create physical prototypes.

Worldwide Wavefront has more than 4,000 active licenses at over 1,600
companies and educational institutions. Wavefront's customers include CBS, NBC,
Sony, Walt Disney Pictures & Television, Warner Brothers, Boeing, Ford Motor
Company, Hyundai, Kodak, Lockheed Martin, McDonnell Douglas, NASA,

46
<PAGE>

Renault and Rubbermaid, each of which are active users of its products and (i)
have a significant number of licenses or (ii) depend on Wavefront products to a
large extent in their business. Wavefront sells its products through its sales
force, systems integrators, dealers and distributors. Its animation systems
range in price from $5,000 to $60,000. See "--Business."

BUSINESS

PRODUCT AND INDUSTRY BACKGROUND. Advanced computer graphics technology allows
users to create images using 3D and 2D techniques. 3D computer graphics
technology allows users to create highly realistic digital images and animation
using detailed 3D models or objects. The 3D objects are given shape, color and
texture, and then arranged into a scene. Objects can be moved within the scene
and viewed from any perspective. A user can select the perspective, as if
viewing the scene through a camera, that makes the best presentation and then
create a 2D image that accurately represents the 3D objects from the desired
perspective.

While industrial and entertainment customers have certain unique,
application-specific requirements, the process of creating computer graphics
images is similar for users in both segments. It is generally comprised of the
following steps:

[MODEL ILLUSTRATING THE COMPUTER GENERATED IMAGING PROCESS APPEARS HERE
DESCRIBING THE 3D INTERACTIVE PROCESS, CONSISTING OF DATA IMPORT -- MODELING --
ANIMATION, FOLLOWED BY THE 2D INTERACTIVE PROCESS CONSISTING OF RENDERING --
COMPOSITION -- OUTPUT.]

. Data Import and Modeling. The first step in creating an image is to build
or "model" geometric objects by defining their shapes in three dimensions
(height, width and depth). These geometric objects may be constructed
within the computer graphics imaging system itself or, in industrial
visualization applications, may be imported from other geometry creation
systems such as Computer Aided Drafting ("CAD"), Computer Aided
Industrial Design ("CAID") or Finite Element Modeling ("FEM") systems.

. Animation. The geometric objects are then arranged in a scene and
animated in three dimensions to create a motion sequence. Animation
involves the definition of object parameters (such as position and size)
and camera parameters (such as position, orientation and focal length)
which vary over time. In most computer systems, animation is performed by
defining "key frames," which are the first and last positions of all
scene components (objects, cameras and lights) over a particular segment
of movement. The computer program then interpolates frames in between
these first and last positions, creating smooth movement automatically.
Each of these frames will ultimately become a single image viewed from
the perspective of the scene camera.

. Rendering. The rendering process marks the transition from 3D to 2D. In
this step, the details of realistic object appearance are calculated and
a digital image is created for each frame of the motion sequence. These
details include object color, texture, and shading, along with overall
scene parameters such as lighting, shadows, reflections, and atmospheric
effects such as fog or rain. A wide variety of rendering algorithms are
available which create varying levels of realism in the output images.
Rendering is a computationally intensive process and may take anywhere
from seconds to hours depending on the complexity of the scene and the
algorithms used.

. Composition. The composition process allows the user to manipulate
digital images in 2D. Individual images and sequences are often enhanced
and modified on a picture element (pixel) basis to achieve specific
effects, to remove or add detail, to enhance color aspects, and to create
spatial and color transitions between sequences of images. Additionally,
most final animations are assembled (composited) from multiple layers of
images.

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. Output. The output stage of the process is to transfer the final images
from the computer disk to other media such as video tape, film, digital
disk, CD-ROM or print.

Until the late 1980s, the high cost of specialty graphics and output
hardware necessary to create computer animation was a serious impediment to
the growth of the demand for computer graphics imaging and animation software.
Broadcast and film quality images require substantial processing power,
graphics capability and memory to create, manipulate and store. For many years
affordable, general purpose hardware platforms did not exist to support 3D
applications. While 2D imaging and animation software was available, it was
only supported on dedicated hardware which was expensive and could not be
easily upgraded or enhanced.

In addition to the problems caused historically by hardware limitations, the
demand for computer graphics imaging and animation products was limited by the
complexity of early software solutions. Users needed extensive technical,
system management, and even programming knowledge. As a result the viability
of the software as a mainstream production tool was limited.

Many of the hardware limitations were eliminated with the introduction
during the late 1980s of a generation of affordable and powerful RISC-based
workstations. These workstations provided the processing power, graphics
capability and memory needed to generate, manipulate, store and output high
quality computer generated images. At the same time computer graphics imaging
and animation software suppliers have refined and expanded their product
offerings, greatly increasing output quality and volume. This improvement in
price/performance has resulted in increased user productivity as well as
growth and diversification of demand.

Wavefront believes that trends in software, hardware, and communications
technology provide strong growth opportunities for its products in both the
entertainment and industrial segments. These trends include the expanded
programming needs of television, the growth of digital film and video
production techniques, the emergence of interactive media applications such as
electronic games and multimedia titles spurred in part by the rapid
proliferation of CD-ROM devices, and the growing opportunity to bring products
to market more rapidly by visualizing proposed designs without the need to
create physical prototypes.

As complex images for these applications are increasingly created with
computers, users seek software tools that are easy to use, but also have the
depth of features needed for sophisticated applications. In addition,
professional users seek software that provides imaging and animation tools
specific to their particular tasks. Creators of electronic games require
automated functions for reducing object and image complexity. Visualization
specialists demand software which can manage the full range of engineering
data types. Animators need sophisticated and efficient tools for creating
lifelike characters and realistic motion. More specialized technology will
continue to be needed to address the increasingly specific demands of users
and consumers not addressed by existing broad-based solutions. For all users,
the solution must be complete and integrated, allowing individuals as well as
large computer graphics production departments, to move fluidly through the
entire process of taking ideas to images.

WAVEFRONT SOLUTION. In response to these industry needs, Wavefront has
developed a complete line of workstation-based 3D and 2D computer graphics
imaging software for professional users. Wavefront's product line includes two
core animation systems and a set of interoperable special purpose product
modules. From these components, Wavefront packages industry-specific solutions
which address each step of the 3D and 2D computer graphics imaging process
from data creation to final output. Wavefront's products enable customers to
focus on the creative process rather than the technical aspects of digital
image creation. Wavefront believes its modular and open architecture
development approach allows it to bring innovative technology to market more
rapidly. This development approach also permits users to customize Wavefront's
products or use them on a stand alone basis or with other computer graphics
products. By delivering well integrated, innovative and industry-specific
computer graphics software packages, Wavefront enables professional users to
generate images that meet their individual needs more quickly and at reduced
cost. Wavefront is committed to meeting the needs of its customers by making
its products more accessible, or easier to use, while simultaneously
increasing the depth of functionality that is available to the experienced
user.

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WAVEFRONT STRATEGY. Wavefront is committed to continuing to develop, market
and sell comprehensive and advanced software for professional users to create
compelling imagery for communication, education and entertainment. Key elements
of Wavefront's strategy include:

. Offer Industry-Specific Image Creation Software. Wavefront focuses its
resources on providing computer graphics imaging and animation software
tailored to the specific needs of its entertainment and industrial
customers. While the process of creating images from ideas is similar in
these two industries, key feature and packaging requirements may be quite
different. By maintaining its open architecture, modular and diverse
image creation software technology base, Wavefront intends to deliver
specifically targeted solutions which are attractive in terms of time to
market, price and requisite functionality.

. Provide Software to Meet Professional Users' Needs. Wavefront provides
high quality computer graphics software to meet the needs of professional
customers. These customers require open systems, interoperability and
compatibility with leading graphics workstations such as those made by
SGI. Wavefront's line of products enables its customers to use Wavefront
software at each stage of the imaging and animation process.

. Deliver Innovative and Accessible Technology. In order to maintain and
expand its base of professional users, Wavefront is committed to an
ongoing program of rapid technological innovation. Wavefront believes
that the sophistication of its technology differentiates its products.
Wavefront is committed to optimizing the integration and accessibility,
or ease of use, of its products by developing common product attributes
and standardized user interfaces.

. Emphasize Local Focus within Global Business. Wavefront has established
seven regional business sales centers around the world which provide a
local presence for customer support, and increased market responsiveness.
Wavefront augments these offices with a network of distribution partners
in North America, Europe, the Middle East, South America, Australia and
Asia.

PRODUCTS. Wavefront has developed a family of products for professional users
to address each stage of the animation process. Wavefront offers two core
animation systems, a set of interoperable product modules, and system options
which supplement the data import and model construction as well as the display
and output stages of the computer graphics image creation process. From these
components Wavefront assembles and markets application specific product
bundles, which are tailored to the particular requirements of image creators in
its target entertainment and industrial customers. Wavefront's animation
systems range in list price from $5,000 to $60,000 with typical system
configurations ranging from $20,000 to $30,000. An animation system is
comprised of one or more of Wavefront's software products. When a customer
purchases a software product, the customer enters into a non-transferable, non-
exclusive software license agreement which sets forth the terms on which it is
entitled to use the product including the products licensed, usage limitations,
the term of the license and the royalties to be paid to Wavefront. The
following chart sets forth the 3D and 2D interactive processes and the stages
each product addresses.

[Model illustrating Wavefront Products and Interoperable Product Modules appears
here describing the 3D Interactive Process as consisting of Data Import
(products: Translators, Data Readers, Data Visualizers) -- Modeling (product: 3
Design) -- Animation (products: Visualizer, Explore, Dynamation, Kinemation) and
the 2D Interactive Process as consisting of Rendering (products: Visualizer,
Explore) -- Composition (products: Composer, Visualizer Paint) -- Output
(products: Composer, Visualizer Paint).]

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ANIMATION SYSTEMS. Wavefront offers two core animation systems,
VISUALIZER (TM) and EXPLORE (R).

. VISUALIZER. Provides interactive modeling, animation and rendering tools
that work easily with products of other providers and allow the user to
incorporate varied databases and complex animation. VISUALIZER is
particularly well-adapted to the diverse data import requirements of
industrial visualization and the high volume image production demands of
electronic games and other interactive applications.

. EXPLORE. Provides a set of interactive tools for modeling and animation
plus a programmable rendering environment which allows users to customize
visual effects via EXPLORE's interactive photo-realistic rendering
capability and shading language. EXPLORE is particularly well-adapted to
the requirements of film and video entertainment which require a high
level of creative control and advanced rendering effects.

PRODUCT MODULES. Wavefront also offers several special purpose modules that
are interoperable and thus may be used with either of Wavefront's core
animation systems, on a standalone basis, or in conjunction with other computer
graphics imaging and animation systems. These modules provide enhanced
capabilities that address specific stages of the computer imaging and animation
process.

. DYNAMATION. DYNAMATION, the first of Wavefront's physically-based
animation products, enables animated objects to behave in accordance with
the physical laws of nature. This module permits accurate presentation of
events in which physical parameters (such as an object's mass, surface
friction or gravity) are interactively controlled by the user, with
results displayed in real time. DYNAMATION includes a comprehensive set
of preprogrammed functions such as collision calculators, gravity tools,
magnets, wind emitters, and springs. These functions are interactively
linked together by the user to create such effects as fire, smoke and
explosions; cloth blowing in the wind and draping over solid objects; and
wave patterns on water. DYNAMATION was introduced for use with the
VISUALIZER system in 1993. In the third quarter of 1994, Wavefront
released a substantially enhanced version of DYNAMATION that may also be
used with the EXPLORE system.

. KINEMATION. One of the most difficult tasks in the animation of life-like
characters is to produce realistic skeletal motion and then overlay that
with smooth skin and muscle movement that appears natural and corresponds
to the skeletal movement. Wavefront's newest module, KINEMATION, provides
these physical animation features through a mathematical model known as
inverse kinematics and SmartSkin which controls skin and muscle
deformations through all motion ranges. KINEMATION also includes a
selection of ready to animate "KineObjects." KINEMATION was introduced
for use with the VISUALIZER system in 1993. In the third quarter of 1994,
Wavefront released a substantially enhanced version that may also be used
with the EXPLORE system.

. 3DESIGN (R). 3DESIGN combines surface, solid and polygonal modeling
techniques into a single 3D product. The surface modeling capabilities
are based on NURBS (non-uniform rational B-spline) mathematical
techniques, which permit intuitive and free form modification of
surfaces. Surface models can be converted to polygons in 3DESIGN, which
greatly enhances the efficiency with which the resulting models can be
animated and rendered. 3DESIGN was introduced in 1991 in the EXPLORE
system. In the second quarter of 1994, Wavefront released an enhanced
version that may be used in the VISUALIZER system.

. VISUALIZER PAINT (TM). A digital paint and touch-up module, VISUALIZER
PAINT includes image sequence painting, full 64-bit image manipulation,
masking and color correction. Multiple brush types, text manipulation and
paste-up tools are provided. This product operates with VISUALIZER and
EXPLORE and recognizes image file formats of Wavefront's primary
competitors. This product was first introduced in 1991.

. COMPOSER (TM). COMPOSER is an interactive digital image composition
module that includes sequencing, layering, titling, and an extensive
library of 2D special effects. COMPOSER is available with an optional
morphing capability, and can run in parallel on multi-processor machines
for large format (film) image production applications. COMPOSER operates
with VISUALIZER and

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EXPLORE and recognizes image file formats of Wavefront's primary
competitors. COMPOSER was first introduced at the end of 1991. In the
second quarter of 1994, Wavefront released an enhanced version of this
product.

. DATA VISUALIZER (TM). DATA VISUALIZER is an interactive data viewing and
visual analysis module which operates with the diverse data types
generated by a variety of CAD, Finite Element Analysis ("FEA"), and
Computational Fluid Dynamics ("CFD") systems. The module provides a
complete set of interactive data inspection tools which allow the user to
probe complex numerical simulation data and extract visually meaningful
2D and 3D representations which can be passed to other components of
Wavefront's VISUALIZER system. DATA VISUALIZER was first introduced in
1990.

SYSTEM OPTIONS. System options are "add-on" products which perform
specialized functions as part of the computer graphics imaging process. Unlike
Wavefront's interoperable product modules, system options do not operate in
"stand alone" fashion, but require the presence of an animation system. 3D
object creation options include text generators, automatic construction tools
for shrubs and trees, and a variety of engineering data translators. Display
and output options include line drawing, plotter drivers and controllers for
various video devices.

INDUSTRY-SPECIFIC PACKAGES. Wavefront provides industry-specific combinations
of its core animation systems, interoperable product modules and system options
to deliver appropriate functionality to target customers. These packages are
generally available in both entry-level and advanced configurations and will
often contain certain special purpose capabilities associated with the image
generation requirements of the target industry. Wavefront introduced its entry-
level GAMEWARE package in January 1994 to address the specific needs of the
developers of electronic games and other multimedia applications in interactive
media industries. Wavefront's entry-level GAMEWARE package includes VISUALIZER,
KINEMATION and a set of specialized tools that substantially add to the game
developer's ability to control both geometric and image complexity throughout
the design process. GAMEWARE PRO includes all components of GAMEWARE plus
3DESIGN and the advanced version of VISUALIZER.

TARGET INDUSTRIES AND CUSTOMERS. Wavefront currently serves computer graphics
imaging and animation customers in both the entertainment and industrial design
industries. The process of image creation is similar for both groups of
customers, which allows Wavefront to utilize its technology in both segments.
Wavefront targets specific industries by combining appropriate modules and
animation systems to provide application specific solutions.

ENTERTAINMENT. The entertainment industry has historically consisted
primarily of video and film production companies. Video and film production has
three basic stages. Pre-production planning involves budgeting, scripting and
storyboarding. Production involves the actual shooting of video or film,
creation of 3D animation and sound recording. Post-production, involves
combining images and creating special effects. To date, Wavefront's animation
software has been used primarily by film and video production and post
production companies, which are engaged by broadcasters (such as television
stations or networks), film studios, corporations and advertising agencies to
provide animation and special effect sequences for inclusion in videos and
films.

Wavefront's products are also increasingly used for the production of
interactive media including electronic games and other multimedia applications.
Wavefront believes that high quality interactive entertainment and information
will be one of the largest growth areas in communications and entertainment
over the next several years. Wavefront believes that one of the most rapidly
emerging applications for its products is in content creation for electronic
games. Wavefront sales in this segment have significantly increased over the
last year, and Wavefront is specifically addressing this segment with a
targeted marketing program and the introduction of the functionally optimized
product package GAMEWARE. See "--Marketing--Target Marketing."

Wavefront's software was used in the production (including special effects,
scene planning, motion creation, character animation and image layering), of
recent films including Clear and Present Danger, Drop

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Zone, Speed, Stargate, Star Trek Generations and True Lies along with the high
visibility television spots such as prominent sporting events, network
specials, and corporate logos. In addition, Wavefront's software has been
increasingly used for specialty films and video production including location-
based entertainment venues, such as motion simulator ride films, music videos
and full length cartoons. The following is a representative selection of
Wavefront's entertainment customers based on company size, application of
Wavefront products and end-user markets. Each of the customers listed below
are active users of the software and have either (i) a significant number of
licenses or (ii) depend upon the software to a large extent in their business.

Video Production and Post Production Specialty Film and Video Production

ABC BOSS Film
CBS TRIX
CNN Ex Machina
HBO Studios Fantome
NBC Kleiser-Walczak
TOPIX Lamb and Company
Editel Soho 601
MetroLight Studios
PostPerfect

Film Production and Post Production Electronic Games

Kodak Acclaim
Santa Barbara Studios Accolade
Sony Pictures Entertainment Argonaut Software
Walt Disney Pictures & Television Atari
Warner Brothers Core Designs
US Gold Namco
SEGA

INDUSTRIAL. Wavefront's industrial customers have consisted primarily of
companies in automotive, aerospace, architecture, engineering, construction,
heavy industry and consumer products businesses, and government. Wavefront's
industrial customers use Wavefront's software for enhancing and marketing
products through visualization of design appearance and function, presentation
of complex project concepts, and illustration of engineering or scientific
phenomena that would otherwise be difficult to understand.

The industrial end-user is generally an engineering animator or a
visualization specialist. The engineering animator uses animation and
rendering as part of the design enhancement process. A visualization
specialist will generally work in a dedicated computer graphics imaging
department or lab, which has responsibility for a wide variety of data driven
imaging tasks. Where the engineering animator may use only portions of the
Wavefront product line, the visualization specialist may use each module. Both
of these users are found in numerous segments of the industrial sector.
Wavefront's software is also used internally in large industrial firms as a
production and post production tool. These applications are primarily in
corporate communications for the creation of customer logos and advertising
messages.

The following is a representative selection of Wavefront's industrial
customers based on company size, application of Wavefront products and end-
user markets. Each of the customers listed below are active users of the
software and have either (i) a significant number of licenses or (ii) depend
upon the software to a large extent in their business.

Aerospace Automotive

TRW Ford
Boeing Hyundai
European Space Agency Nissan
Lockheed Martin Renault
McDonnell Douglas
Messerschmidt

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Architecture, Engineering & Consumer Products
Construction

Bechtel Delta Faucet
Failure Analysis Rubbermaid
Jacobs Engineering Zenith
Stone & Webster
Taisei Construction

Heavy Industry Government NASA

Asea Brown Boveri Army Ballistics Research Laboratory
Sandia National Laboratories Idaho National Engineering
Libbey Owens Ford Laboratories
Mitsubishi Heavy Industry Jet Propulsion Laboratory
Texaco

MARKETING. Wavefront's marketing philosophy is designed to provide the
customer focus and responsiveness required to be competitive in the
marketplace.

Target Marketing. Wavefront uses a specialized approach to target customers
in the industries it addresses. Wavefront believes that the versatility of its
technology will enable it to quickly address imaging and animation requirements
of emerging industries by focusing on product packaging, tailored promotions,
seminars, industry events and pricing considerations. Directed advertising
campaigns in industry and entertainment oriented publications are run to
announce new products, build brand awareness and drive sales demand. For
example, the GAMEWARE campaign featured a comic book format designed to catch
the attention of the game player and developer.

Marketing Partners. Wavefront augments its marketing efforts through
relationships with key industry companies including SGI, Parametric Technology
Corporation, the MacNeal Schwendler Corporation, Rand Technology and CDI
Computer Services. These relationships enable Wavefront to take advantage of
the financial, product and marketing resources of these companies, while
offering the customer a more complete solution to their imaging and animation
needs.

Distributed Organization. Wavefront is organized in seven regional business
sales centers around the world which provide a local presence for customer
support and increase market responsiveness. Wavefront also has marketing
offices in Santa Barbara and Paris.

SALES AND DISTRIBUTION. Wavefront utilizes a multi-channel strategy to serve
the diverse demands of the industrial and entertainment segments. Wavefront
sells its software products through its direct sales force, system integrators
and distributors. Wavefront selects and manages channels based on their
effectiveness in serving specific regions and vertical industries and their
ability to support customer requirements. In the U.S., Wavefront focuses
primarily on direct sales, but Wavefront uses systems integrators where
appropriate. Wavefront manages the mix of these channels to address the needs
of the regional marketplace. In 1994, approximately 85% of Wavefront's sales in
the U.S. and Europe were made through its direct sales force. In contrast, 100%
of sales in Asia-Pacific and Latin America were made through distributors.

Direct Sales. Wavefront's direct sales force consists of regional business
sales center managers, sales personnel, application engineers and field
administrators. Wavefront has seven regional business sales centers: two in the
U.S., one serving Asia-Pacific and Latin America, and four in Europe. These
centers provide local sales coverage, product support and training, as well as
regionally adjusted marketing. Approximately 65% of Wavefront's worldwide
revenue in 1994 was derived from sales generated by its direct sales force.

Indirect Sales. Wavefront has developed relationships with systems
integrators that provide hardware and tailor software to meet customer needs.
Wavefront selects these systems integrators based upon

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their expertise in specific vertical markets such as automotive, aerospace,
film and video. Wavefront believes that its open architecture strategy
facilitates the ability of systems integrators to tailor solutions specific to
the needs of target customers. Wavefront distributes its products through more
than 72 dealers and distributors in over 35 countries. Certain dealers and
distributors also provide systems integration services.

Approximately 35% of Wavefront's worldwide revenue in 1994 was derived from
sales through indirect channels such as systems integrators and dealers and
distributors. Wavefront does not believe that the loss of any particular dealer
or distributor would result in a materially adverse impact on Wavefront's
operating results of financial position.

CUSTOMER MAINTENANCE AND SUPPORT. Wavefront is committed to providing
comprehensive technical support to its customers. Wavefront offers maintenance
services through annual contracts that entitle end-users to unlimited technical
support and periodic upgrades of software. Wavefront derived approximately 25%
of its revenue from maintenance services in each of 1992, 1993 and 1994.

Wavefront's support services include on-site and hotline support, in-house
and on-site training, technical support, applications experts, various on-line
information systems, and regional and international user groups. Wavefront has
made a significant commitment to the education and training of its customers
and channel partners. Training is conducted at the Santa Barbara training
center, at authorized regional training centers and by trained technical
personnel in its regional business sales centers. Recently, Wavefront
introduced a partnership program to facilitate the establishment of
relationships with independent regional training centers to train end-users on
the use of Wavefront's software products. Wavefront has relationships with two
regional training centers operating in the United States.

COMPETITION. The environment in which Wavefront's and Alias' products are
sold is highly dynamic, characterized by ever-increasing customer demand for
technological innovation. Certain current or potential competitors of Wavefront
and Alias benefit from greater general market recognition and have
substantially greater financial, product development and marketing resources.
For example, Microsoft Corporation, which acquired SOFTIMAGE in June 1994, and
RenderMorphics Ltd. in February 1995 is a significant competitor, as are a
number of other companies. Numerous computer and software companies, such as
Autodesk, Inc., offer solutions that compete with those offered by Wavefront or
Alias. As the trend towards more powerful PCs accelerates, software suppliers
are increasingly likely to introduce improved products for PCs with enhanced
graphics and price/performance capabilities. The ability of the combined
business to compete successfully will depend on elements both within and
outside its control, including the success and timing of new solutions
developed and introduced by it and its competitors, the price/performance
characteristics of the solutions, distribution and customer support. There can
be no assurance that the combined business will be able to compete
successfully.

PRODUCT DEVELOPMENT. Wavefront's product development efforts are focused on
the continued enhancement of its existing products and the development of new
products to expand the capabilities of Wavefront's software. Wavefront's
development centers in Santa Barbara, Vancouver and Paris have core
competencies in different areas. 2D imaging and video technology expertise is
centered in Vancouver and expertise in key frame and physically-based animation
is centered in Santa Barbara. The Paris development team brings expertise in
the areas of geometric modeling, geometry translation and advanced rendering.

Wavefront works closely with its customers to understand and address their
needs. Under its design partner program, Wavefront works with certain existing
and potential customers to define, revise and refine new product areas and
enhance existing products. Wavefront believes its customer focus enabled it to
anticipate the need for efficient physically based animation which led to the
creation of its new products, KINEMATION and DYNAMATION.

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Wavefront furthers its product development efforts by collaborating with
research institutions, corporations and academic institutions. Wavefront
established its Academic Advisory Program with several research institutions to
advance the technology needed to produce innovative software products for
animation. Wavefront's primary corporate relationship is with SGI for the
advancement of interactive graphics and visual computing as well as the
integration of video and computer graphics. As a VAR, Wavefront obtains advance
access to SGI technology in order to develop software products that are
compatible and to modify and improve existing products. If Wavefront were
unable to obtain such advance access, it could have an adverse impact on
Wavefront's business, financial condition and results of operations. Wavefront
also collaborates with CAD/CAM software vendors and integration experts to
develop geometry interfaces with major CAD systems. Wavefront's new products,
DYNAMATION and KINEMATION, are the result of licensing agreements and technical
collaborations with Santa Barbara Studios and the University of Pennsylvania.

Expenditures for research and development for 1994, 1993 and 1992 were $5.4
million, $3.7 million and $2.5 million, respectively. The expenses for 1993
exclude a $5.2 million charge for the purchase of research and development in
process associated with the TDI acquisition on September 30, 1993. As of
December 31, 1994, 51 of Wavefront's 151 employees were engaged primarily in
research and development.

Wavefront believes that because of the regular updating of its products, none
of its products are in a terminal stage of their life cycle. However,
Wavefront's future success will depend upon its ability to develop, manufacture
and market new products and enhancements to existing products on a cost-
effective and timely basis. If Wavefront is unable for technological or other
reasons to develop products in a timely manner in response to changes in the
industry, or if products or product enhancements that Wavefront develops do not
achieve market acceptance, its business will be adversely affected.

PROPRIETARY RIGHTS. Wavefront's success is dependent upon its proprietary
software technology. Wavefront has three registered trademarks on its trade
names but does not have any registered copyrights or patents on any of its
intellectual property. Wavefront relies on a combination of contract, copyright
and trade secret laws to establish and protect its proprietary rights in its
technology. Wavefront distributes its products under software license
agreements which grant customers licenses to use Wavefront's products and which
contain various provisions protecting Wavefront's ownership and the
confidentiality of the underlying technology. Wavefront generally enters into
confidentiality and/or license agreements with its employees, distributors,
existing and potential customers, and limits access to and distribution of its
software, documentation and other proprietary information. There can be no
assurance that the steps taken by Wavefront in this regard will be adequate to
deter misappropriation or independent third party development of its
technology. In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries.

Wavefront licenses DYNAMATION and KINEMATION software components employed in
its products from Santa Barbara Studios ("SBS") and the University of
Pennsylvania ("PENN"), respectively, in exchange for royalty payments. The SBS
license agreement is a two-year, exclusive, worldwide license which began in
July 1993 and which Wavefront intends to extend pursuant to the license
agreement, as amended. In return for such license, Wavefront makes quarterly
nonrefundable advance royalty payments to SBS based on net revenues from the
sale of the license product not to exceed an annual cap. In addition, under the
agreement, Wavefront exercised its exclusive right to acquire joint title and
an exclusive, perpetual license to the source code. Although Wavefront
exercised such right, the royalty payments to SBS will continue under the same
terms in the license agreement subject to a minimum royalty fee. The SBS
license agreement may be terminated prior to expiration upon a material breach
of its terms by either party which has not been cured within thirty days. Under
the license agreement with PENN, Wavefront has a royalty-bearing, non-
transferable, non-exclusive, worldwide license for a term of twenty-five years
beginning October 1992. Wavefront makes quarterly royalty payments to PENN
based on a percentage of revenues from sales of the license product. The PENN
license agreement may be terminated by PENN before the term of the

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agreement upon Wavefront's failure to make royalty payments for more than six
months or Wavefront's bankruptcy. Wavefront may terminate the PENN agreement at
any time by giving PENN 30 days written notice. Either party may terminate the
agreement in the event of a material breach by the other that it is not cured
within 30 days. Wavefront believes that in the event of a termination of any of
these licenses, alternative sources could be arranged. However, there can be no
assurance that any delay in arranging alternative suppliers would not have a
material adverse effect on Wavefront.

In December 1994, Wavefront entered into a renewable three-year joint
development agreement with Coryphaeus Software, Inc. ("CSI") under which the
companies will jointly develop an authoring product for the entertainment
market. Wavefront will have exclusive rights to market and distribute the
jointly developed product in the entertainment market through its direct and
indirect sales channels. Wavefront will pay a portion of the development costs
as an advance on royalties for each licensed copy of the product sold by
Wavefront.

Wavefront believes that, due to the rapid pace of innovation within its
industry, factors such as the expertise and creative skills of its personnel
are more important to establishing and maintaining a leadership position within
the industry than are the various legal protections of its technology. Although
Wavefront believes that its products and technology do not infringe any
existing patents, copyrights, or other proprietary rights of others, Wavefront
has received correspondence from the New York Institute of Technology ("NYIT")
asserting that Wavefront's technology infringes a patent held by NYIT. In the
last quarter of 1990, Wavefront entered into a royalty-bearing patent license
agreement with NYIT. Subsequently, the claims in NYIT's original patent
application were invalidated by the U.S. Patent Office. In February 1993,
Wavefront received correspondence from NYIT claiming that royalties were due to
it pursuant to the license agreement between the parties and requesting an
accounting of product sold. Damages were not otherwise specified. After careful
investigation of NYIT's resubmitted patent by Wavefront and its lawyers,
Wavefront determined that its software did not infringe the resubmitted patent,
and Wavefront therefore believes that no royalties are due to NYIT under the
license agreement. In September 1993, Wavefront sent a letter to NYIT setting
forth in detail the reasons why Wavefront believed its software did not
infringe the resubmitted patent. NYIT has not responded to this letter.
Although Wavefront believes that no infringement exists, there can be no
assurance that NYIT or other third parties will not assert infringement claims
in the future. If any such claims are asserted and upheld, the costs of defense
could be substantial and any resulting liability to Wavefront could have a
material adverse effect on Wavefront's results of operations and financial
condition.

MANUFACTURING. Wavefront's products include encoded digital media, user
manuals and packaging. Wavefront's digital media duplication is performed by
unaffiliated third parties, and at Wavefront's Santa Barbara facility, using
material acquired in quantity from various sources. To date, Wavefront has not
experienced any significant difficulties or delays in the manufacture of its
products, and has experienced very low returns due to manufacturing defects.

Wavefront has no significant backlog and does not believe that its backlog at
any particular point in time is indicative of future sales levels.

EMPLOYEES. At December 31, 1994, Wavefront had 151 employees, of which 67
were located in Santa Barbara, 40 in Paris, 6 in Vancouver and 38 in various
field offices. There were 51 employees in research and development, 54
employees in sales, 16 employees in marketing, 11 employees in customer
support, and 19 employees in administration and finance. Wavefront's success
depends to a significant extent upon a number of key employees, particularly
senior management and technical personnel. None of Wavefront's employees is
represented by a labor union, nor are they subject to a collective bargaining
agreement. Wavefront has never experienced a labor stoppage, and it believes
that its employee relations are excellent.

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<PAGE>

PROPERTIES

Wavefront's principal administrative, sales and marketing, research and
development, and support facility is located at 530 East Montecito Street,
Santa Barbara, California. Wavefront presently leases approximately 20,997
square feet in its current facility under the terms of a lease which expires on
December 31, 1996. TDI currently occupies approximately 8,800 square feet in
its Paris facility under a lease which expires on November 30, 2003, but which
can be terminated at the end of every three-year period by giving six months
notice.

In addition, Wavefront has facilities throughout North America and Europe
including New York; Atlanta; Chicago; Springfield, Virginia; San Francisco; Los
Angeles; Vancouver, British Columbia; Paris, France; Ghent, Belgium; High
Wycombe, UK; Eschborn, Germany; and Milan, Italy.

SELECTED CONSOLIDATED FINANCIAL DATA OF WAVEFRONT

The following selected consolidated statements of operations data for the
three years in the period ended December 31, 1994 and the consolidated balance
sheet data as of December 31, 1994 and 1993 are derived from the financial
statements and notes thereto included elsewhere herein audited by Arthur
Andersen LLP as set forth in their report also included elsewhere herein. The
selected consolidated statements of operations data for the years ended
December 31, 1991 and 1990 and the consolidated balance sheet data as of
December 31, 1992, 1991 and 1990 are derived from audited financial statements
not included herein. The selected consolidated financial data should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and related notes and other financial information included in this Proxy
Statement/Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993(1) 1992 1991 1990
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue:
Product revenue.................... $21,186 $12,515 $ 9,890 $ 7,397 $10,648
Maintenance and other revenue...... 6,528 5,343 4,847 4,648 4,017
------- ------- ------- ------- -------
Total revenue.................... 27,714 17,858 14,737 12,045 14,665
Costs of revenue:
Cost of product revenue............ 3,594 2,083 1,739 1,357 1,594
Cost of maintenance and other
revenue........................... 1,094 796 738 1,301 1,522
------- ------- ------- ------- -------
Total costs of revenue........... 4,688 2,879 2,477 2,658 3,116
------- ------- ------- ------- -------
Gross profit......................... 23,026 14,979 12,260 9,387 11,549
------- ------- ------- ------- -------
Expenses:
Research and development........... 5,427 8,922 2,470 2,827 2,050
Sales and marketing................ 11,282 7,283 6,542 8,963 7,467
General and administrative......... 2,460 1,757 1,760 2,939 1,489
Restructuring costs................ -- -- 2,280 --
------- ------- ------- ------- -------
Total expenses................... 19,169 17,962 10,772 17,009 11,006
------- ------- ------- ------- -------
Income (loss) from operations........ 3,857 (2,983) 1,488 (7,622) 543
Other income (expense):
Interest, net...................... 202 112 44 228 365
Other.............................. 70 (56) 68 (177) --
------- ------- ------- ------- -------
Income (loss) before provision for
income taxes........................ 4,129 (2,927) 1,600 (7,571) 908
Provision for income taxes........... 291 100 43 -- 20
------- ------- ------- ------- -------
Net income (loss) (2)................ $ 3,838 $(3,027) $ 1,557 $(7,571) $ 888
======= ======= ======= ======= =======
Pro forma net income (loss) per share
(2)................................. $ .52 $ (0.63)
======= =======
Pro forma weighted average number of
shares (2).......................... 6,950 5,176
======= =======
</TABLE>

57
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1994 1993 1992 1991 1990
------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................ $16,050 $2,255 $ 3,451 $ 968 $7,440
Total assets........................... 32,716 16,812 10,449 9,843 15,749
Long-term debt (3)..................... -- 2,884 -- -- --
Redeemable preferred stock (4)......... -- 8,518 11,939 10,609 9,987
Convertible preferred stock............ 2,467 3,800 3,800 3,800 --
Shareholders' equity (deficit)......... 20,352 (4,978) (6,022) (6,301) 1,485
</TABLE>
- --------
(1) The results of operations of Wavefront include a charge of $5.2 million to
research and development for research in process purchased and expensed in
connection with the acquisition of TDI on September 30, 1993 and the
results of operations of TDI since the date of acquisition.
(2) Earnings per share for the years ended December 31, 1993 and 1994 have been
computed on a pro forma basis giving effect to the conversion of Series C,
D, 1-1 and 40,323 shares of Series 1-2 Preferred Stock at the beginning of
each period. These preferred shares converted upon the closings of the
initial public offering in June, 1994 and the secondary offering in
December 1994. See statement of operations for net income (loss) used to
calculate net income (loss) per Common Share for the years ended December
31, 1993 and 1994. Historical earnings per share are not presented for all
periods since such amounts are not meaningful in light of the conversion of
Series C, D, 1-1 and 40,323 shares of Series 1-2 Preferred Stock.
(3) Includes $1.4 million of long-term debt at December 31, 1993, related to
the acquisition of TDI in 1993.
(4) Includes 1.2 million shares of Redeemable Preferred Stock that, subsequent
to December 31, 1993 converted into a series of nonredeemable preferred
stock. See Note 4 of Notes to Consolidated Financial Statements.

WAVEFRONT'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Wavefront's
consolidated financial statements and notes thereto included elsewhere herein.
The results shown herein are not necessarily indicative of the results to be
expected in future periods and is qualified in its entirety by the foregoing.

OVERVIEW

Wavefront was organized in January 1984 and began to ship packaged animation
software for the SGI line of workstations in 1985. Wavefront's revenue has been
derived primarily from the sale of its software, related maintenance and
support, and to a lesser extent from contract engineering services and computer
hardware sales. Wavefront developed and marketed software for a variety of
platforms from 1986 through 1991. In 1991 Wavefront restructured its operations
by terminating its development efforts of an OEM product and reorganized
management. As part of its decision to focus its product development on core
animation products and to regain technological leadership in its traditional
markets, Wavefront introduced COMPOSER and an enhanced version of VISUALIZER.
In 1993 Wavefront phased out its software development for multiple platforms to
focus on the SGI line of workstations. Wavefront has historically focused on
the development of products to address the needs of the professional user.
Wavefront's decision to focus on software for the SGI workstation was in
response to what it perceived to be a greater demand by professional users for
animation software products which required the power and functionality of the
SGI workstation. Wavefront recently devoted its development resources toward
DYNAMATION and KINEMATION, which were released in the second half of 1993.
Wavefront introduced its entry-level GAMEWARE package in January 1994 to
address the specific needs of the developers of electronic games and other
multimedia applications in interactive media markets. In July 1994, Wavefront
successfully released a significant update to its EXPLORE animation system. In
addition, by the third quarter of 1994 Wavefront had completed the release of
its interoperable modules that are compatible with both the VISUALIZER and
EXPLORE animation systems.

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<PAGE>

RESULTS OF OPERATIONS

Revenue

Wavefront derives its revenue primarily from licensing its software and from
providing related maintenance and support services. Wavefront resells hardware
from time to time upon the request of its customers. Revenue from software
licenses is generally recognized at the time of shipment, and revenue from
maintenance contracts is recognized ratably over the term of the contracts,
generally twelve months. Wavefront's maintenance revenue is dependent upon the
renewal of maintenance contracts. Wavefront provides a 90-day warranty but does
not allow product returns. When a customer purchases a software product, it
enters into a non-transferable, non-exclusive software license agreement which
sets forth certain terms of the license including the products licensed, usage
limitations, the term of the license and the royalties to be paid to Wavefront.
Therefore, each product sale is associated with a license to use the software.

The following table sets forth, for the fiscal years indicated, certain
income and expense items as a percentage of total revenues:

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Product revenue............................. 76.4% 70.1% 67.1%
Maintenance and other revenue............... 23.6 29.9 32.9
--------- --------- ---------
Total revenue............................. 100.0 100.0 100.0
Cost of revenue:
Cost of product revenue..................... 13.0 11.6 11.8
Cost of mainentance and other revenue....... 3.9 4.5 5.0
--------- --------- ---------
Total cost of revenue..................... 16.9 16.1 16.8
--------- --------- ---------
Gross profit................................ 83.1 83.9 83.2
Expenses:
Research and development.................... 19.6 50.0 16.8
Sales and marketing......................... 40.7 40.8 44.4
General and administrative.................. 8.9 9.8 11.9
--------- --------- ---------
Total expenses............................ 69.2 100.6 73.1
--------- --------- ---------
Income (loss) from operations................. 13.9 (16.7) 10.1
--------- --------- ---------
Net income (loss)............................. 13.9% (17.0)% 10.6%
========= ========= =========
</TABLE>

Wavefront Years 1993 and 1994

Product Revenue. Product revenue in 1994 increased 69% to $21.2 million from
$12.5 million for 1993. A significant portion of the increase was attributable
to increased software and hardware sales due to the acquisition of TDI on
September 30, 1993 and the successful introduction of Wavefront's GAMEWARE
package at the beginning of 1994. To a lesser extent the continued growth of
sales associated with KINEMATION and DYNAMATION which Wavefront introduced in
the second half of 1993 also contributed to such increase. International sales
accounted for approximately 57% of Wavefront's software revenue during fiscal
year 1994, compared to approximately 50% for fiscal year 1993. The increase
percentage of international sales is attributable to expanded distribution
channels in Europe as a result of the TDI Acquisition. A majority of TDI's
sales in the past year were from foreign customers and accordingly, Wavefront
expects that sales in international markets will continue to represent a
substantial portion of its revenue.

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<PAGE>

Maintenance and Other Revenue. Maintenance and other revenue in 1994
increased 22% to $6.5 million from $5.3 million for 1993. Revenue from
maintenance contracts increased 48% in fiscal year 1994, primarily due to a
larger installed customer base. Other revenue decreased by 77% or $688,000
during 1994 as a result of various development and royalty contractual
agreements expiring at the end of fiscal year 1993. Other revenue in fiscal
year 1993 included revenue from joint development and royalty agreements under
which Wavefront agreed to develop software for non-SGI workstations and other
revenue includes revenue from Wavefront's guaranteed sales agreement with CSK
Corporation ("CSK") under which CSK agreed to guarantee sales to Wavefront's
joint venture in Japan. These agreements have now expired. Wavefront no longer
pursues these other revenue sources as part of its current business focus.

Cost of Product Revenue. Wavefront's cost of product revenue was $3.6 million
in 1994 and $2.1 million in 1993. Cost of product revenue as a percentage of
product revenue was 17% for fiscal 1994 and 1993. The increase in cost of
product revenue was attributable to higher sales levels but remained constant
as a percentage of product revenue. Cost of product revenue primarily includes
product components and amortization of software development cost and, to a
lesser extent, manufacturing costs and royalty payments. A warranty on hardware
is provided directly from the manufacturer.

Cost of Maintenance and Other Revenue. Wavefront's cost of maintenance and
other revenue was $1.1 million in 1994 compared to $796,000 in 1993. Wavefront
offers its software in combination with separate maintenance contracts that
have been generally renewed on an annual basis. Wavefront's cost of maintenance
and other revenue as a percentage of maintenance and other revenue was 17% for
1994 and 15% in 1993. The increase in cost of maintenance and other revenue as
a percentage of maintenance and other revenue was primarily the result of
increased customer support personnel. Cost of maintenance and other revenue
consists primarily of salaries for personnel and related costs for maintenance,
as well as costs associated with joint development agreements which Wavefront
no longer pursues as part of its current business focus.

Research and Development. Wavefront's research and development expense in
1994 decreased by 39% to $5.4 million from approximately $8.9 million in 1993.
The decrease in research and development expenses was primarily the result of a
$5.2 million charge to research and development for research in process
expensed in connection with the acquisition of TDI on September 30, 1993.
Excluding this charge, research and development expenses for 1993 were $3.7
million, increasing by 46% or $1.7 million in 1994. Wavefront's research and
development expenses, as a percentage of total revenue decreased to 20% in 1994
from 21% in 1993, primarily as a result of higher sales levels. The increased
expense during 1994 is primarily due to an increase in personnel expense
related to the integration of Wavefront and TDI products and technologies.
Management believes that product development is critical to Wavefront's long-
term success and will continue to invest in developing new technologies.
Accordingly, research and development expenses are expected to increase in
absolute dollars during fiscal year 1995 but remain constant as a percentage of
revenue.

Sales and Marketing. Wavefront's sales and marketing expenses increased by
approximately 55% or $4.0 million to $11.3 million in 1994 from $7.3 million in
1993. Wavefront's sales and marketing expenses were 41% of total revenue for
fiscal 1994 and 1993. Sales and marketing expenses increased primarily due to
an increase in personnel. Such personnel were primarily associated with the
added direct sales force personnel to support the expanding geographic presence
of Wavefront and additional marketing personnel were hired to accelerate
Wavefront's efforts in merchandising, public relations and expanding
distribution channels. Wavefront's sales and marketing expenses as a percentage
of total revenues remained constant primarily due to higher sales levels.

General and Administrative. Wavefront's general and administrative expenses
increased by approximately 39% or $700,000 to approximately $2.5 million in
1994 from $1.8 million in 1993. General and administrative expenses increased
primarily due to an increase in personnel. General and administrative expenses
as a percent of revenue decreased to 9% in 1994, from 10% in 1993, as a result
of higher sales levels. Goodwill of $1.0 million was recorded in connection
with the acquisition of TDI and is being amortized over a ten-year period.
General and administrative expenses for 1994 and 1993 include the amortization
goodwill of $100,000 and $33,000 respectively.

60
<PAGE>

Other Income. Other income (expense) consists primarily of interest income
net of interest expense and other miscellaneous income and expense including
minority interest in a joint venture and foreign currency translation.
Wavefront had interest income of $202,000 net of interest expense for 1994
compared to $112,000 in 1993. The increase is primarily due to interest income
from larger cash balances from proceeds generated from Wavefront's initial
public offering and secondary public offering in June and December of 1994,
respectively. Interest expense was $201,000 and $19,000 for fiscal years 1994
and 1993, respectively. The increase in interest expense was attributable to
interest expense on notes issued to certain former holders of preferred stock
and interest incurred on the note issued to Thomson SA as part of Wavefront's
acquisition of TDI. Other miscellaneous income was not material to Wavefront in
fiscal years 1994 and 1993.

Wavefront is subject to risks associated with the fluctuations of currency
exchange rates. Wavefront historically has not experienced material gains or
losses on foreign currency transactions. Wavefront has had limited experience
with hedging activities. During 1994, Wavefront implemented a foreign exchange
policy whereby Wavefront enters into forward exchange contracts to hedge
foreign currency transactions on a continuing basis for periods consistent with
its committed exposures. As of December 31, 1994, Wavefront had approximately
$1,185,000 (which approximates fair market value) of outstanding foreign
exchange contracts in which foreign currencies were purchased to hedge
liabilities. There can be no assurance that a change, if any, in the underlying
rate, price or index of such contracts would not have a material adverse effect
on Wavefront's financial position or results of operations. See "Note 5 of the
Notes to Consolidated Financial Statements."

Provision for Income Taxes. Wavefront's income tax provision increased to
$291,000 for fiscal year 1994 compared to $100,000 for fiscal year 1993.
Wavefront's combined state, federal and foreign tax rate was of approximately
7% for fiscal year 1994. Wavefront anticipates that the combined tax rate will
continue to increase in the future as Wavefront utilizes its tax carryforwards.

Certain Tax Attributes. As of December 31, 1994 Wavefront had a net operating
loss carryforward ("NOL") of approximately $1.3 million and in research and
development tax credit carryforwards for federal purposes of approximately
$900,000. Pursuant to the Tax Reform Act of 1986, use of such carryforwards may
be limited if a cumulative "change of ownership" of more than 50% occurs within
any three year period.

Wavefront Years 1992 and 1993

Product Revenue. Product revenue in 1993 increased 26% to $12.5 million from
$9.9 million in 1992. A significant portion of this increase was due to revenue
attributable to TDI, which was acquired September 30, 1993, as well as the
introduction of DYNAMATION in July 1993 and KINEMATION in December 1993.
International sales accounted for approximately 50% of Wavefront's software
revenues in 1993 and 40% in 1992. The rate of growth of international sales has
increased more rapidly than the rate of growth of domestic sales. The majority
of TDI's sales over the past several years have been from foreign customers.

Maintenance and other Revenue. Maintenance and other revenue increased 10% in
1993 to $5.3 million from $4.8 million in 1992. Revenues from maintenance
contracts increased 33% in 1993 primarily due to an increasing installed
customer base. The growth in revenue from maintenance contracts has been
partially offset by the decrease in other revenue sources. Other revenue
includes revenue from joint development and royalty agreements under which
Wavefront agreed to develop software for non-SGI workstations. In addition,
other revenue includes revenue from Wavefront's guaranteed sales agreement with
CSK. These joint development and guaranteed sales arrangements have now
expired.

Cost of Product Revenue. Wavefront's cost of product revenue was $2.1 million
in 1993 and $1.7 million in 1992. Wavefront's cost of product revenue as a
percentage of product revenue was 17% and 18% in 1993 and 1992, respectively.
Cost of product revenue remained relatively stable as a percentage of product
revenue during the two-year period.

61
<PAGE>

Cost of Maintenance and Other Revenue. Wavefront's cost of maintenance and
other revenue was $796,000 in 1993 and $738,000 in 1992. Wavefront's cost of
maintenance and other revenue as a percentage of maintenance and other revenue
was 15% for 1993 and 1992. The increase in absolute dollars from 1992 to 1993
was primarily due to an increase in maintenance personnel associated with the
larger installed base, new product offerings and the addition of a support
facility in Paris.

Research and Development. Wavefront's research and development expenses were
$8.9 million in 1993 and $2.5 million in 1992. Wavefront's research and
development expenses as a percentage of total revenue were 50% in 1993 and 17%
in 1992. The increase in research and development expenses in 1993 was
primarily due to $5.2 million of research in process purchased and expensed in
connection with the acquisition of TDI and a related increase in personnel
expense.

Prior to acquiring TDI, Wavefront completed an extensive review of TDI which
included a review of its existing products, research and development in process
(projects that had not reached technological feasibility), customers, sales
channels, sales personnel and financial and other matters in order to determine
fair market value. TDI was acquired for the research in process, and was not
acquired for its earnings, cash flow or net worth. The amount allocated to
intangibles represents an amount for the established brand name "EXPLORE", a
network of distributors to sell post-acquisition releases of software, and
software that was considered outdated and required significant enhancements and
revisions. Although Wavefront believed that the acquisition would enhance its
access to markets and customers, TDI's research and development in process were
the primary reason for the acquisition.

At the date of acquisition, TDI was in the third year of a program to
significantly revise its product offerings with the major focus being an almost
complete revision to the EXPLORE product which was originally released in 1992.
TDI had two significant projects in process. The first was an enhanced version
of the EXPLORE product that was intended to extend the life of the product
until a major revision could be completed. Wavefront's due diligence revealed
that the EXPLORE product in its current state needed significant enhancements
to become competitive. Wavefront believed it would be able to complete the
product with its technology and expertise. The first project did not reach
technological feasibility until the fourth quarter of 1993, after the
acquisition had closed. The second project, which was much bigger and more time
intensive, was a major revision of EXPLORE and reached full technological
feasibility in July 1994.

Wavefront's technical staff placed a value of approximately $5.2 million on
the projects in process, which was derived based on costs TDI spent directly on
the two projects. Wavefront believes that the allocations are reasonable, fair
and supported by the facts.

Sales and Marketing. Wavefront's sales and marketing expenses were $7.3
million in 1993 and $6.5 million in 1992. As a percentage of total revenue,
Wavefront's sales and marketing expenses were 41% and 44% of revenue for 1993
and 1992, respectively. The increase in sales and marketing expenses was
primarily a result of increased sales promotion and advertising associated with
new products, including the initial launch of DYNAMATION and KINEMATION. In
addition, Wavefront expanded its sales force in 1993 due to increases in
Wavefront's sales force and the addition of TDI's sales force.

General and Administrative. Wavefront's general and administrative expenses
were $1.8 million in 1993 and $1.8 million in 1992. General and administrative
expenses as a percentage of total revenue were 10% in 1993 and 12% in 1992.
General and administrative expenses remained stable in 1993 compared to 1992
but decreased as a percentage of revenue due to higher sales levels. In the
fourth quarter of 1993 Wavefront amortized $33,000 of the $1 million goodwill
from the acquisition of TDI. The remaining goodwill will be amortized over ten
years.

Other Income. Other income (expense) consists primarily of interest income
net of interest expense and other miscellaneous income and expense including
gains and losses from a minority interest in a joint venture and foreign
currency translation. Interest income net of interest expense in 1993 increased
155% to $112,000 from $44,000 in 1992. This increase was primarily due to
increased interest income associated with higher cash balances.

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<PAGE>

Other expense in 1993 was $56,000 compared to $68,000 in other income in
1992. The decrease was primarily attributable to fees associated with financing
activities at the end of 1993.

LIQUIDITY AND CAPITAL RESOURCES

Wavefront has funded its operations to date primarily through cash flow from
operations and the sale of equity securities. Wavefront generated net cash from
operating activities of approximately $4.6 million during the year ended
December 31, 1994 and $2.8 million during 1993. Net cash provided by operations
for December 31, 1994 resulted from $3.9 million in income from operations and
non-cash charges of $1.9 million partially offset by an increase in accounts
receivable of $715,000 and a pay down of accounts payable of $472,000. Net cash
provided by operations in 1993 was primarily a result of $7.1 million in non-
cash charges included in the $3.0 million net loss from operations partially
offset by an increase in accounts receivables of $1.9 million. Wavefront's
investing activities used cash of $3.5 million in 1994 and consisted primarily
of purchases of property and equipment and purchases of short term investments.
Wavefront's investing activities used cash of $2.4 million in 1993 and
consisted primarily of expenditures for fixed assets, acquisitions and
capitalized software development costs. Since its inception, Wavefront has
received aggregate proceeds of approximately $22 million from the private sale
of equity securities. In the second quarter and the fourth quarter of 1994,
Wavefront received net proceeds of approximately $10.0 million and $6.2 million
upon the closing of the sale of 2,075,000 shares and 725,000 shares of Common
Stock in Wavefront's initial public offering and secondary public offering,
respectively. As of December 31, 1994 and December 31, 1993, Wavefront had cash
and cash equivalents of approximately $18.6 million and $5.6 million,
respectively, and in 1994, $1.7 million in short-term investments in 1994.
Wavefront had working capital of approximately $16.1 million and $2.3 million,
at December 31, 1994 and 1993 respectively.

Accounts receivable net of allowance for doubtful accounts increased 12% to
$6.5 million as of December 31, 1994 from $5.8 million as of December 31, 1993.
The increase was primarily the result of an increase in world wide revenues.

In July 1994, Wavefront entered into a credit agreement (the "Credit
Agreement") with Wells Fargo Bank National Association ("Wells Fargo Bank")
which allows Wavefront to borrow up to $1,000,000 under a line of credit for
general working capital purposes at a rate of 0.5% over the prime rate
established by Wells Fargo Bank (the "Prime Rate") and up to $750,000 under a
term commitment loan for the purchases of equipment at a rate of 0.75% over the
Prime Rate. In addition, the Credit Agreement allows Wavefront to enter into
foreign exchange contracts in amounts not to exceed an aggregate of $2,000,000.
The Credit Agreement terminates on June 1, 1995 and Wavefront is currently
negotiating an extension to the Credit Agreement with Wells Fargo Bank. As of
March 31, 1995, Wavefront had borrowed $350,000 under the Credit Agreement. See
"Note 5 of the Notes to Consolidated Financial Statements."

During 1994, Wavefront implemented a foreign exchange policy whereby
Wavefront enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. As of December 31, 1994, Wavefront had approximately $1,185,000
(which approximates fair market value) of outstanding foreign exchange
contracts in which foreign currencies were purchased to hedge liabilities.
There can be no assurance that a change, if any, in the underlying rate, price
or index would not have a material adverse effect on Wavefront's financial
position or results of operations. See "Note 5 of the Notes to Consolidated
Financial Statements."

Current and non current debt decreased to $2.0 million as of December 31,
1994 from $3.0 million as of December 31, 1993. The decrease was primarily
attributable to the repayment of $3.8 million of notes in June and July 1994
issued to former holders of Series A and B Preferred Stock. The decrease was
partially offset by the issuance of $3.1 million of additional notes to former
holders of Series A and B Preferred Stock in the first quarter of 1994. Long-
term debt increased to $2.9 million as of December 31, 1993 from no debt as of
December 31, 1992. The increase is attributable to approximately $1.4 million
of debt associated with the TDI acquisition and $1.5 million of notes issued to
former holders of Series A and B Preferred Stock.

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<PAGE>

Wavefront has abandoned its lease facility in the United Kingdom and reserved
$600,000 for the loss related to this lease abandonment as part of the
liabilities assumed in connection with the TDI acquisition. Payments under the
lease will be approximately $34,000 a year until a release is negotiated.
Wavefront would be able to fund a payment from available cash in the event a
release was negotiated.

As of December 31, 1994, shareholders' equity was $20.4 million compared to a
shareholders' deficit of $5.0 million as of December 31, 1993. The significant
change in 1994 was attributable to net proceeds received from Wavefront's
initial public offering, secondary public offering, net income and the
conversion of certain shares of redeemable preferred stock to a new series of
convertible preferred stock. Shareholders' equity for 1993 was negatively
impacted by a charge of $5.2 million to research and development for research
in process purchased and expensed in connection with the acquisition of TDI on
September 30, 1993. Wavefront believes that its sources of liquidity, together
with its existing funds and anticipated funds provided by operations, will be
sufficient to finance its operations for at least the next two years.

In the event the Merger and Arrangement are not consummated, Wavefront
expects to continue conducting its business based on its current business
strategy and market focus.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information regarding
compensation paid by Wavefront for services rendered during the fiscal years
ended December 31, 1994 and 1993 to Wavefront's Chief Executive Officer and its
two most highly paid executive officers other than the Chief Executive Officer
whose total annual salary and bonus for fiscal year 1994 exceeded $100,000
(together with the Chief Executive Officer, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- ------------
SECURITIES ALL OTHER
SALARY UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS ($) OPTIONS (#) ($)
- --------------------------- ---- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael S. Noling
President and Chief Exec-
utive Officer........... 1994 175,000 -- -- 3,938(2)
1993 51,042 -- 275,000 875(2)
Martin H. Plaehn
Executive Vice
President--Corporate and
Product Development..... 1994 125,000 -- -- --
1993 115,000 20,000 60,000 --
David P. Swan
Vice President--Sales and
Marketing............... 1994 125,000 51,007 15,000 2,500(2)
1993 101,562 32,464 37,500 22,054(3)
</TABLE>
- --------
(1) Amounts shown include cash and non-cash compensation earned and received by
executive officers.
(2) Contribution made by Wavefront on behalf of the employee to Wavefront's
401(k) Plan. See "--401(k) Profit Sharing Plan."
(3) Includes $20,000 paid to Mr. Swan by Wavefront for his relocation expenses
when he joined Wavefront in February 1993 and $2,054 contributed by
Wavefront on behalf of Mr. Swan pursuant to Wavefront's 401(k) Plan. See
"--401(k) Profit Sharing Plan."

64
<PAGE>

EMPLOYMENT AGREEMENTS. In September 1993, Wavefront entered into an agreement
with Michael S. Noling to serve as an "at will" employee as President and Chief
Executive Officer at an initial annual base salary of $175,000. Wavefront
granted Mr. Noling options to purchase up to 275,000 shares of Wavefront Common
Stock at an exercise price of $3.00 per share. The options vest at various
rates at the end of each year that Mr. Noling remains Chief Executive Officer
until December 31, 2000, at which time they will be fully vested. Vesting may
be accelerated upon the achievement of certain performance targets which are
based on growth in net revenues and operating income and maintenance of
operating margins. In the event all performance targets are met, the options
would be fully vested in 1997. If Wavefront terminates Mr. Noling's employment
without cause (other than in the context of the change-in-control provisions
contained in the agreements described below), he is entitled to receive a
payment equal to six months of his then-current salary and the options
scheduled to vest at the end of such year, including accelerated vesting, if
performance goals were met.

In September 1993, Wavefront entered into an agreement with Martin H. Plaehn
to serve as an "at-will" employee as Executive Vice President at an initial
annual base salary of $125,000. Mr. Plaehn was granted options to purchase up
to 50,000 shares of Wavefront Common Stock at an exercise price of $3.00 per
share. The options vest at various rates at the end of each year that Mr.
Plaehn remains Executive Vice President until December 31, 2000, upon which
time they will be fully vested. Vesting may be accelerated upon the achievement
of certain performance targets which are based on growth in net revenues and
operating income and maintenance of operating margins. In the event all
performance targets are met, the options would be fully vested in 1997. If
Wavefront terminates Mr. Plaehn's employment without cause (other than in the
context of the change-in-control provisions contained in the agreements
described below), he will receive a payment equal to six months of his then-
current salary and the options scheduled to vest at the end of the year,
including accelerated vesting, if performance goals were met.

In February 1993, Wavefront entered into an agreement with David P. Swan to
serve as an "at will" employee as Vice President--Sales & Marketing of
Wavefront providing for an initial annual base salary of $125,000. Under the
agreement, Mr. Swan received a relocation check in the amount of $20,000, half
as a loan to be forgiven upon the purchase of a residence in Santa Barbara.
Wavefront also granted Mr. Swan options to purchase up to 37,500 shares of
Wavefront Common Stock at an exercise price of $2.00 per share. In May 1994,
Wavefront entered into an agreement whereby Mr. Swan is eligible to receive
bonuses based on the achievement of annual operating income, annual growth in
revenue and operating margin and worldwide software license revenue targets.

In July 1994, shortly after completing the initial public offering of
Wavefront Common Stock, the Wavefront Board authorized Wavefront to enter into
employment agreements with its executive officers and key employees. In October
1994, Wavefront entered into additional employment agreements with Michael S.
Noling, Martin H. Plaehn and David P. Swan whereby each officer's employment
shall continue to be "at will" and which provide for certain incentives to each
officer if he continues his service to Wavefront through December 31, 1995. In
addition to stating an annual base salary and providing for such performance
bonus amounts as the Wavefront Board authorizes, the employment agreements
contain certain provisions that take effect upon a change in control of
Wavefront. Upon a change in control, one-third of the unvested stock options
held by each officer will accelerate and the officer shall have the right to
exercise all or a portion of such stock options so vested. If the officer
remains in Wavefront's employ for six months after the change in control, an
additional one-third of the unvested portion of any stock options held by the
officer will accelerate. If the officer's employment is involuntarily
terminated within a period beginning two months before and ending 18 months
after a change in control, the officer will be entitled to severance pay in an
amount equal to six months of the officer's then current base cash salary. In
addition, all remaining unvested stock options held by the officer will
automatically accelerate. For twelve months following the involuntary
termination of Michael S. Noling or Martin H. Plaehn after a change in control,
Mr. Noling and/or Mr. Plaehn may be retained as consultants to the acquiror at
the rate of $500 per month for up to ten hours per month. During this time,
certain of their unvested options (if any) will continue to vest. Each
employment agreement terminates upon the earlier of the date that all
obligations of the parties under such employment agreement

65
<PAGE>

have been satisfied, or 18 months after a change in control. In consideration
for entering into the agreement certain stock options exercisable to purchase
15,000 shares and 10,000 shares of Wavefront Common Stock previously granted to
Michael S. Noling and Martin H. Plaehn, respectively, were accelerated and
stock options exercisable to purchase 15,000 shares of Wavefront Common Stock
were granted to David P. Swan at an exercise price equal to fair market value.

In December 1992, Wavefront entered into a Retention Agreement with Lawrence
S. Barels to serve as Chief Executive Officer until July 1, 1993, subject to
certain conditions, when his employment by Wavefront ceased. Wavefront paid Mr.
Barels $169,670, which was equal to the total aggregate amount of his then-
current annual salary, plus accrued vacation, and the parties released each
other from any claims arising out of his employment by Wavefront. Wavefront
granted Mr. Barels a two-year option to acquire ten copies of each of
Wavefront's VISUALIZER software products at the same price such products are
sold to Wavefront's VARs.

In October 1993, the Wavefront Board agreed to retain Mr. Barels as a
consultant at a rate of $750.00 per day plus agreed-upon expenses, for services
requested by the Chief Executive Officer. During 1993 and 1994, Mr. Barels was
paid $37,600 and $66,775, respectively, for his consulting services to
Wavefront.

In November 1993, Mr. Barels was also granted options to purchase up to
37,500 shares of Wavefront Common Stock at an exercise price of $5.00 per
share. An aggregate of 12,500 of these options vested upon the closing of
Wavefront's initial public offering and the remaining options will vest on
December 31, 1998 provided that Mr. Barels is then Chairman of the Wavefront
Board. Vesting may be accelerated for 12,500 options if Mr. Barels meets
various performance targets. Such options, if vested, are exercisable at any
time during a ten year period from the date of vesting.

OPTION GRANTS. The following table shows for the fiscal year ended December
31, 1994, certain information regarding options granted to the Named Executive
Officers.

OPTION GRANTS IN 1994

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(3)
GRANTED EMPLOYEES PRICE EXPIRATION --------------------------
NAME ( 1) IN 1994 (2) ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ----------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Noling....... -- -- -- -- -- --
Martin H. Plaehn........ -- -- -- -- -- --
David P. Swan........... 15,000(4) 6.5% $10.00 12/05/04 $ 94,335 $ 239,055
</TABLE>
- --------
(1) Under the terms of the Stock Option Plan, the Administrator retains
discretion, subject to Stock Option Plan limits, to modify the terms of
outstanding options and to reprice outstanding options.
(2) Based on a total of 231,500 options granted to employees and consultants
during 1994.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Commission and do not represent Wavefront's estimate or projection of
the future Wavefront Common Stock price.
(4) Options were granted in consideration for entering into an Employment
Agreement with Wavefront. All option grants were made at the then current
market value of Wavefront Common Stock. One-fourth of the options vest 12
months after the grant date, the remaining options vest in equal increments
at the end of each of the next 36 calendar months. See "--Employment
Agreements."

66
<PAGE>

OPTION EXERCISES AND HOLDINGS. The following table sets forth information
concerning option exercises and option holdings for the fiscal year ended
December 31, 1994 with respect to the Named Executive Officers.

AGGREGATED FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1994 (#) DECEMBER 31, 1994 ($)(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Noling....... 19,167 $190,128 70,833 185,000 $682,122 $1,781,550
Martin H. Plaehn........ -- -- 42,600 34,900 427,838 345,987
David P. Swan........... 14,844 152,151 781 36,875 8,302 271,981
</TABLE>
- --------
(1) Based on the last reported sale price for the Wavefront Common Stock, as
reported on the Nasdaq National Market on December 30, 1994, which was
$12.63.

1990 STOCK OPTION PLAN. In May 1990, Wavefront established the Stock Option
Plan. A total of 1,300,000 shares of Common Stock have been reserved for
issuance under the Stock Option Plan. Pursuant to the 1990 Stock Option Plan,
Wavefront may grant incentive stock options and non-statutory stock options to
Wavefront's employees, officers, directors and consultants. The Wavefront
Board, or a Committee to whom the Wavefront Board has delegated authority (the
"Plan Administrator"), selects Wavefront's employees, officers, directors and
consultants to whom options are granted (provided that incentive stock options
may only be granted to employees of Wavefront), interprets and adopts rules for
the operation of the Stock Option Plan and specifies other terms of such
options.

Options granted under the Stock Option Plan generally vest over four years
after the date of grant. The maximum term of a stock option under the Stock
Option Plan is ten years, but if the optionee at the time of grant has voting
power over more than 10% of Wavefront's outstanding capital stock, the maximum
term is five years. If an optionee terminates his or her service to Wavefront,
the optionee may exercise only those option shares vested as of the date of
termination and must effect such exercise within 90 days of termination of
service for any reason other than death or disability and one year after
termination due to disability or death. The exercise price of incentive stock
options granted under the Stock Option Plan must be at least equal to the fair
market value of the Wavefront Common Stock of Wavefront on the date of grant.
In no event shall the exercise price of the options be less than 85% of the
fair market value of the Wavefront Common Stock on the date of grant. The
exercise price of stock options granted to an optionee who owns stock
possessing more than 10% of the voting power of Wavefront's outstanding capital
stock must equal at least 110% of the fair market value of the Wavefront Common
Stock on the date of grant. Payment of the exercise price may be made in cash
or by shares of Wavefront's Common Stock valued at the fair market value on the
date of exercise or by a combination of such methods of payment.

In the event (i) Wavefront is acquired or merges into or with another entity
whereby Wavefront does not survive, (ii) 50% or more of Wavefront's outstanding
voting stock is transferred to holders different than those who held stock
immediately prior to a merger or sale, or (iii) Wavefront transfers or
otherwise disposes of all or substantially all of its assets, then each
outstanding option shall automatically vest and become fully exercisable unless
the successor entity assumes such options, replaces it with a comparable option
or other benefit, or the acceleration of such option is subject to other
applicable limitations.

EMPLOYEE STOCK PURCHASE PLAN. In October 1994, the Wavefront Board adopted
the Purchase Plan covering an aggregate of 200,000 shares of Wavefront Common
Stock, which became effective upon its adoption. The Purchase Plan, which is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code is administered by the Wavefront Board or by a
committee appointed by the Wavefront Board. Employees are eligible to
participate if they are employed by Wavefront or a subsidiary of Wavefront
designated by the Wavefront Board for at least 20 hours per week and are
customarily employed

67
<PAGE>

for more than five months in any calendar year. The Purchase Plan permits
eligible employees to purchase Wavefront Common Stock through payroll
deductions, which may not exceed 10% of an employee's compensation, subject to
certain limitations. The Purchase Plan will be implemented in a series of
consecutive offering periods, each of approximately 6 months duration. Offering
periods will begin on the first trading day on or after December 1 and June 1
each year. Each participant will be granted an option on the first day of the
offering period and such option will be automatically exercised on the last
date of each offering period. The purchase price of the Wavefront Common Stock
under the Purchase Plan will be equal to 85% of the lesser of the fair market
value per share of Wavefront Common Stock on the start date of that offering
period or on the last day of the offering period. Employees may end their
participation in the offering at any time during the offering period and
participation ends automatically on termination of employment with Wavefront.
The Purchase Plan will terminate in October 2004, unless otherwise terminated
by the Wavefront Board.

401(K) PROFIT SHARING PLAN. In January 1989, Wavefront adopted a 401(k)
Profit Sharing Plan (the "401(k) Plan"). All employees who have been employed
by Wavefront for at least one year of service (provided that such service
represents a minimum of 1,000 hours worked during the year) are eligible to
participate. Employees may contribute up to 15% of their current compensation
to the 401(k) Plan subject to a statutorily prescribed annual limit. Under the
401(k) Plan, Wavefront may make matching contributions equal to a discretionary
percentage, not to exceed 6%, of participating employees' salary contributions.
Wavefront currently contributes to the 401(k) Plan each year a matching
contribution equal to 25% of the first 4% of compensation contributed by an
employee. If Wavefront meets certain operating targets in any given quarter,
Wavefront will contribute a matching amount equal to 50% of the first 4% of
compensation contributed by an employee during the quarter. Employee
contributions and Wavefront's matching contributions are held and invested by
the 401(k) Plan's trustee. Distributions may be made from a participant's
account in the form of a lump sum upon termination of employment, retirement,
disability, death or in the event of financial hardship. Certain Named
Executive Officers participate in the 401(k) Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Compensation
Committee is responsible for determining salaries, incentives and other forms
of compensation for directors and officers of Wavefront and administers various
compensation and benefit plans. The current members of the Compensation
Committee are Lawrence S. Barels, Junkyo Fujieda and Antoon Van Petegem, all of
whom are non-employee directors of Wavefront. In December 1994, Jean-Charles
Hourcade resigned from the Board of Directors and Compensation Committee and
Mr. Barels, who is a former executive officer of Wavefront, was appointed to
fill the vacancy. Mr. Barels performs consulting services for Wavefront
pursuant to a consulting agreement which is described above. Messrs. Fujieda,
Van Petegem and Hourcade are officers of CSK, Barco n.v. and Thomson SA,
respectively.

On November 8, 1990, CSK purchased 770,813 shares of Wavefront Common Stock
at a price per share of $11.60 for an aggregate purchase price of $8,941,431.
CSK and Wavefront also entered into a joint venture agreement whereby the two
companies established a subsidiary, Wavefront Japan Ltd., which is 51% owned by
CSK and 49% owned by Wavefront. In addition, Wavefront entered into a software
distribution and license agreement with CSK whereby Wavefront granted CSK an
exclusive right and license to distribute certain licensed products and a non-
exclusive right and license to distribute other licensed products in Japan.
Wavefront entered into a related license agreement with Wavefront Japan Ltd.,
whereby Wavefront granted to Wavefront Japan Ltd. certain of its rights and
obligations under its software distribution and license agreement with CSK.
Sales to the joint venture were approximately $843,000, $698,000 and $1,012,000
in the years ended December 31, 1992, 1993 and 1994, respectively. Mr. Fujieda,
a Director of Wavefront, is a Senior Managing Director of CSK.

On September 30, 1993, Wavefront entered into an agreement with Thomson SA
under which Wavefront acquired all of the outstanding shares of TDI in exchange
for 615,747 shares of Wavefront Common Stock, a promissory note bearing 5%
interest due September 30, 1995 with an aggregate principal amount of
8,250,000FF (approximately $1,500,000) and cash of approximately $1,000,000.
The promissory note permits Wavefront to make repayments without penalty and
requires Wavefront to make repayments on a quarterly basis based on the level
of revenues from certain product sales. The promissory note is convertible, in
whole

68
<PAGE>

or in part, at the option of the holder on September 30, 1995 into shares of
Wavefront's Common Stock at a rate of $10.00 per share subject to certain
adjustments. Mr. Hourcade, a former Director of Wavefront, is a Director of
Business Development of THOMSON-CSF/Information Technology Group.

In November 1993, holders of 93,970 and 419,167 shares, respectively, of
Wavefront's Series A and B Preferred Stock, respectively, exchanged their
shares on a one-for-one basis for 513,137 shares of Wavefront Common Stock and
non-interest bearing secured promissory notes of $1,727,000 due September 30,
1995 (the "Common Promissory Notes"). The Common Promissory Notes were secured
by all tangible and intangible personal property of Wavefront until Wavefront
offered to repurchase the Common Promissory Notes and repurchased all Common
Promissory Notes tendered within thirty days from delivery of such offer. Barco
n.v. ("Barco") exchanged 250,000 shares of Wavefront Series B Preferred Stock
for 250,000 shares of Wavefront Common Stock and a promissory note in the
amount of $900,000, which is still outstanding, as part of the exchange. Barco
purchased the 250,000 shares of Wavefront Series B Preferred Stock from
Wavefront on April 14, 1987 at a price per share of $6.00. Mr. Van Petegem, a
Director of Wavefront, is Chief Financial Officer, Controller and a Director of
Barco.

LIMITATION OF LIABILITY AND INDEMNIFICATION. Wavefront's Amended and Restated
Articles of Incorporation (the "Wavefront Articles") limit the liability of
Wavefront's directors for monetary damages to the fullest extent permitted
under California law. The Wavefront Articles authorize Wavefront to indemnify
agents of Wavefront in excess of the indemnification otherwise permitted by
Section 317 of the CCC, subject only to applicable limits set forth in Section
204 of the CCC with respect to actions for breach of duty to the corporation
and its shareholders. Wavefront's Bylaws provide that Wavefront shall indemnify
agents to the fullest extent permitted by law.

Wavefront has entered into indemnification agreements with its officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the CCC. The indemnification
agreements may require Wavefront, among other things, to indemnify such
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 expenses
reasonably expected to be incurred in defending any proceeding against them for
which they would receive indemnification. Wavefront carries directors' and
officers' liability insurance with respect to certain matters, including
matters arising under the Securities Act.

69
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of Wavefront Common Stock as of February 1, 1995 by (i)
each person known by Wavefront to be the beneficial owner of more than 5% of
the outstanding shares of Wavefront Common Stock, (ii) each of Wavefront's
Named Executive Officers and current directors and (iii) all Wavefront
directors and executive officers as a group.

<TABLE>
<CAPTION>
APPROXIMATE PERCENT
NAME(1) COMMON STOCK OWNED OWNED
------- ------------------ -------------------
<S> <C> <C>
CSK Corporation, Shinjuku Sumitomo
Building, 17th Floor 2-6-1 Nishi-
Shinjuku Shinjuku, Tokyo 163 Japan(2). 770,813 9.1%
Farmers Group, Inc., 4680 Wilshire
Boulevard Los Angeles, CA 90010(3).... 608,800 7.2%
Barco n.v., President Kennedy Park 35
B-8500 Kortrijk Belgium............... 500,000 5.9%
Integral Capital Partners, 2750 Sand
Hill Road, Menlo Park, CA 94025(4).... 488,000 5.8%
Lawrence S. Barels(5).................. 252,827 3.0%
Michael S. Noling(6)................... 90,000 1.1%
Martin H. Plaehn(7).................... 71,246 *
David P. Swan(8)....................... 4,844 *
Junkyo Fujieda, Shinjuku Sumitomo
Building, 17th Floor 2-6-1 Nishi-
Shinjuku Shinjuku, Tokyo 163 Japan(9). 48,333 *
Antoon Van Petegem, President Kennedy
Park 35 B-8500 Kortrijk Belgium(10)... 1,250 *
All directors and executive officers as
a group (11 persons) (5)-(10)......... 527,210 6.1%
</TABLE>
- --------
(1) Except as set forth herein, the address of the directors and Named
Executive Officers set forth below is the address of Wavefront appearing
elsewhere in this Proxy Statement/Prospectus. Unless otherwise noted,
Wavefront believes that all persons named in the table have sole voting and
investment power with respect to all shares of Wavefront Common Stock
beneficially owned by them.
(2) Excludes 48,185 shares held individually by Isao Okawa who is chief
Executive Officer of CSK and may be deemed to beneficially own the 770,813
shares held by CSK. Mr. Okawa disclaims beneficial ownership of the shares
held by CSK.
(3) B.A.T. Industries p.l.c. may be deemed to be the indirect beneficial owner
of the securities by indirectly owning 100% of the issued and outstanding
shares of Farmers Group, Inc. through a wholly-owned subsidiary. According
to information set forth in a Schedule 13G filed with the Commission on
February 14, 1995.
(4) Includes 253,205 shares owned by Integral Capital Partners, L.P., 151,135
shares owned by Integral Capital Partners II, L.P., 26,497 shares owned by
Integral Capital Partners International C.V. and 57,163 shares owned by
Integral Capital Partners International II C.V. According to information
set forth in a Schedule 13D filed with the Commission on December 22, 1994.
(5) Includes 25,500 shares issuable upon exercise of vested options. Excludes
5,000 shares held by Orion R. Barels and 5,000 shares held by Tiare A.
Barels, minor children of Lawrence S. Barels. Mr. Barels disclaims
beneficial ownership of these shares. Mr. Barels is a co-founder and
Chairman of the Board of Wavefront.
(6) Includes 70,833 shares issuable upon exercise of vested options.
(7) Includes 48,746 shares issuable upon exercise of vested options.
(8) Includes 4,844 shares issuable upon exercise of vested options.
(9) Excludes 770,813 shares held by CSK, of which Mr. Fujieda is Senior
Managing Director. Mr. Fujieda is a director of Wavefront.
(10)Excludes 500,000 shares held by Barco n.v., of which Mr. Van Petegem is an
officer and director.
*Less than 1%.

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<PAGE>

COMPARISON OF SHAREHOLDERS' RIGHTS

In the event that the Merger is consummated, former holders of shares of
Wavefront Common Stock will, at the Effective Time, own shares of SGI Common
Stock.

While the rights and privileges of stockholders of a Delaware corporation
such as SGI are, in many instances, comparable to those of shareholders of a
California corporation such as Wavefront, there are certain differences. The
following is a summary of the material differences between the rights of
holders of SGI Common Stock and the rights of holders of Wavefront Common Stock
at the date hereof. These differences arise from differences between the
Delaware General Corporation Law (the "DGCL") and the CCC and between the SGI
Restated Certificate and the SGI bylaws (the "SGI Bylaws") and the Wavefront
Articles and Wavefront's bylaws (the "Wavefront Bylaws").

VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS

The DGCL requires the affirmative vote of a majority of the outstanding stock
entitled to vote thereon to authorize any merger or consolidation of a
corporation, except that, unless required by its certificate of incorporation,
no authorizing stockholder vote is required of a corporation surviving a merger
if (a) such corporation's certificate of incorporation is not amended in any
respect by the merger, (b) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be an identical
outstanding or treasury share of the surviving corporation after the effective
date of the merger, and (c) the number of shares to be issued in the merger
does not exceed 20% of such corporation's outstanding common stock immediately
prior to the effective date of the merger. The SGI Restated Certificate does
not require a greater percentage vote for such actions. Shareholder approval is
also not required under the DGCL for mergers or consolidations in which a
parent corporation merges or consolidates with a subsidiary of which it owns at
least 90% of the outstanding shares of each class of stock.

The CCC requires that the principal terms of a merger be approved by the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon, except that, unless required by its articles of incorporation,
no authorizing shareholder vote is required of a corporation surviving a merger
if the shareholders of such corporation shall own, immediately after the
merger, more than five-sixths of the voting power of the surviving corporation.
The Wavefront Articles do not require a greater percentage vote. The CCC
further requires the affirmative vote of a majority of the outstanding shares
entitled to vote thereon if (a) the surviving corporation's articles of
incorporation will be amended and would otherwise require shareholder approval
or (b) shareholders of such corporation will receive shares of the surviving
corporation having different rights, preferences, privileges or restrictions
(including shares in a foreign corporation) than the shares surrendered.
Shareholder approval is not required under the CCC for mergers or
consolidations in which a parent corporation merges or consolidates with a
subsidiary of which it owns at least 90% of the outstanding shares of each
class of stock.

CUMULATIVE VOTING

The SGI Restated Certificate and the SGI Bylaws provide for cumulative voting
in director elections. Shareholders of Wavefront currently may cumulate their
votes for the election of directors so long as at least one shareholder has
given notice at the meeting of shareholders prior to the voting of that
shareholder's desire to cumulate his or her votes. Cumulative voting will no
longer be required or permitted under the Wavefront Articles at such time as
(i) the Wavefront Common Stock are listed on the Nasdaq National Market and
Wavefront has at least 800 holders of its equity securities as of the record
date of Wavefront's most recent annual meeting of shareholders or (ii) the
Wavefront Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange (a "Listed Corporation"). Wavefront expects to be a Listed
Corporation for its 1995 Annual Meeting of Shareholders, if the Merger has not
been consummated prior to the date the meeting is to be held.

71
<PAGE>

CLASSIFICATION OF BOARD OF DIRECTORS

The SGI Restated Certificate and the SGI Bylaws provide for a classified
board of directors consisting of three classes. Upon becoming a Listed
Corporation, the Wavefront Articles provide for a classified board of directors
consisting of three classes.

AMENDMENT TO GOVERNING DOCUMENTS

The DGCL requires a vote of the corporation's board of directors followed by
the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation, unless
a greater level of approval is required by the certificate of incorporation.
The SGI Restated Certificate does not require a greater level of approval for
an amendment thereto. If an amendment would alter the powers, preferences or
special rights of a particular class or series of stock so as to affect them
adversely, the class or series shall be given the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. The DGCL also states that the power to adopt,
amend or repeal the by-laws of a corporation shall be in the stockholders
entitled to vote, provided that the corporation in its certificate of
incorporation may confer such power on the board of directors in addition to
the stockholders. The SGI Restated Certificate expressly authorizes each of the
board of directors and the stockholders to adopt, amend or repeal the SGI
Bylaws.

Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval. The Wavefront Articles do not require a greater level
of approval for an amendment thereto. Under the CCC, the holders of the
outstanding shares of a class are entitled to vote as a class if a proposed
amendment to the articles of incorporation would (i) increase or decrease the
aggregate number of authorized shares of such class, (ii) effect an exchange,
reclassification or cancellation of all or part of the shares of such class,
other than a stock split, (iii) effect an exchange, or create a right of
exchange, of all or part of the shares of another class into the shares of such
class, (iv) change the rights, preferences, privileges or restrictions of the
shares of such class, (v) create a new class of shares having rights,
preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares having
rights, preferences or privileges prior to the shares of such class, (vi) in
the case of preferred shares, divide the shares of any class into series having
different rights, preferences, privileges or restrictions or authorize the
board of directors to do so, or (vii) cancel or otherwise affect dividends on
the shares of such class which have accrued but have not been paid. Under the
CCC, a corporation's by-laws may be adopted, amended or repealed either by the
board of directors or the shareholders of the corporation. The Wavefront Bylaws
provide that the Wavefront Bylaws may be adopted, amended or repeated either by
the vote of the holders of a majority of the outstanding shares entitled to
vote or by the board of directors; provided, however, that the Wavefront Board
may not amend the Wavefront Bylaws in order to change the authorized number of
directors (except to alter the authorized number of directors within the
existing range of a minimum of five and a maximum of nine directors). A bylaw
adopted by the shareholders may restrict or eliminate the power of the
Wavefront Board to adopt, amend or repeal the Wavefront Bylaws.

DISSENTERS' RIGHTS

Under the DGCL, holders of shares of any class or series have the right, in
certain circumstances, to dissent from a merger or consolidation by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters. The DGCL grants dissenters' appraisal rights
only in the case of mergers or consolidations and not in the case of a sale or
transfer of assets or a purchase of assets for stock regardless of the number
of shares being issued. Further, no appraisal rights are available for shares
of any class or series listed on a national securities exchange or designated
as a national market

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system security on the Nasdaq National Market or held of record by more than
2,000 stockholders, unless the agreement of merger or consolidation converts
such shares into anything other than (a) stock of the surviving corporation,
(b) stock of another corporation which is either listed on a national
securities exchange or designated as a national market system security on the
Nasdaq National Market or held of record by more than 2,000 stockholders, (c)
cash in lieu of fractional shares, or (d) some combination of the above. In
addition, dissenter's rights are not available for any shares of the surviving
corporation if the merger did not require the vote of the stockholders of the
surviving corporation.

Generally, shareholders of a California corporation who dissent from a merger
or consolidation of the corporation are entitled to dissenters rights. See "The
Merger--Rights of Dissenting Shareholders."

DERIVATIVE ACTION

Derivative actions may be brought in Delaware by a stockholder on behalf of,
and for the benefit of, the corporation. The DGCL provides that a stockholder
must aver in the complaint that he or she was a stockholder of the corporation
at the time of the transaction of which he or she complains. A stockholder may
not sue derivatively unless he first makes demand on the corporation that it
bring suit and such demand has been refused, unless it is shown that such
demand would have been futile.

The CCC provides that a shareholder bringing a derivative action on behalf of
the corporation need not have been a shareholder at the time of the transaction
in question, provided that certain tests are met. The CCC also provides that
the corporation or the defendant in a derivative suit may make a motion to the
court for an order requiring the plaintiff shareholder to furnish a security
bond.

SHAREHOLDER CONSENT IN LIEU OF MEETING

Under the DGCL and the CCC, unless otherwise provided in the certificate or
articles of incorporation, any action required to be taken or which may be
taken at an annual or special meeting of stockholders may be taken without a
meeting if a consent in writing is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote were
present and voted. Neither the SGI Restated Certificate nor the Wavefront
Articles contain any special provision relating to action by written consent.

FIDUCIARY DUTIES OF DIRECTORS

Directors of corporations incorporated or organized under the DGCL and the
CCC have fiduciary obligations to the corporation and its shareholders.
Pursuant to these fiduciary obligations, the directors must act in accordance
with the so-called duties of "due care" and "loyalty". Under the DGCL, the duty
of care requires that the directors act in an informed and deliberative manner
and to inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty may be summarized
as the duty to act in good faith, not out of self-interest and in a manner
which the directors reasonably believe to be in the best interests of the
corporation. Under the CCC, the duty of loyalty requires directors to perform
their duties in good faith in a manner which the directors reasonably believe
to be in the best interests of the corporation and its stockholders. The duty
of care requires that the directors act with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would exercise
under similar circumstances.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents (each, an "indemnitee") against all
reasonable expenses (including attorneys' fees) and, except in actions
initiated by or in the right of the corporation, against all judgments, fines
and amounts paid in settlement in actions brought against them, if such
individual acted in good faith, and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of the stockholders
and, in the

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case of a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The corporation shall indemnify an indemnitee to the
extent that he or she is successful on the merits or otherwise in the defense
of any claim, issue or matter associated with an action. The SGI Restated
Certificate provides for indemnification of directors or officers to the
fullest extent authorized by the DGCL.

Under the CCC, (i) a corporation has the power to indemnify present and
former directors, officers, employees and agents against expenses, judgments,
fines and settlements (other than in connection with actions by or in the right
of the corporation) if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of the person was unlawful, and (ii) a corporation has the power to
indemnify, with certain exceptions, any person who is a party to any action by
or in the right of the corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of the
action if the person acted in good faith and in a manner the person believed to
be in the best interests of the corporation and its shareholders.

The indemnification authorized by the CCC is not exclusive, and a corporation
may grant its directors, officers, employees or other agents certain additional
rights to indemnification. The Wavefront Articles and the Wavefront Bylaws
provide for the indemnification of its agents (as defined under the CCC) to the
fullest extent permissible under the CCC, which may be in excess of the
indemnification expressly permitted by Section 317 of the CCC, subject to the
limits set forth in Section 204 of the CCC with respect to actions for breach
of duty to the corporation and its shareholders.

The DGCL and the CCC allow for the advance payment of an indemnitee's
expenses prior to the final disposition of an action, provided that the
indemnitee undertakes to repay any such amount advanced if it is later
determined that the indemnitee is not entitled to indemnification with regard
to the action for which the expenses were advanced.

DIRECTOR LIABILITY

The DGCL and the CCC each provides that the charter of the corporation may
include a provision which limits or eliminates the liability of directors to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided such liability does not arise from
certain proscribed conduct, including, in the case of the DGCL, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, breach of the duty of loyalty, the payment of
unlawful dividends or expenditure of funds for unlawful stock purchases or
redemptions or transactions from which such director derived an improper
personal benefit or, in the case of the CCC, intentional misconduct or knowing
and culpable violation of law, acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, the receipt of
an improper personal benefit, acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders, acts
or omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director's duty to the corporation and its
shareholders, interested transactions between the corporation and a director in
which a director has a material financial interest and liability for improper
distributions, loans or guarantees. The SGI Restated Certificate contains a
provision limiting the liability of its directors to the fullest extent
permitted by the DGCL. The Wavefront Articles contain a provision limiting the
liability of its directors to the fullest extent provided by the CCC.

ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS

The DGCL prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder". An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the Corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior year period. A "business combination" includes a merger or consolidation,

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a sale or other disposition of assets having an aggregate market value equal to
10% or more of the consolidated assets of the corporation or the aggregate
market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where: (i)
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired such
15% interest; (ii) upon the consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation excluding
for the purposes of determining the number of shares outstanding shares held by
persons who are directors and also officers and by employee stock plans in
which participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered; (iii) the business
combination is approved by a majority of the board of directors and the
affirmative vote of two-thirds of the outstanding votes entitled to be cast by
disinterested stockholders at an annual or special meeting; (iv) the
corporation does not have a class of voting stock that is listed on a national
securities exchange, authorized for quotation on an inter-dealer quotation
system of a registered national securities association, or held of record by
more than 2,000 stockholders unless any of the foregoing results from action
taken, directly or indirectly, by an interested stockholder or from a
transaction in which a person becomes an interested stockholder; or (v) the
corporation has opted out of this provision. SGI has not opted out of this
provision.

Under the CCC, there is no comparable provision. However, the CCC does
provide that, except where the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations
and except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholders already
owns 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.

RIGHTS PLAN

Effective February 1, 1991, the SGI Board declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of SGI
Common Stock, to stockholders of record as of the close of business on March 1,
1991 and for each share of SGI Common Stock issued thereafter pursuant to a
Preferred Shares Rights Agreement (as amended, the "Rights Agreement"). One
Right will be issued for each share of SGI Common Stock issued in connection
with the Merger. Each Right entitles the registered holder to purchase from SGI
one-thousandth of a share of Series B Participating Preferred Stock (the "SGI
Series B Preferred"), at a price of $200.00 (as of May 2, 1995), subject to
adjustment under certain circumstances set forth in the Rights Agreement. Upon
the occurrence of certain events generally associated with an unsolicited
attempt to take over SGI, the Rights (except for Rights held by an Acquiring
Person (as defined in the Rights Agreement)) will become exercisable and will
cease to trade with the SGI Common Stock. Upon the acquisition without the
consent of the SGI Board of 15% or more of the outstanding shares of SGI Common
Stock or announcement of a tender offer or exchange offer for shares in excess
of 15% or more of the outstanding shares of SGI Common Stock, each Right
(except for Rights held by an Acquiring Person) will be converted into a right
to purchase at the then-current exercise price of the Right that number of
shares of SGI Common Stock having a market value of two times the exercise
price of the Right or, in the event of a merger of SGI into an Acquiring
Person, securities of the Acquiring Person having a market value of two times
the exercise price of the Right. Under certain conditions, SGI may elect to
redeem the Rights for a nominal amount or to exchange the Rights not held by an
Acquiring Person for SGI Common Stock on a one-for-one basis.

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The Rights are designed to protect and maximize the value of the outstanding
equity interests of SGI in the event of an unsolicited attempt by an acquiror
to take over SGI in a manner or on terms not approved by the SGI Board.
Takeover attempts frequently include coercive tactics to deprive a
corporation's board of directors and its stockholders of any real opportunity
to determine the destiny of the corporation. The Rights have been declared by
the SGI Board in order to deter such tactics, including a gradual accumulation
of shares in the open market of a 15% or greater position to be followed by a
merger or a partial or two-tier tender offer that does not treat all
stockholders equally. These tactics could unfairly pressure stockholders,
squeeze them out of their investment without giving them a real choice or
deprive them of the full value of their shares.

The Rights are not intended to prevent a takeover of SGI and will not do so.
Nevertheless, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of SGI deemed undesirable by the SGI Board. The
Rights may cause substantial dilution to a person or group that attempts to
acquire SGI on terms or in a manner not approved by the SGI Board, except
pursuant to an offer conditioned upon the negation, purchase or redemption of
the Rights.

Wavefront does not have a rights plan.

ADOPTION AND APPROVAL
OF EMPLOYEE STOCK PURCHASE PLAN

The Purchase Plan was adopted by the Wavefront Board in October 1994 and
became effective upon its adoption, subject to shareholder approval. An
aggregate of 200,000 shares of Wavefront Common Stock were reserved for
issuance under the Purchase Plan. Approximately 84 employees are participating
in the first offering period which began on December 1, 1994.

THE DISCUSSION HEREIN OF THE PURCHASE PLAN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COPY OF THE PURCHASE PLAN ATTACHED TO THIS PROXY STATEMENT AS
ANNEX B, WHICH SHAREHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY.

VOTE REQUIRED

The affirmative vote of the holders of a majority of the shares of Wavefront
Common Stock voting present (in person or by proxy) at the Special Meeting and
entitled to vote thereon will be required to approve the adoption of the
Purchase Plan.

THE WAVEFRONT BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE PURCHASE PLAN.

SUMMARY OF THE PURCHASE PLAN

GENERAL. The Purchase Plan, which is intended to qualify under Section 423 of
the Code, permits eligible employees to purchase Wavefront Common Stock through
payroll deductions at a price equal to 85% of the fair market value of the
Wavefront Common Stock at the beginning or at the end of each offering period,
whichever is lower. A total of 200,000 shares of Wavefront Common Stock have
been reserved for issuance under the Purchase Plan.

PURPOSE. The purpose of the Purchase Plan is to provide employees of
Wavefront and its designated subsidiaries with an opportunity to purchase
Wavefront Common Stock through accumulated payroll deductions.

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ADMINISTRATION. The Purchase Plan is administered by the Wavefront Board or a
committee appointed by the Board. All questions of interpretation of the
Purchase Plan are determined by the administrator, whose decisions are final
and binding upon all participants.

ELIGIBILITY. Any person who is employed by Wavefront (or any of its
designated subsidiaries) for at least 20 hours per week and more than five
months in a calendar year is eligible to participate in the Purchase Plan,
provided that the employee is employed on the first day of an offering period.
Approximately 151 employees are currently eligible to participate in the
Purchase Plan.

PARTICIPATION. Eligible employees become participants in the Purchase Plan by
delivering to the Company a subscription agreement authorizing payroll
deductions prior to the applicable offering date, unless a later time for
filing the subscription agreement has been set by the Wavefront Board for all
eligible employees with respect to a given offering period.

OFFERING PERIODS. The Purchase Plan is implemented by consecutive six-month
offering periods commencing on or about December 1 and June 1 of each year or
on such date as the Board shall determine. The Wavefront Board may change the
duration of the offering periods with respect to future offerings without
shareholder approval upon fifteen days prior notice. The first Offering Period
commenced on December 1, 1994 and will end on May 31, 1995.

PURCHASE PRICE. The purchase price per share at which shares are sold under
the Purchase Plan is the lower of 85% of the fair market value of the Wavefront
Common Stock on the date of commencement of the six-month offering period or
85% of the fair market value of the Wavefront Common Stock on the last day of
the offering period. The fair market value of the Wavefront Common Stock on a
given date shall be determined by the Wavefront Board based upon the closing
price of the Wavefront Common Stock on the Nasdaq National Market as of such
date.

PAYMENT OF PURCHASE PRICE: PAYROLL DEDUCTIONS. The purchase price of the
shares is accumulated by payroll deductions during the offering period. The
deductions may not exceed 10% of a participant's eligible compensation which is
defined in the Purchase Plan to include the base straight time gross earnings
and sales commissions during the offering period, exclusive of any payments for
overtime, shift premium, incentive compensation, incentive payments, bonuses or
other compensation. A participant may discontinue his or her participation in
the Purchase Plan or may decrease or increase (but not more than once during an
exercise period) the rate of payroll deductions at any time during the offering
period. Payroll deductions shall commence on the first payday following the
offering date, and shall continue at the same rate until the end of the
offering period unless sooner terminated as provided in the Purchase Plan.

GRANT AND EXERCISE OF OPTION. The maximum number of shares placed under
option to a participant in an offering is that number determined by dividing
the amount of the participant's total payroll deductions to be accumulated
prior to an exercise date (not to exceed $5,000) by the lower of 85% of the
fair market value of the Wavefront Common Stock at the beginning of the
offering period or 85% of the fair market value of the Wavefront Common Stock
on the exercise date. The fair market value of the Wavefront Common Stock on a
given date shall be the closing sale price of the Wavefront Common Stock for
such date as reported by the Nasdaq National Market or, if such price is not
reported, the means of the bid and asked prices per share of the Wavefront
Common Stock as reported by NASDAQ or, if listed on a stock exchange, the
closing price on such exchange as of such date or, if not traded on such date,
on the immediately preceding trading date as reported in The Wall Street
Journal. Unless a participant withdraws from the Purchase Plan, such
participant's option for the purchase of shares will be exercised automatically
on each exercise date for the maximum number of whole shares at the applicable
price.

Notwithstanding the foregoing, no employee will be permitted to subscribe for
shares under the Purchase Plan if, immediately after the grant of the options,
the employee would own 5% or more of the voting power

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or value of all classes of stock of Wavefront or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options), nor shall any employee be granted an option which would
permit the employee to buy pursuant to the Purchase Plan more than $11,765
worth of stock determined at the fair market value of the shares at the time
the option is granted) in any calendar year.

WITHDRAWAL; TERMINATION OF EMPLOYMENT. A participant's interest in a given
offering may be terminated in whole, but not in part, at any time by signing
and delivering to Wavefront a notice of withdrawal from the Purchase Plan. Any
withdrawal by the participant of accumulated payroll deductions for a given
offering automatically terminates the participant's interest in that offering.
The failure to remain in the continuous employ of the Company for at least 20
hours per week during an offering period will be deemed to be a withdrawal from
that offering.

TRANSFERABILITY. Neither accumulated payroll deductions nor any rights with
regard to the exercise of an option or to receive shares under the Purchase
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in the
Purchase Plan) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that Wavefront may
treat such act as an election to withdraw from the Purchase Plan.

ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event any change is made
in Wavefront's capitalization, such as a stock split or stock dividend, which
results in an increase or decrease in the number of outstanding shares of
Wavefront Common Stock without receipt of consideration by Wavefront,
appropriate adjustments will be made by the Wavefront Board to the shares
subject to purchase under the Purchase Plan and in the purchase price per
share.

In the event of the proposed dissolution or liquidation of Wavefront, the
offering will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. In the event of a proposed sale
of all or substantially all of the assets of Wavefront, or the merger of
Wavefront with or into another corporation, each option under the Purchase Plan
shall be assumed or an equivalent option shall be substituted by such successor
corporation, unless the Wavefront Board decides to shorten the offering period
then in progress by setting a new exercise date or to cancel each outstanding
right to purchase and refund all sums collected from participants during the
offering period then in progress. If the Wavefront Board shortens the offering
period then in progress in lieu of assumption or substitution, participants
shall have ten (10) days to withdraw from the offering period. Wavefront has
agreed in the Merger Agreement to shorten the offering period then in progress
so as to end on the last trading day immediately prior to the Effective Time.

EFFECT OF APPROVAL OR DISAPPROVAL OF THE MERGER. The approval or disapproval
of the Merger will have no effect on the adoption and approval of the Purchase
Plan. If the Merger is approved, the funds credited to each Purchase Plan
participant's account will be used to purchase whole shares of Wavefront Common
Stock. Such shares will be converted to SGI Common Stock upon the effective
time of the Merger and such participants can then take part in the SGI Employee
Stock Purchase plan, if eligible. If the Merger is not approved, the Purchase
Plan will continue to be implemented in the present manner, subject to
shareholder approval.

AMENDMENT OR TERMINATION. The Wavefront Board may at any time terminate or
amend the Purchase Plan, except that termination shall not affect options
previously granted and no amendment may make any change in any option
previously granted which adversely affects the rights of any participant.
Unless terminated sooner, the Purchase Plan will continue in effect until
October 28, 2004.

TAX INFORMATION

The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of offering period and one year from the date the
shares are purchased, the participant will recognize ordinary income measured
as the lesser of (a) the excess of the fair market value of the shares at

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the time of such sale or disposition over the purchase price, or (b) an amount
equal to 15% of the fair market value of the shares as of the first day of the
offering period. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss
depending on the holding period. Wavefront is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent that it is entitled to a deduction for ordinary income recognized by
participants upon a sale or disposition of shares prior to the expiration of
the holding periods described above.

The foregoing is only a summary of the effect of federal income taxation upon
the participant and Wavefront with respect to the shares purchased under the
Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.

PARTICIPATION IN PURCHASE PLAN

The following shares of Wavefront Common Stock will be purchased by the named
executive officers, all current executive officers as a group, all non-
executive directors as a group and all employees (including current officers)
who are not executive officers as a group:

NEW PLAN BENEFITS
EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NUMBER
DOLLAR OF SHARES
NAME AND POSITION VALUE($)(1)(2) PURCHASED(2)
- ----------------- -------------- ------------
<S> <C> <C>
Michael S. Noling
President and Chief Executive Officer.............. $3,112 511
Martin H. Plaehn
Executive Vice President--Corporate and Product
Development....................................... 0 0
David P. Swan
Vice President--Sales and Marketing................ 3,112 511
Executive Group.................................... 15,291 2,507
Non-Executive Director Group....................... 0 0
Non-Executive Officer Employee Group............... 83,559 13,699
</TABLE>
- --------
(1) Market value of shares purchased less purchase price. Market value based on
the fair market value of the Wavefront Common Stock on March 6, 1995, which
was $15.88, as reported as the closing price on the Nasdaq National Market.
Purchase price based on the information in note 2 below.

(2) Assumes that the offering period will end on May 31, 1995 and that the
purchase price will be 85% of the fair market value of the Wavefront Common
Stock on December 1, 1994, the first day of the offering period, which was
$11.50 per share, as reported as the closing price on the Nasdaq National
Market.

EXPERTS

The consolidated financial statements of SGI at June 30, 1994 and 1993, and
for each of the three years in the period ended June 30, 1994, which have been
incorporated by reference in this Proxy Statement/Prospectus, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon incorporated by reference herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

The consolidated financial statements of Wavefront at December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
included in this Proxy Statement/Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.

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The consolidated financial statements of Alias at January 31, 1995 and 1994,
and for each of the two years in the period ended January 31, 1995, which have
been incorporated by reference in this Proxy Statement/Prospectus, have been
audited by KPMG Peat Marwick Thorne, independent auditors, as set forth in
their report incorporated by reference herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

The consolidated financial statements of Alias for the year ended January 31,
1993, which have been incorporated by reference in this Proxy
Statement/Prospectus, have been audited by Deloitte & Touche, independent
auditors, as set forth in their report incorporated by reference herein, and
are included in reliance upon such report upon the authority of such firm as
experts in accounting and auditing.

LEGAL MATTERS

The validity of the SGI Common Stock issuable pursuant to the Merger will be
passed upon for SGI by Shearman & Sterling, San Francisco, California. Wilson,
Sonsini, Goodrich & Rosati, P.C., Palo Alto, California is acting as counsel
for Wavefront in connection with certain legal matters relating to the Merger
and the transactions contemplated thereby.

OTHER MATTERS

The Wavefront Board does not intend to bring any matters before the meeting
other than those specifically set forth in the notice of meeting and does not
know of any matters to be brought before the meeting by others. If any other
matters properly come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy in accordance with the
judgment of the Wavefront Board.

SHAREHOLDER PROPOSALS

The date by which shareholder proposals must have been received by Wavefront
for inclusion in the proxy statement and the form of proxy for its 1995 Annual
Meeting of Shareholders, if the Merger has not been consummated prior to the
date the meeting is to be held, is August 1, 1995.

80
<PAGE>

INDEX TO FINANCIAL STATEMENTS

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets, December 31, 1994 and 1993.................... F-3
Consolidated Statements of Operations, Years Ended December 31, 1994, 1993
and 1992.................................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit), Years Ended
December 31, 1994, 1993 and 1992.......................................... F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1994, 1993
and 1992.................................................................. F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS OF WAVEFRONT TECHNOLOGIES, INC.:

We have audited the accompanying consolidated balance sheets of WAVEFRONT
TECHNOLOGIES, INC. (a California corporation) and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 Wavefront
Technologies, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.

/s/ Arthur Andersen LLP

Los Angeles, California
February 21, 1995

F-2
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $18,579,000 $ 5,596,000
Short-term investments............................ 1,747,000 --
Accounts receivable, net of allowance for doubtful
accounts of $413,000 and $344,000 at December 31,
1994 and 1993 respectively....................... 6,520,000 5,803,000
Employee and other receivables.................... 569,000 585,000
Inventories....................................... 119,000 121,000
Prepaid expenses and other........................ 880,000 538,000
----------- -----------
Total current assets................................ 28,414,000 12,643,000
----------- -----------
Property and equipment, at cost:
Equipment......................................... 6,500,000 5,474,000
Office furniture and fixtures..................... 813,000 948,000
Leasehold improvements............................ 469,000 460,000
----------- -----------
7,782,000 6,882,000
Less--Accumulated depreciation and amortization... 5,899,000 5,309,000
----------- -----------
1,883,000 1,573,000
----------- -----------
Capitalized software development costs, net of
accumulated amortization of $1,634,000 and
$1,219,000 at December 31, 1994 and 1993
respectively....................................... 630,000 779,000
----------- -----------
Investment in joint venture......................... 832,000 761,000
----------- -----------
Goodwill, net of accumulated amortization of
$133,000 and $33,000 at
December 31, 1994 and 1993 respectively............ 867,000 967,000
----------- -----------
Deposits and other assets........................... 90,000 89,000
----------- -----------
Total assets........................................ $32,716,000 $16,812,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 2,794,000 $ 3,266,000
Accrued liabilities:
Payroll related................................. 1,874,000 1,355,000
Other........................................... 1,264,000 1,373,000
Reserve for loss on abandonment of lease.......... 600,000 600,000
Unearned revenue.................................. 3,524,000 3,621,000
Income taxes payable.............................. 262,000 13,000
Current portion of long term debt................. 2,046,000 160,000
----------- -----------
Total current liabilities........................... 12,364,000 10,388,000
----------- -----------
Long term debt, net of current portion.............. -- 2,884,000
----------- -----------
Redeemable preferred stock, at redemption value,
1,150,680 shares outstanding at December 31, 1993.. -- 8,518,000
----------- -----------
Shareholders' equity (deficit):
Convertible preferred stock 5,417,631 shares
authorized at December 31, 1994; 417,631 and
774,486 issued and outstanding at December 31,
1994 and 1993, respectively...................... 2,467,000 3,800,000
Common stock, no par value, 25,000,000 authorized,
7,997,831 and 3,340,573 issued and outstanding at
December 31, 1994 and December 31, 1993
respectively..................................... 31,011,000 8,020,000
Notes receivable from sale of common stock........ -- (15,000)
Accumulated deficit............................... (12,970,000) (16,808,000)
Cumulative foreign currency translation
adjustments...................................... (156,000) 25,000
----------- -----------
Total shareholders' equity (deficit)................ 20,352,000 (4,978,000)
----------- -----------
Total liabilities and shareholders' equity
(deficit).......................................... $32,716,000 $16,812,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Product.............................. $21,186,000 $12,515,000 $ 9,890,000
Maintenance and other revenue........ 6,528,000 5,343,000 4,847,000
----------- ----------- -----------
27,714,000 17,858,000 14,737,000
----------- ----------- -----------
Costs of Revenue:
Cost of product revenue.............. 3,594,000 2,083,000 1,739,000
Cost of maintenance and other
revenue............................. 1,094,000 796,000 738,000
----------- ----------- -----------
4,688,000 2,879,000 2,477,000
----------- ----------- -----------
Gross profit........................... 23,026,000 14,979,000 12,260,000
----------- ----------- -----------
Expenses:
Research and development............. 5,427,000 8,922,000 2,470,000
Sales and marketing.................. 11,282,000 7,283,000 6,542,000
General and administrative........... 2,460,000 1,757,000 1,760,000
----------- ----------- -----------
19,169,000 17,962,000 10,772,000
----------- ----------- -----------
Income (loss) from operations.......... 3,857,000 (2,983,000) 1,488,000
----------- ----------- -----------
Other income (expense):
Interest net......................... 202,000 112,000 44,000
Other................................ 70,000 (56,000) 68,000
----------- ----------- -----------
272,000 56,000 112,000
----------- ----------- -----------
Income (loss) before provision for
income taxes.......................... 4,129,000 (2,927,000) 1,600,000
Provision for income taxes............. 291,000 100,000 43,000
----------- ----------- -----------
Net Income (loss)...................... $ 3,838,000 $(3,027,000) $ 1,557,000
=========== =========== ===========
Net income (loss) used to compute
earnings per common and common
equivalent shares:
Net income (loss) reported........... $ 3,838,000 $(3,027,000) $ 1,557,000
Preferred stock dividend and
accretion........................... (200,000) (1,275,000) (1,149,000)
----------- ----------- -----------
Net income (loss) applicable to common
stock................................. $ 3,638,000 $(4,302,000) $ 408,000
===========
Pro forma adjustment to remove dividend
and accretion on preferred stock
assumed converted..................... -- 1,031,000
----------- -----------
Net income (loss) used to compute pro
forma earnings per share.............. $ 3,638,000 $(3,271,000)
=========== ===========
Pro forma: Net income (loss per common
and common equivalent shares giving
effect for the conversion of Series C,
D and 1-1 preferred stock upon
completion of the initial public
offering on June 9, 1994, as if
converted on the first day of each
period presented...................... $ 0.52 $ (0.63)
=========== ===========
Weighted average number of common
shares used to compute pro forma
earnings per share.................... 6,950,000 5,176,000
=========== ===========
</TABLE>

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

F-4
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK RE-
SERIES 1, C, AND D COMMON STOCK CEIVABLE CUMULATIVE
AUTHORIZED AUTHORIZED FROM SALE FOREIGN
5,417,631 SHARES 25,000,000 SHARES OF CURRENCY
---------------------- ---------------------- COMMON ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT STOCK DEFICIT ADJUSTMENTS TOTAL
---------- ---------- --------- ----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991 (restated for stock
split).................. 774,486 $3,800,000 2,258,265 $ 5,560,000 $(117,000) $(15,338,000) $(193,000) $(6,288,000)
Options exercised...... -- -- 438 2,000 -- -- -- 2,000
Reduction of notes
receivable from sale of
common stock under the
Employee Restricted
Stock Purchase Plan.... -- -- -- -- 72,000 -- -- 72,000
Repurchase of common
stock under the
Employee Restricted
Stock Purchase Plan.... -- -- (29,077) (14,000) 14,000 -- -- --
Conversion of common
stock to redeemable
preferred stock (Series
A and B)............... -- -- (50,000) (580,000) -- -- -- (580,000)
Accreted mandatory
redemption premium on
preferred stock (Series
A and B)............... -- -- -- (763,000) -- -- -- (763,000)
Translation adjustment. -- -- -- -- -- -- (22,000) (22,000)
Net income............. -- -- -- -- -- 1,557,000 -- 1,557,000
---------- ---------- --------- ----------- --------- ------------ --------- -----------
Balance at December 31,
1992.................... 774,486 3,800,000 2,179,626 4,205,000 (31,000) (13,781,000) (215,000) (6,022,000)
---------- ---------- --------- ----------- --------- ------------ --------- -----------
Common stock issued for
services rendered...... -- -- 10,114 51,000 -- -- -- 51,000
Common stock issued in
connection with the
purchase of TDI........ -- -- 615,747 1,847,000 -- -- -- 1,847,000
Options exercised...... -- -- 22,476 45,000 -- -- -- 45,000
Reduction of notes
receivable from sale of
common stock under the
Employee Restricted
Stock Purchase Plan.... -- -- -- -- 15,000 -- -- 15,000
Repurchase of common
stock under the
Employee Restricted
Stock Purchase Plan.... -- -- (527) (1,000) 1,000 -- -- --
Conversion of
redeemable preferred
stock (Series A and B)
to common stock........ -- -- 513,137 2,762,000 -- -- -- 2,762,000
Accreted mandatory
redemption premium on
preferred stock (Series
A and B)............... -- -- -- (889,000) -- -- -- (889,000)
Translation adjustment. 240,000 240,000
Net loss............... -- -- -- -- -- (3,027,000) -- (3,027,000)
---------- ---------- --------- ----------- --------- ------------ --------- -----------
Balance at December 31,
1993.................... 774,486 3,800,000 3,340,573 8,020,000 (15,000) (16,808,000) 25,000 (4,978,000)
---------- ---------- --------- ----------- --------- ------------ --------- -----------
December 31, 1993 share
adjustment............. -- -- 2,183 -- -- -- -- --
Options Exercised...... -- -- 61,366 150,000 -- -- -- 150,000
Proceeds from the
Initial Public
Offering, net of
expense................ -- -- 2,075,000 9,996,000 -- -- -- 9,996,000
Proceeds from the
Secondary Public
Offering, net of
expense................ -- -- 725,000 6,166,000 -- -- -- 6,166,000
Accrued Dividends on 1-
2 preferred stock...... -- -- -- (161,000) -- -- -- (161,000)
Accreted mandatory
redemption premium on
preferred stock (Series
A and B)............... -- 117,000 -- (117,000) -- -- -- --
Antidilution provision
adjustment on Series C
and D preferred stock.. 286,174 -- -- -- -- -- -- --
Conversion of
redeemable preferred
stock (Series A and B)
to Series 1-1 and 1-2.. 1,150,680 5,507,000 -- -- -- -- -- 5,507,000
Conversion of preferred
stock (Series C, D and
1-1, 1-2) to common
stock.................. (1,793,709) (6,957,000) 1,793,709 6,957,000 -- -- -- --
Reduction of note
receivable from the
sale of common stock
under the Employee
Restricted Stock
Purchase Plan.......... -- -- -- -- 15,000 -- -- 15,000
Translation adjustment. -- -- -- -- -- -- (181,000) (181,000)
Net income............. -- -- -- -- -- 3,838,000 -- 3,838,000
---------- ---------- --------- ----------- --------- ------------ --------- -----------
Balance at December 31,
1994.................... 417,631 $2,467,000 7,997,831 $31,011,000 $ -- $(12,970,000) $(156,000) $20,352,000
========== ========== ========= =========== ========= ============ ========= ===========
</TABLE>

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

F-5
<PAGE>

WAVEFRONT TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 3,838,000 $(3,027,000) $1,557,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ex-
pense............................... 1,668,000 1,621,000 1,533,000
Research and development related to
TDI acquisition..................... -- 5,242,000 --
Minority interest in (gain) loss of
joint venture....................... (71,000) (34,000) (48,000)
(Gain) loss on retirement of property
and equipment ...................... (27,000) 191,000 (25,000)
Other................................ 351,000 15,000 72,000
Common stock issued for service...... -- 51,000 --
Decrease (increase) in:
Accounts receivable, net........... (715,000) (1,907,000) 495,000
Employee and other receivables..... 16,000 (415,000) 170,000
Inventories........................ 2,000 411,000 (56,000)
Prepaid expenses, deposits and
other assets...................... (343,000) 317,000 65,000
Increase (decrease) in:
Accounts payable................... (472,000) 1,857,000 (79,000)
Accrued liabilities................ 235,000 (1,806,000) (986,000)
Unearned revenue................... (83,000) 324,000 47,000
Income taxes payable............... 249,000 (4,000) 15,000
----------- ----------- ----------
Net cash provided by operating activi-
ties.................................... 4,648,000 2,836,000 2,760,000
----------- ----------- ----------
Cash flows from investing activities:
Purchases of short-term investments.... (1,747,000) -- --
Purchases of property and equipment.... (1,681,000) (1,053,000) (195,000)
Capitalized software development costs. (266,000) (683,000) (481,000)
Proceeds from the sale of property &
equipment............................. 243,000 -- --
Cash outlay for acquisition, net of
cash acquired......................... -- (705,000) --
----------- ----------- ----------
Net cash used in investing activities.... (3,451,000) (2,441,000) (676,000)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from sale of stock in public
offerings, net of expenses............ 16,162,000 -- --
Options exercised...................... 150,000 45,000 2,000
Repayments of long-term debt........... (4,345,000) -- --
----------- ----------- ----------
Net cash provided by financing activi-
ties.................................... 11,967,000 45,000 2,000
----------- ----------- ----------
Effect of exchange rate changes on cash.. (181,000) 240,000 (22,000)
----------- ----------- ----------
Increase in cash and cash equivalents.... 12,983,000 680,000 2,064,000
Cash and cash equivalents at beginning of
period.................................. 5,596,000 4,916,000 2,852,000
----------- ----------- ----------
Cash and cash equivalents at end of peri-
od...................................... $18,579,000 $ 5,596,000 $4,916,000
=========== =========== ==========
</TABLE>

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

F-6
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994

1. LINE OF BUSINESS

Wavefront Technologies, Inc. (the Company) develops, markets and supports
workstation-based animation software that allows the user to create computer
generated imagery to communicate, educate and entertain. Customers use the
software to create, among other things, visual images for movies, television,
video games, and to illustrate engineering and scientific phenomena. On
February 6, 1994 the Company signed a definitive merger agreement with Silicon
Graphics, Inc. (see Note 16).

Similar to most companies in this line of business, the Company's products
are subject to rapid technological change. The Company's revenue over the past
three years has increasingly been derived from the sale and maintenance of
software products that operate on workstations made by Silicon Graphics, Inc.
which accounted for almost all revenue in 1994.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.

Revenue Recognition

The Company recognizes revenues related to software licenses and software
maintenance in compliance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position No. 91-1 "Software Revenue
Recognition." Product revenue is recorded at the time of shipment provided that
no significant vendor and post-contract support obligations remain outstanding
and collection of the resulting receivable is deemed probable of collection by
management. Any insignificant post-contract support obligations are accrued for
at the time of the sale. Maintenance and support service revenues are
recognized on a straight-line basis over the life of the maintenance or support
services agreement, twelve months generally. Contract revenues under
development agreements to modify the Company's software are recognized using
the percentage-of-completion method as work is performed.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and cash invested in high
quality money market instruments with original maturities of ninety days or
less.

Short Term Investments

Short-term investments consist primarily of commercial paper with original
maturities of greater than ninety days.

Property and Equipment

Property and equipment are depreciated or amortized using the straight-line
method over their estimated useful lives (three to five years) or the life of
the lease.

Software Development Costs

Under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company is required to capitalize

F-7
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

software development costs where "technological feasibility" of the product
has been established and future revenues assure recovery of the capitalized
amounts.

The ongoing assessment of recoverability of capitalized software development
costs requires considerable judgment of management with respect to certain
external factors, including, but not limited to, technological feasibility and
obsolescence, anticipated future gross revenues, estimated economic life,
changes in software and hardware technology, and patent and trademark law and
litigation.

Amortization of capitalized software development costs is provided over an
economic life of 24-36 months. Amortization expense was $415,000, $543,000 and
$488,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Amortization includes adjustments to the carrying value for changes in the net
realizable values. Any decreases in value are charged to operations when the
decrease is first identified.

Goodwill

Goodwill, which resulted from the acquisition of TDI, is being amortized on
a straight line basis over a ten year life. Subsequent to any acquisition, the
Company periodically evaluates whether later events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.

Foreign Currency Translation

The accounts of the Company's foreign subsidiaries and branches have been
translated according to the provisions of the Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Gains or losses
resulting from translation of the foreign financial statements are included in
shareholders' equity. Any gains or losses resulting from foreign currency
transactions (which are immaterial) are reflected in the consolidated
statements of operations in the period in which they occur.

Interest, Net

Interest income earned on cash and cash equivalents and short-term
investments is classified in the consolidated statements of operations net of
interest expense. Interest income for the years-ended December 31, 1994, 1993
and 1992 were $357,000, $133,000 and $74,000, respectively.

Net Income (Loss) Per Common Share

Net income (loss) per common share for the years ended December 31, 1994,
1993 and 1992 is based on the weighted average number of common shares
outstanding. For all periods presented, per share information was computed
pursuant to the rules of the Securities and Exchange Commission (SEC), which
require that common stock issued by the Company during the twelve months
immediately preceding the Company's initial public offering plus the number of
common shares issuable pursuant to the grant of options issued during the same
period, be included in the calculation of the shares outstanding using the
treasury stock method. The outstanding preferred shares are not common stock
equivalents and the effect of the other stock options, which are common stock
equivalents, are not included because they would be anti-dilutive or are
immaterial. Income (loss) used to compute earnings per share has been adjusted
for the cumulative dividends applicable to preferred shares.

F-8
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per share for the years ended December 31, 1994 and 1993 has been
computed on a pro forma basis, giving effect to the conversion of Series C, D,
1-1 and 40,323 shares of Series 1-2 preferred stock at the beginning of the
period. Historical earnings per share are not presented for all periods since
such amounts are not meaningful in light of the conversions of Series C, D, 1-1
and 40,323 shares of Series 1-2 preferred stock (see Note 4).

Primary and fully dilutive earnings per share are the same for all periods
presented.

Stock Split

In March 1994, the board of directors approved a one for four common and
preferred stock split. The share information in the accompanying financial
statements has been retroactively restated to reflect the split.

3. ACQUISITION

On September 30, 1993, the Company acquired all of the outstanding stock of a
French corporation, Thomson Digital Image (TDI). TDI was jointly owned by
Thomson SA and IBM and was involved in research and development related to
computer graphics imaging software. The consideration consisted of
approximately $1,000,000 in cash, 615,747 shares of the Company's common stock
and a note for $1,500,000. The transaction was accounted for under the purchase
method of accounting. The accompanying consolidated statement of operations for
the year ended December 31, 1993, includes the results of the business acquired
on September 30, 1993.

The excess of the cost of the acquisition over the estimated fair value of
tangible assets and liabilities assumed at the date of acquisition has been
allocated as follows:

<TABLE>
<S> <C>
Capitalizable software development costs......................... $ 500,000
Goodwill......................................................... 1,000,000
Purchased research and development in process.................... 5,242,000
----------
$6,742,000
==========
</TABLE>

Prior to acquiring TDI, the Company completed an extensive review of TDI
which included a review of its existing products, research and development in
process (projects that had not reached technological feasibility), customers,
sales channels, sales personnel and financial and other matters in order to
determine fair market value. TDI was acquired for the research in process, and
was not acquired for its earnings, cash flow or net worth. The amount allocated
to intangibles represents an amount for the established brand name "EXPLORE", a
network of distributors to sell post-acquisition releases of software, and
software that was considered outdated and required significant enhancements and
revisions. Although the Company believed that the acquisition would enhance its
access to markets and customers, TDI's research and development in process were
the primary reason for the acquisition.

At the date of the acquisition, TDI was in the third year of a program to
significantly revise its product offerings with the major focus being an almost
complete revision to the EXPLORE product which was originally released in 1992.
TDI had two significant projects in process. The first was an enhanced version
of the EXPLORE product that was intended to extend the life of the product
until a major revision could be completed. The Company's due diligence revealed
that the EXPLORE product in its current state needed significant enhancements
to become competitive. The Company believed it would be able to complete the
product with its own existing technology and expertise. The first project did
not reach technological feasibility until the fourth quarter of 1993, after the
acquisition had closed. The second project, which was much bigger

F-9
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and more time intensive, was a major revision of EXPLORE which reached full
technological feasibility in July 1994.

The Company's technical staff placed a value of approximately $5.2 million on
the projects in process, which was derived based on costs TDI incurred directly
on the two projects. The Company believes that the allocations are reasonable,
fair and supported by the facts.

Pro forma revenues, net income (loss) and net income (loss) per share of the
Company for the years ended December 31, 1993 and 1992 are presented as though
the TDI acquisition took place on January 1, 1992. The pro forma results do not
reflect any changes in operations which may occur as a result of the
acquisition and do not actually indicate the results that would be achieved for
an entire year. The pro forma results include the amortization of capitalized
software development costs and goodwill and additional interest expense related
to the note issued.

<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues........................................... $25,962,000 $27,155,000
Net loss........................................... (1,043,000) (7,489,000)
Net loss per share................................. $ (0.18) $ (2.08)
</TABLE>

4. EQUITY TRANSACTIONS

Preferred Stock and Redeemable Preferred Stock

The rights, restrictions and preferences of the Series A, B, C and D
preferred shares are as follows:

. Each Series A, B, C and D preferred share is convertible, at the option
of the shareholder, into one share of common stock, subject to
adjustments for events of certain dilutive transactions, as defined.

. In the event of liquidation or merger, the Series A, B, C and D preferred
shareholders are entitled to receive $4.00, $6.00, $7.00 and $2.54 per
share, respectively, plus any declared and unpaid dividends prior to any
distribution to holders of common shares.

. Each share of Series A, B, C and D preferred stock is entitled to annual
dividends of $.32, $.48, $.56 and $.40 per share, respectively, payable
if and when declared. Such dividends are cumulative and are in preference
to dividends on common shares. No cash dividends can be paid on the
common shares unless an equal dividend (in addition to the preferential
dividend) has first been paid on the preferred shares.

. Each Series A, B, C and D preferred share has voting rights equal to the
number of common shares into which it is convertible. In addition, as
long as at least 281,250 shares of Series A or 281,250 shares of Series B
preferred stock are outstanding, the respective shareholders shall vote
as a separate class, each to elect a single director to the board of
directors.

. Without the approval of the holders of 50 percent of the combined
outstanding Series A, B, C and D preferred shares, the Company cannot,
among other things, alter the preferences of the preferred stock, create
any class or series of stock having rights, preferences or privileges
superior to or in parity with the preferred shares or merge into,
consolidate with or sell substantially all of its assets to another
corporation.

The Articles of Incorporation provided for various redemption privileges and
premiums for the Series A and B redeemable preferred stock. In November 1993,
holders of 93,970 and 419,167 shares of Series A and

F-10
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
B redeemable preferred stock exchanged their shares for 513,137 shares of
common stock and non-interest bearing notes of $1,727,000 due in September 1995
(see Note 5). In February 1994, holders of 692,726 and 457,954 shares of Series
A and B redeemable preferred stock (all remaning shares outstanding) exchanged
their shares for a new class of preferred shares (Series 1-1 and 1-2,
respectively) on a one for one ratio and received notes bearing interest at 5
percent totaling $3,193,000 due in September 1995.

The Company has accounted for its redeemable preferred stock (Series A and B)
by accreting redemption premiums over the term outstanding and recording any
notes issued at their discounted present value (see Note 5).

The amount reflected in the accompanying consolidated balance sheet at
December 31, 1993 as redeemable preferred stock represents the Series A and B
shares exchanged in February and March 1994 for new classes of preferred stock
Series 1-1 and 1-2.

The Series 1-1 and 1-2 shares issued in February and March 1994 have no
redemption rights and have the same liquidation preferences as the related
Series A and B shares. All preferred shares automatically convert to common
stock in the event of an initial public offering with a per share price and net
proceeds over certain thresholds.

In connection with the Company's initial and secondary public offerings, the
Series C, D, and 1-1 preferred stock of the Company were converted into
1,753,386 shares of common stock and 40,323 of Series 1-2 preferred stock
converted to 40,323 shares of common stock (taking into account anti-dilution
provisions affecting the conversion rate of certain shares of preferred stock
under the Company's articles of incorporation). As of December 31, 1994,
417,631 shares of 1-2 preferred stock remained outstanding. In January 1995,
the remaining 417,631 shares of Series 1-2 preferred stock converted to 417,631
shares of common stock.

The authorized shares of preferred stock was increased to 5,417,631 upon the
completion of the initial public offering.

Common Stock

On June 9, 1994, the Company completed an initial public offering of
2,075,000 newly issued shares of common stock, the net proceeds of which was
approximately $10.0 million.

On December 5, 1994, the Company completed a secondary public offering of
725,000 newly issued shares of common stock, the net proceeds of which were
approximately $6.2 million.

Employee Restricted Stock Purchase Plan

Under the terms of the Company's Employee Restricted Stock Purchase Plan (the
"Restricted Plan"), shares of the Company's common stock are issued to
employees, directors, independent contractors and consultants in exchange for
promissory notes or cash. The notes bear interest at 9 percent per annum, with
four equal annual maturities, commencing one year after an employee's hire
date. The issuance price is based on the fair value of the common stock as
determined by the board of directors at the date of issuance. Ownership rights
vest over a four-year period. Under the Restricted Plan, the Company has the
right to repurchase unvested shares at the original issuance price. As of
December 31, 1994, the Company has sold approximately 1,408,398 shares, net of
repurchases, under the Restricted Plan, of which approximately 1,600 shares
were subject to repurchase.

The Company has approximately 197,602 shares available for future issuance
under the Restricted Plan as of December 31, 1994.

F-11
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. DEBT

Long Term Debt

Long Term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
----------- ----------
<S> <C> <C>
Discounted (at 6 1/2 percent) present value of
non-interest bearing notes issued to former
holders of series A and B preferred stock, due
September 1995.................................. $ 867,000 $1,559,000
Convertible note issued in connection with acqui-
sition of TDI, quarterly payments are due based
on revenue from certain products, through Sep-
tember 30, 1995, bearing interest at 5 percent.. 1,179,000 1,417,000
Other............................................ -- 68,000
----------- ----------
2,046,000 3,044,000
Current portion.................................. (2,046,000) (160,000)
----------- ----------
$ -- $2,884,000
=========== ==========
</TABLE>

Notes payable to the former Series A and B preferred shareholders are secured
by all tangible and intangible personal property of the Company. Upon
completion of the initial public offering, approximately $3,820,000 of the
proceeds were used to retire discounted notes payable issued to certain holders
of Series A and B preferred stock, who converted their shares of Series A and B
preferred stock into either common stock or Series 1-1 or 1-2 preferred stock
(the "Former Series A and B Holders").

The note to Thomson SA is convertible into Common Stock at a rate of $10.00
per share on September 30, 1995 or payable on that date at the option of
Thomson SA.

Credit Facilities

In July 1994, the Company entered into a credit agreement with Wells Fargo
Bank National Association, which allows the Company to borrow up to $1,000,000
under a line of credit for general working capital purposes bearing interest at
0.5% over the prime rate and up to $750,000 under a term commitment loan for
the purchase of equipment bearing interest at 0.75% over the prime rate. If the
Company borrows under the term commitment loan and meets certain conditions,
the commitment will convert into a three-year term loan whereby payments will
be made in 36 installments. As of December 31, 1994, no amounts are outstanding
under these credit facilities. In addition, the Credit Agreement provides the
Company with a foreign exchange facility to enter into foreign exchange con-
tracts in amounts not to exceed an aggregate of $2,000,000. The Credit Agree-
ment expires on June 1, 1995.

During 1994, the Company implemented a foreign exchange policy whereby the
Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. Gains and losses on these positions are deferred and included in the
basis of the transaction when it is completed. As a matter of policy, the
Company does not hedge to protect the translated results of foreign operations
or other economic exposures for which speculative accounting treatment of the
hedging instruments would be required, nor does it engage in currency
speculation. As of December 31, 1994, the Company had approximately $1,185,000
(which approximates fair market value) of outstanding foreign exchange
contracts in which foreign currencies were purchased to hedge liabilities. The
forward exchange contracts have varying maturities with none exceeding twelve
months. The Company

F-12
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
makes net settlements for foreign exchange contracts at maturity, based on
rates agreed to at inception of the contracts. As of December 31, 1993, the
Company did not have any foreign exchange contracts.

6. 1990 STOCK OPTION PLAN

The Company established a stock option plan ("Plan") for which it authorized
the issuance of up to 1,300,000 shares of common stock. Under the Plan options
are granted to certain employees, directors, independent contractors and
consultants with an exercise price equal to fair market value, as determined by
the board of directors at date of grant. The options generally vest over four
years but must be exercised within 10 years from the date of the grant.

A summary of activity under the Plan is as follows:

<TABLE>
<CAPTION>
COMMON OPTION PRICE PER
SHARES SHARE
-------- ----------------
<S> <C> <C>
Outstanding at December 31, 1991..................... 363,826 $1.40 -$11.60
-------- -------------
Granted............................................ 59,625 2.00 - 4.00
Exercised.......................................... (438) 4.00
Canceled........................................... (185,433) 2.00 - 11.60
-------- -------------
Outstanding at December 31, 1992..................... 237,580 1.40 - 11.60
-------- -------------
Granted............................................ 574,937 2.00 - 5.00
Exercised.......................................... (22,476) 2.00
Canceled........................................... (36,396) 1.40 - 11.60
-------- -------------
Outstanding at December 31, 1993..................... 753,645 2.00 - 11.60
-------- -------------
Granted............................................ 231,500 6.00 - 13.00
Exercised.......................................... (61,366) 2.00 - 5.00
Canceled........................................... (10,222) 2.00 - 7.00
-------- -------------
Outstanding at December 31, 1994..................... 913,557 $2.00 -$13.00
======== =============
</TABLE>

7. JOINT VENTURE AND STOCK SALE

In 1990, the Company entered into several agreements with a Japanese
corporation which are summarized below.

Joint Venture

In November 1990, the Company entered into a joint venture agreement to
manage the distribution of the Company's products in Japan. The Company
invested 98 million Japanese yen (approximately $739,000) for a 49 percent
ownership interest in the joint venture. Accordingly, this investment has been
accounted for using the equity method of accounting. Sales to the joint venture
were $1,012,000 $698,000 and $843,000,during 1994, 1993 and 1992, respectively.
Included in trade receivables from joint venture at December 31, 1993 and 1994
is $88,000 and $360,000 respectively. The Company's share of the earnings
(loss) of the venture, which were not material, are included in other income
(expense) in the accompanying financial statements.

F-13
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Agreement

In November 1990, the Japanese corporation obtained a 16.7 percent ownership
interest in the Company through a combination of purchases of Company shares
(437,500 shares) and selling shareholders (333,313 shares) for $11.60 per
common share.

Distributorship Agreement

In September 1990, the Company entered into an exclusive distributorship
agreement for certain of the Company's products in Japan. The agreement expired
at the end of fiscal 1993. Approximately $0, $547,000 and $814,000 were
recognized as royalty revenue during 1994, 1993 and 1992, respectively. There
were no trade receivables due from the distributor at December 31, 1994 and
1993.

8. COMMITMENTS

Leases

As of December 31, 1994, the Company has the following minimum lease payments
under operating leases for its headquarters, certain sales offices and other
locations:

<TABLE>
<S> <C>
Year ending December 31:
1995............................................................ $1,017,000
1996............................................................ 928,000
1997............................................................ 384,000
1998............................................................ 91,000
1999............................................................ 72,000
Thereafter...................................................... 515,000
----------
$3,007,000
==========
</TABLE>

Rent expense for the years ended December 31, 1994, 1993 and 1992 was
approximately $1,182,000, $861,000 and $844,000 respectively.

Included in the above minimum commitments is approximately $720,000 for a
facility leased by TDI in the United Kingdom. With other charges and taxes the
maximum commitment could approximate $1,000,000. The Company has abandoned this
facility and currently is involved in ongoing discussions to negotiate a
settlement and release from the lease. On September 30, 1993, a provision of
$600,000 was recorded by TDI for potential losses related to this lease
abandonment. The liability was assumed by Wavefront and recorded on Wavefront's
balance sheet in connection with the acquisition. The reserve booked to the
financial statements is based on the present value of the remaining liability
on the lease at a discount rate of approximately 3 percent which approximates
the U.S. treasury bill rate at the date of assumption. Management believes that
it is probable that they will be able to negotiate a discounted settlement with
the landlord and that the $600,000 reserve is adequate.

Royalty Agreements

The Company has entered into agreements to pay royalties for use of certain
products. For the years ended December 31, 1994, 1993 and 1992 royalty expense
was approximately $606,000, $208,000 and $235,000 respectively.

F-14
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Employment Contracts

Employment agreements with certain officers provide that upon a change in
control, one-third of the unvested stock options held by each officer will
accelerate and the officer shall have the right to exercise all or a portion of
such stock options so vested. If the officer remains in the Company's employ
for six months after the change in control, an additional one-third of the
unvested portion of any stock options held by the officer will accelerate. The
agreements also provide for certain severance arrangements if terminated
involuntarily and all remaining unvested stock options held by the officer will
automatically accelerate (subject to certain limitations). Each employment
agreement terminates upon the earlier of the date that all obligations of the
parties under such employment agreement have been satisfied, or 18 months after
a change in control.

9. RELATED-PARTY TRANSACTIONS

Included in employee and other receivables at December 31, 1994 and 1993, is
approximately $59,000 and $55,000 respectively of a note receivable from an
officer. The note bears interest at 9 percent per annum.

10. INCOME TAXES

The company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes", under which deferred tax assets and liabilities are provided on
differences between financial reporting and taxable income using the enacted
tax rates. Prior to adoption of this new statement, income taxes were computed
in accordance with Accounting Principles Board Opinion No. 11.

F-15
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The provision for income taxes differed from the effective U.S. Federal tax
rates calculated as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Federal statutory tax rate................. 34.0 % 34.0 % 34.0 %
State income taxes, net of federal tax ben-
efit...................................... 5.9 -- --
Utilization of net operating loss.......... (37.5) -- (34.0)
Loss not benefited due to realization...... 3.7 (34.0) --
Federal alternative minimum tax............ -- 2.0 2.7
Foreign Taxes.............................. 0.9
Other...................................... -- 1.4 --
-------- -------- -------
Effective tax rate......................... 7.0 % 3.4 % 2.7 %
======== ======== =======
The provision for income taxes consists of
Current
Federal.................................. $151,000 $35,000 $40,000
State.................................... 101,000 65,000 3,000
Foreign.................................. 39,000 -- --
-------- -------- -------
$291,000 $100,000 $43,000
======== ======== =======
</TABLE>

Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods. A
valuation allowance is recognized if on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset will
not be realized.

There is no assurance that the Company will continue to be profitable in
future periods, therefore, a valuation allowance has been recognized for the
full amount of the deferred tax asset at each period.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Depreciation and amortiza-
tion..................... $ 494,000 $ 596,000 $ 522,000
Restructuring Reserve..... -- 21,000 155,000
Capitalization of software
costs.................... 529,000 8,000 (79,000)
Capitalized Research and
Development.............. 266,000 775,000 736,000
Allowance for doubtful ac-
counts................... 62,000 45,000 119,000
Net operating loss
carryforwards............ 483,000 1,932,000 2,751,000
Tax credits............... 977,000 595,000 608,000
Other, net................ 201,000 258,000 133,000
---------- ---------- ----------
3,012,000 4,230,000 4,945,000
Valuation allowance....... (3,012,000) (4,230,000) (4,945,000)
---------- ---------- ----------
Total deferred tax as-
set.................... $ -- $ -- $ --
========== ========== ==========
</TABLE>

The Company has available approximately $1,300,000 of federal net operating
loss carryforwards that expire at various dates through 2006. The Tax Reform
Act of 1986 contains provisions which limit the federal net operating loss
carryforwards available that can be used in any given year in the event of
certain occurrences, which include significant ownership changes.

11. SUPPLEMENTAL CASH FLOW INFORMATION

The Company considers highly liquid investments with original maturities of
90 days or less to be cash equivalents for the purpose of the statements of
cash flows.

F-16
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company repurchased common stock, from employees for notes receivable of
$15,000, $1,000 and $14,000 in 1994, 1993 and 1992, respectively. Mandatory
redemption premiums of $117,000, $889,000 and $763,000 were accreted for
preferred stock in 1994, 1993 and 1992, respectively. During 1993, the Company
converted 513,137 shares of redeemable preferred stock into 513,137 shares of
common stock and $1,727,000 of notes payable. The Company converted $580,000 of
common stock (50,000 shares) into redeemable preferred stock during 1992. These
noncash transactions have been excluded from the statements of cash flows.

During 1994 the Company converted $3,011,000 of amounts due to preferred
stockholders into notes payable to the holders of preferred stock, $5,507,000
of redeemable preferred stock into Convertible Series 1-1 and 1-2 preferred
stock and $6,957,000 of preferred stock converted into common stock upon
completion of the public offerings during 1994. These noncash transactions have
been excluded from the statements of cash flows.

The Company has paid taxes of $95,000, $71,000 and $28,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.

The Company paid approximately $102,000, $19,000 and $0 in interest for the
years ended December 31, 1994, 1993 and 1992, respectively.

12. PROFIT SHARING PLAN

Effective November 1990, the Company adopted and implemented a 401(k) Profit
Sharing Plan which allows employees to contribute part of their compensation to
the Profit Sharing Plan, on a pre-tax basis. The Company is under no obligation
to contribute to the Plan. For the years ended December 31, 1994, 1993 and
1992, the Company made contributions of $63,000, $42,000 and $0 respectively to
the plan.

13. EMPLOYEE STOCK PURCHASE PLAN

In October 1994, the board of directors approved the Employee Stock Purchase
Plan (the Purchase Plan). Under the Purchase Plan, 200,000 shares of common
stock are reserved for issuance upon exercise of purchase rights granted. Under
the Purchase Plan, the employee is given the right to purchase shares at 85
percent of the lesser of fair market value of the stock on the first day or
last day of a six month period. There have been no shares issued under this
Purchase Plan as of December 31, 1994. The Purchase Plan will terminate in
October 2004, unless ended sooner by the board of directors.

14. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The allowance for doubtful accounts for the fiscal years ending December 31,
is as follows:

<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period................ $ 344,000 $ 526,000 $ 684,000
Provision for allowance................... 458,000 131,000 138,000
Write-off of accounts receivable.......... (389,000) (313,000) (296,000)
--------- --------- ---------
Balance, end of period...................... $ 413,000 $ 344,000 $ 526,000
========= ========= =========
</TABLE>

F-17
<PAGE>

WAVEFRONT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SEGMENTS AND FOREIGN OPERATIONS

The Company and its subsidiaries operate in one business segment--develops,
markets and supports workstation-based animation software. The Company has
foreign operations in Canada and Europe. Financial data by geographic area are
presented below (in thousands):

<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED* AND
STATES CANADA EUROPE ELIMINATIONS CONSOLIDATED
------- ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1992
Revenues:
Customers.................. $11,285 $ -- $ 3,452 $ -- $14,737
Intercompany............... 1,482 -- -- (1,482) --
------- ------ ------- -------- -------
Total revenues............... $12,767 $ -- $ 3,452 $ (1,482) 14,737
======= ====== ======= ======== =======
Operating income (loss)...... $ 2,260 $ 28 $ (800) $ -- $ 1,488
======= ====== ======= ======== =======
Identifiable assets.......... $14,775 $1,180 $ 1,659 $ (7,165) $10,449
======= ====== ======= ======== =======
DECEMBER 31, 1993
Revenues:
Customers.................. $11,377 $ -- $ 6,481 $ -- $17,858
Intercompany............... 2,250 -- 511 (2,761) --
------- ------ ------- -------- -------
Total revenues............... $13,627 $ -- $ 6,992 $ (2,761) $17,858
======= ====== ======= ======== =======
Operating income (loss)...... $(2,869) $ 25 $ (139) $ -- $(2,983)
======= ====== ======= ======== =======
Identifiable assets.......... $16,843 $1,654 $ 9,888 $(11,573) $16,812
======= ====== ======= ======== =======
DECEMBER 31, 1994
Revenues:
Customers.................. $15,812 -- $11,902 $ -- $27,714
Intercompany............... 4,130 -- 3,284 (7,414) --
------- ------ ------- -------- -------
Total revenues............... $19,942 -- $15,186 $ (7,414) $27,714
======= ====== ======= ======== =======
Operating income............. $ 2,721 $ 26 $ 1,110 $ -- $ 3,857
======= ====== ======= ======== =======
Identifiable assets.......... $36,375 $2,210 $11,206 $(17,075) $32,716
======= ====== ======= ======== =======
</TABLE>
- --------
* The revenues from Customers in the United States include $1,744,000 for 1992,
$2,233,000 for 1993 and $4,650,000 for 1994 for Asia-Pacific and Latin
America. There are no Intercompany revenues for Asia-Pacific or Latin America
in any of these years.

Adjustments and eliminations represent the elimination of intercompany
investments, advances, interest charges and profit on transfers.

16. SUBSEQUENT EVENTS

On February 7, 1995 the Company and Silicon Graphics, Inc. announced that
they had entered into a definitive merger agreement. The merger is contemplated
to be accounted for as a pooling of interests. Shareholders of the Company will
receive 0.49 shares of Silicon Graphics common stock for each issued and
outstanding share of the Company's common stock. Concurrently, Silicon
Graphics, Inc. also announced that it had entered into a definitive acquisition
agreement with Alias Research, Inc. The completion of each transaction is
subject to customary conditions, including shareholder approval and clearance
by governmental agencies. These transactions are expected to close by June
1995.

F-18
<PAGE>

ANNEX A

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

BY AND AMONG

SILICON GRAPHICS, INC.,

S ACQUISITION CORPORATION

AND

WAVEFRONT TECHNOLOGIES, INC.

DATED AS OF FEBRUARY 6, 1995

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
ARTICLE I

The Mergers

<C> <S> <C>
Section 1.01. The Mergers................................................ 1
Section 1.02. Effective Time............................................. 2
Section 1.03. Effect of the Merger....................................... 2
Section 1.04. Articles of Incorporation; By-Laws......................... 2
Section 1.05. Directors and Officers..................................... 2
Section 1.06. Effect on Capital Stock.................................... 2
Section 1.07. Exchange of Certificates................................... 3
Section 1.08. Stock Transfer Books....................................... 4
Section 1.09. Dissenting Shares.......................................... 4
Section 1.10. No Further Ownership Rights in Company Common Stock........ 5
Section 1.11. Lost, Stolen or Destroyed Certificates..................... 5
Section 1.12. Tax and Accounting Consequences............................ 5
Section 1.13. Taking of Necessary Action; Further Action................. 5
Section 1.14. Material Adverse Effect.................................... 5

ARTICLE II

Representations and Warranties of the Company

Section 2.01. Organization and Qualification; Subsidiaries............... 6
Section 2.02. Articles of Incorporation and By-Laws...................... 6
Section 2.03. Capitalization............................................. 6
Section 2.04. Authority Relative to this Agreement....................... 7
Section 2.05. No Conflict; Required Filings and Consents................. 7
Section 2.06. Compliance; Permits........................................ 8
Section 2.07. SEC Filings; Financial Statements.......................... 8
Section 2.08. Absence of Certain Changes or Events....................... 9
Section 2.09. No Undisclosed Liabilities................................. 9
Section 2.10. Absence of Litigation...................................... 9
Section 2.11. Employee Benefit Plans; Employment Agreements.............. 9
Section 2.12. Labor Matters.............................................. 11
Section 2.13. Registration Statement; Proxy Statement.................... 11
Section 2.14. Restrictions on Business Activities........................ 11
Section 2.15. Title to Property.......................................... 11
Section 2.16. Taxes...................................................... 12
Section 2.17. Environmental Matters...................................... 13
Section 2.18. Brokers.................................................... 14
Section 2.19. Full Disclosure............................................ 14
Section 2.20. Intellectual Property...................................... 14
Section 2.21. Interested Party Transactions.............................. 15
Section 2.22. Insurance.................................................. 15
Section 2.23. Option Plan................................................ 15
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 2.24. Vote Required.............................................. 15
Section 2.25. Pooling Matters............................................ 15
Section 2.26. Opinion of Financial Advisor............................... 16

ARTICLE III

Representations and Warranties of Parent and Merger Sub

Section 3.01. Organization and Qualification............................. 16
Section 3.02. Authority Relative to this Agreement....................... 16
Section 3.03. No Conflict; Required Filings and Consents................. 16
Section 3.04. Certificate of Incorporation and By-Laws................... 17
Section 3.05. Capitalization............................................. 17
Section 3.06. Compliance; Permits........................................ 17
Section 3.07. SEC Filings; Financial Statements.......................... 17
Section 3.08. Absence of Certain Changes or Events....................... 18
Section 3.09. Restrictions on Business Activities........................ 18
Section 3.10. Title to Property.......................................... 18
Section 3.11. Full Disclosure............................................ 18
Section 3.12. No Undisclosed Liabilities................................. 19
Section 3.13. Absence of Litigation...................................... 19
Section 3.14. Insurance.................................................. 19
Section 3.15. Registration Statement; Proxy Statement/Prospectus......... 19
Section 3.16. Taxes...................................................... 19
Section 3.17. Brokers.................................................... 20
Section 3.18. Opinion of Financial Advisor............................... 20
Section 3.19. Pooling Matters............................................ 20
Section 3.20. No Stockholder Vote........................................ 20

ARTICLE IV

Conduct of Business Pending the Merger

Section 4.01. Conduct of Business by the Company Pending the Merger...... 20
Section 4.02. No Solicitation............................................ 22
Section 4.03. Conduct of Business by Parent Pending the Merger........... 23

ARTICLE V

Additional Agreements

Section 5.01. Proxy Statement/Prospectus; Registration Statement......... 23
Section 5.02. Stockholders' Meeting...................................... 24
Section 5.03. Access to Information; Confidentiality..................... 24
Section 5.04. Consents; Approvals........................................ 24
Section 5.05. Stock Options.............................................. 24
Section 5.06. Company Employee Stock Purchase Plan....................... 25
Section 5.07. Agreements of Affiliates................................... 25
Section 5.08. Indemnification and Insurance.............................. 25
</TABLE>

ii
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 5.09. Notification of Certain Matters........................... 26
Section 5.10. Further Action/Tax Treatment.............................. 26
Section 5.11. Public Announcements...................................... 26
Section 5.12. Listing of Parent Common Shares........................... 26
Section 5.13. Conveyance Taxes.......................................... 26
Section 5.14. Accountants' Letters...................................... 27
Section 5.15. Pooling Accounting Treatment.............................. 27
Section 5.16. Other Merger.............................................. 27
Section 5.17. Other Merger Exchange Ratio............................... 27

ARTICLE VI

Conditions to the Merger

Section 6.01. Conditions to Obligation of Each Party to Effect the
Merger................................................... 27
Section 6.02. Additional Conditions to Obligations of Parent and Merger
Sub...................................................... 27
Section 6.03. Additional Conditions to Obligation of the Company........ 28

ARTICLE VII

Termination

Section 7.01. Termination............................................... 29
Section 7.02. Effect of Termination..................................... 30
Section 7.03. Fees and Expenses......................................... 30

ARTICLE VIII

General Provisions

Section 8.01. Effectiveness of Representations, Warranties and
Agreements............................................... 31
Section 8.02. Notices................................................... 31
Section 8.03. Certain Definitions....................................... 32
Section 8.04. Amendment................................................. 32
Section 8.05. Waiver.................................................... 32
Section 8.06. Headings.................................................. 33
Section 8.07. Severability.............................................. 33
Section 8.08. Entire Agreement.......................................... 33
Section 8.09. Assignment, Merger Sub.................................... 33
Section 8.10. Parties in Interest....................................... 33
Section 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative..... 33
Section 8.12. Governing Law............................................. 33
Section 8.13. Counterparts.............................................. 33
Section 8.14. Waiver of Jury Trial...................................... 33
</TABLE>

Exhibits:

Exhibit A: Form of Affiliate Agreement

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

Agreement and Plan of Merger and Reorganization, dated as of February 6, 1995
(this "Agreement"), among Silicon Graphics, Inc., a Delaware corporation
("Parent"), S Acquisition Corporation, a California corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Wavefront Technologies, Inc., a
California corporation (the "Company"),

Witnesseth:

Whereas, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with
the Company upon the terms and subject to the conditions set forth herein;

Whereas, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law ("Delaware Law") and the
California Corporations Code ("California Law"), and upon the terms and subject
to the conditions set forth herein;

Whereas, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, no par value (the "Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.07(b)), upon the terms and subject to the conditions set forth
herein;

Whereas, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder, and to cause the Merger
and the Upstream Merger (as defined in Section 1.01(b)) to qualify as a
reorganization under the provisions of Section 368(a) of the Code;

Whereas, for accounting purposes, it is intended that the transactions
contemplated hereby shall be accounted for as a pooling of interests under
United States generally accepted accounting principles ("GAAP");

Whereas, concurrently herewith, Parent, Silicon Graphics Manufacturing S.A.,
a subsidiary of Parent, 1103707 Ontario Inc., an Ontario corporation and a
wholly owned subsidiary of Parent, and Alias Research Inc., an Ontario
corporation ("Alias"), have executed an Agreement and Plan of Arrangement,
dated as of February 6, 1995 (the "Other Merger Agreement"), pursuant to which
Parent will acquire Alias as provided for therein (the "Other Merger"); and

Whereas, the exchange ratio set forth in the Other Merger Agreement is 0.90
(the "Other Exchange Ratio");

Now, Therefore, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:

ARTICLE I

The Mergers

Section 1.01. The Mergers. (a) Effective Time. At the Effective Time (as
defined in Section 1.02), and subject to and upon the terms and conditions of
this Agreement and California Law, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."

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<PAGE>

(b) Upstream Merger. As soon as reasonably practicable after the Effective
Time (as defined in Section 1.02), Parent shall cause the Surviving Corporation
to be merged with and into Parent (the "Upstream Merger" and, together with the
Merger, the "Mergers"), and Parent shall continue as the surviving corporation
after the Upstream Merger.

(c) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.01 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger will take place as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Shearman &
Sterling, 555 California Street, Suite 2000, San Francisco, California, unless
another date, time or place is agreed to in writing by the parties hereto.

Section 1.02. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing articles of merger as
contemplated by Section 1103 of California Law (the "Articles of Merger"),
together with any required related certificates, with the Secretary of State of
the State of California, in such form as required by, and executed in
accordance with the relevant provisions of, California Law (the time of such
filing being the "Effective Time").

Section 1.03. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of California Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.

Section 1.04. Articles of Incorporation; By-Laws. (a) Articles of
Incorporation. Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time the Articles of Incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by California Law and such Articles of Incorporation; provided, however, that
Article I of the Articles of Incorporation of the Surviving Corporation shall
be amended to read as follows: "FIRST: The name of the corporation is Wavefront
Technologies, Inc."

(b) By-Laws. The By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by California Law, the Articles of Incorporation
of the Surviving Corporation and such By-Laws.

Section 1.05. Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors
are duly elected or appointed and qualified.

Section 1.06. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the
Company or the holders of any of the following securities:

(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant to
Section 1.06(b) and any Dissenting Shares (as defined in Section 1.09)) shall
be converted, subject to Section 1.06(f), into the right to receive 0.49 shares
(the "Exchange Ratio") of validly issued, fully paid and nonassessable shares
of common stock of Parent, $0.001 par value ("Parent Common Shares").

(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior

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<PAGE>

to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist.

(c) Assumption of Stock Options and Stock Purchase Rights. All options to
purchase Company Common Stock then outstanding under the Company's 1990 Stock
Option Plan shall be assumed by Parent in accordance with Section 5.05.
Immediately prior to the Effective Time, all rights to purchase Company Common
Stock then outstanding under the Company's Employee Stock Purchase Plan shall
be converted into shares of Company Common Stock in accordance with Section
5.06.

(d) Capital Stock of Merger Sub. Each share of common stock, par value $0.001
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, no par value, of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.

(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Shares or Company Common Stock), reorganization, recapitalization or
other like change with respect to Parent Common Shares or Company Common Stock
occurring after the date hereof and prior to the Effective Time.

(f) Fractional Shares. No fraction of a share of Parent Common Shares will be
issued, but in lieu thereof each holder of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Shares (after
aggregating all fractional shares of Parent Common Shares to be received by
such holder) shall receive from Parent an amount of cash (rounded to the
nearest whole cent), without interest, equal to the product of (i) such
fraction, multiplied by (ii) the average of the closing price for trades of
Parent Common Shares as of each of the thirty (30) consecutive trading days
immediately preceding the Effective Time as quoted in the Wall Street Journal
or other reliable financial newspaper or publication. For the purposes of the
preceding sentence, a "trading day" means a day on which trading generally
takes place on the New York Stock Exchange (the "NYSE") and on which trading in
Parent Common Shares has occurred.

Section 1.07. Exchange of Certificates. (a) Exchange Agent. Parent shall
supply, or shall cause to be supplied, to or for the account of a bank or trust
company designated by Parent (the "Exchange Agent"), in trust for the benefit
of the holders of Company Common Stock (other than Dissenting Shares), for
exchange in accordance with this Section 1.07, through the Exchange Agent,
certificates evidencing the Parent Common Shares issuable pursuant to Section
1.06 in exchange for outstanding Shares.

(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Shares (other than Dissenting Shares) (the
"Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as Parent may reasonably
specify) and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing shares of Parent Common Shares and, in
lieu of any fractional shares thereof, cash. Upon surrender of a Certificate
for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) certificates evidencing that
number of whole Parent Common Shares which such holder has the right to receive
in accordance with the Exchange Ratio in respect of the Shares formerly
evidenced by such Certificate, (B) any dividends or other distributions to
which such holder is entitled pursuant to Section 1.07(c), and (C) cash in lieu
of fractional Parent Common Shares to which such holder is entitled pursuant to
Section 1.06(f) (the Parent Common Shares, dividends, distributions and cash
described in this clause (C)

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<PAGE>

being, collectively, the "Merger Consideration"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company as of the Effective Time, Parent Common Shares and cash may be issued
and paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this
Section 1.07(b) and by evidence that any applicable stock transfer taxes have
been paid. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented shares of the Company Common Stock will be
deemed from and after the Effective Time, for all corporate purposes, other
than the payment of dividends, to evidence the ownership of the number of full
shares of Parent Common Shares into which such shares of the Company Common
Stock shall have been so converted and the right to receive an amount in cash
in lieu of the issuance of any fractional shares in accordance with Section
1.06.

(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate until the holder of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Shares issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Shares.

(d) Transfers of Ownership. If any certificate for shares of Parent Common
Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any person designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares
of Parent Common Shares in any name other than that of the registered holder of
the certificate surrendered, or established to the satisfaction of Parent or
any agent designated by it that such tax has been paid or is not payable.

(e) No Liability. Neither Parent, Merger Sub nor the Company shall be liable
to any holder of Company Common Stock for any Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.

(f) Withholding Rights. Parent, the Surviving Corporation and the Exchange
Agent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Company Common
Stock such amounts as Parent, the Surviving Corporation or the Exchange Agent
is required to deduct and withhold with respect to the making of such payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the Shares in respect of which such deduction and withholding was made.

Section 1.08. Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.

Section 1.09. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, any shares of capital stock of the Company held by a
holder who has exercised dissenters' rights for such shares in accordance with
California Law and who, as of the Effective Time, has not effectively withdrawn
or lost such dissenters' rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive Merger Consideration pursuant to Section
1.06, but the holder thereof shall only be entitled to such rights as are
granted by California Law.

4
<PAGE>

(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later
of the Effective Time or the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to receive
the Merger Consideration, without interest thereon, upon surrender of the
certificate or certificates representing such Dissenting Shares.

(c) The Company shall give Parent (i) prompt notice of any written demands
received by the Company to require the Company to purchase shares of capital
stock of the Company pursuant to Chapter 13 of California Law, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands.

(d) Prior to the consummation of the Upstream Merger, the Company shall
establish an escrow account with a financial institution selected by the
Company and reasonably satisfactory to Parent and shall fund such escrow
account with cash or cash equivalents in an amount sufficient to make all
payments to holders of Dissenting Shares. Such escrow account shall survive the
Mergers. All payments to holders of Dissenting Shares shall be made out of such
escrow account, and no such payments shall be made or otherwise funded by
Parent.

Section 1.10. No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender for exchange of Shares in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such Shares, and there shall be no further
registration of transfers on the records of the Surviving Corporation of Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.

Section 1.11. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Parent
Common Shares as may be required pursuant to Section 1.06; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.

Section 1.12. Tax and Accounting Consequences. It is intended by the parties
hereto that the Mergers shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment as
a pooling of interests under GAAP. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections 1.368-
2(g) and 1.368-3(a) of the United States Treasury Regulations.

Section 1.13. Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company in good faith will take all such commercially
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as
possible. If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.

Section 1.14. Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as
the case may be, the term "Material Adverse Effect" means any change or effect
that, individually or when taken together with all other such changes or
effects that have

5
<PAGE>

occurred prior to the date of determination of the occurrence of the Material
Adverse Effect, is or is reasonably likely to be materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of the Company and its subsidiaries or Parent and its
subsidiaries, as the case may be, in each case taken as a whole. For the
purposes of determining whether a Material Adverse Effect has occurred with
respect to the Company under Sections 6.02(a) and 6.02(e), any material decline
in the Company's consolidated gross sales revenues after the date hereof shall
not be considered a Material Adverse Effect with respect to the Company, if (i)
such decline can most reasonably be directly attributable to (a) a decrease in
sales associated with customers delaying orders or purchases pending completion
of the Merger and the Other Merger or (b) a significant price reduction by any
major competitor of the Company, (ii) the Company has complied with its
obligations under Section 4.01 hereof and (iii) the Company has continued to
develop, market, supply and service its products in accordance with past
practice.

ARTICLE II

Representations and Warranties of the Company

The Company hereby represents and warrants to Parent and Merger Sub that:

Section 2.01. Organization and Qualification; Subsidiaries. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Approvals would not have a Material Adverse Effect. Each of the Company and its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect. A true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each
subsidiary and the percentage of each subsidiary's outstanding capital stock
owned by the Company or another subsidiary, is set forth in Section 2.01 of the
written disclosure schedule previously delivered by the Company to Parent (the
"Company Disclosure Schedule"), except as is noted therein. Except as set forth
in Section 2.01 of the Company Disclosure Schedule, the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.

Section 2.02. Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws, as amended to date, and, except as is set forth in
Section 2.02 of the Company Disclosure Schedule, equivalent organizational
documents of each of its subsidiaries. Such Articles of Incorporation, By-Laws
and equivalent organizational documents of each of its subsidiaries are in full
force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or By-Laws
or equivalent organizational documents.

Section 2.03. Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of Company Common Stock and 5,000,000 shares of
the Company's preferred stock, no par value (the "Company Preferred Stock"),
none of which have been designated. As of February 1, 1995, (i) 8,431,542
shares of Company Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (ii) no shares of Company Common
Stock were held by subsidiaries of the Company, (iii) 1,300,000 shares of
Company Common Stock were reserved for future issuance pursuant to option
grants under the Company's 1990 Stock Option Plan, (iv) 200,000 shares of
Company Common Stock were reserved

6
<PAGE>

for future issuance pursuant to option grants under the Company's Employee
Stock Purchase Plan, and (v) no shares of Company Preferred Stock were issued
and outstanding. No material change in such capitalization has occurred between
February 1, 1995 and the date hereof. Except as set forth in this Section 2.03
or Section 2.11 hereof or in Section 2.03 or Section 2.11 of the Company
Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue or sell any shares
of capital stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company capital stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity other than guarantees of bank obligations
of subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of the Company's subsidiaries are
duly authorized, validly issued, fully paid and nonassessable, and, other than
directors' qualifying shares, all such shares are owned by the Company or
another subsidiary free and clear of all security interests, liens, claims,
pledges, agreements, limitations in the Company's voting rights, charges or
other encumbrances of any nature whatsoever.

Section 2.04. Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than the approval and adoption of the Merger by the holders of at least
a majority of the outstanding shares of the Company Common Stock entitled to
vote in accordance with California Law and the Company's Articles of
Incorporation and By-Laws). The Board of Directors of the Company has
determined that it is advisable and in the best interest of the Company's
stockholders for the Company to enter into a business combination with Parent
upon the terms and subject to the conditions of this Agreement. This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by Parent and Merger Sub, as
applicable, constitutes the legal, valid and binding obligation of the Company.

Section 2.05. No Conflict; Required Filings and Consents. (a) Section 2.05(a)
of the Company Disclosure Schedule includes a list of (i) all material
contracts of the Company and its subsidiaries and (ii) all agreements which, as
of the date hereof, will be required to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, and the SEC's rules thereunder (collectively,
the "Exchange Act") as "material contracts" ((i) and (ii) being, collectively,
the "Material Contracts") of the Company and its subsidiaries.

(b) Except as set forth in Section 2.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, (i) conflict
with or violate the Articles of Incorporation or By-Laws or equivalent
organizational documents of the Company or any of its subsidiaries, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default), or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any Material Contract, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument

7
<PAGE>

or obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties is bound or affected.

(c) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act, state securities laws ("Blue Sky Laws")
and the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the filing and
recordation of appropriate merger or other documents as required by California
Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent or delay the
Company from performing its obligations under this Agreement, or would not
otherwise have a Material Adverse Effect.

Section 2.06. Compliance; Permits. (a) Neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or its or any of their respective properties is bound
or affected, except for any such conflicts, defaults or violations which would
not have a Material Adverse Effect.

(b) The Company and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
the Company and its subsidiaries taken as a whole (collectively, the "Company
Permits"). The Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to so comply would not have a
Material Adverse Effect.

Section 2.07. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed with the SEC since June
2, 1994 and has made available to Parent (i) its Quarterly Reports on Form 10-Q
for the periods June 30, 1994 and September 30, 1994, respectively, (ii) all
proxy statements relating to the Company's meetings of stockholders (whether
annual or special) held since June 2, 1994, (iii) all other reports or
registration statements filed by the Company with the SEC (other than Reports
on Form 10-Q, Reports on Forms 3, 4 and 5 and Schedule 13G filed on behalf of
affiliates of the Company) since June 2, 1994, and (iv) all amendments and
supplements to all such reports and registration statements filed by the
Company with the SEC (collectively, the "Company SEC Reports"). The Company SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Section 2.07 of the
Company Disclosure Schedule sets forth certain discrepancies known by the
Company in the SEC Reports. None of the Company's subsidiaries is required to
file any forms, reports or other documents with the SEC.

(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated therein or in the notes thereto) and each
fairly presented the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.

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(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.

(d) The unaudited balance sheet of the Company as of December 31, 1994 and
the related unaudited consolidated income statement of the Company for the
fiscal year ended December 31, 1994 previously provided by the Company to
Parent will not deviate in any material respect from the audited balance sheet
of the Company as of December 31, 1994 and the related audited consolidated
income statement of the Company for the fiscal year ended December 31, 1994.

Section 2.08. Absence of Certain Changes or Events. Except as set forth in
Section 2.08 of the Company Disclosure Schedule and the Company SEC Reports,
since December 31, 1993, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any amendments or changes in the
Articles of Incorporation or Bylaws of the Company; (ii) any damage to,
destruction or loss of any assets of the Company (whether or not covered by
insurance) that had a Material Adverse Effect; (iii) any change by the Company
in its accounting methods, principles or practices; (iv) any revaluation by the
Company of any of its assets, including, without limitation, writing down the
value of capitalized software or inventory, or writing off notes or accounts
receivable other than in the ordinary course of business; or (v) any sale of a
material amount of property of the Company, except for the sale of inventory in
the ordinary course of business.

Section 2.09. No Undisclosed Liabilities. Except as is disclosed in Section
2.09 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are, in the aggregate, material to the business, operations or financial
condition of the Company and its subsidiaries taken as a whole, except
liabilities (a) adequately provided for in the Company's audited balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1993 included in the Company SEC Reports (the "1993 Balance Sheet"), (b)
incurred in the ordinary course of business and not required under GAAP to be
reflected on the Balance Sheet, or (c) incurred since December 31, 1993 in the
ordinary course of business and consistent with past practice, and liabilities
incurred in connection with this Agreement.

Section 2.10. Absence of Litigation. Except as set forth in the Company SEC
Reports, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries, or any properties or rights of the Company or any of
its subsidiaries, before any court, arbitrator or administrative, governmental
or regulatory authority or body, domestic or foreign, that could have a
Material Adverse Effect.

Section 2.11. Employee Benefit Plans; Employment Agreements. (a) Section
2.11(a) of the Company Disclosure Schedule lists all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), regardless of whether ERISA is applicable thereto, all
other bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance or termination pay, medical or life
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plans, agreements or arrangements and other similar fringe or
employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Company, any
trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with
the Company (an "ERISA Affiliate") within the meaning of Section 414 of the
Code, or any subsidiary of the Company, to which the Company, an ERISA
Affiliate, or any Subsidiary is a party, with respect to which the Company, an
ERISA Affiliate, or any Subsidiary has or could have any obligation, as well as
each plan with respect to which the Company or an ERISA Affiliate could incur
liability if such plan has been or were terminated (together, the "Employee
Plans"), and a copy of each such written Employee Plan has been made available
to Parent.

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(b) Except as set forth in Section 2.11(b) of the Company Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person and none of the Employee Plans
is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA;
(ii) there has been no transaction or failure to act with respect to any
Employee Plan, which could result in any material liability of the Company or
any of its subsidiaries; (iii) all Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all statutes,
orders, or governmental rules and regulations currently in effect with respect
thereto, and the Company and each of its subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no knowledge of any
default or violation by any other party to, any of the Employee Plans except as
to which such non-compliance, non-performance or default would not result in a
Material Adverse Effect; (iv) each Employee Plan intended to qualify under
Section 401(a) of the Code is the subject of a favorable determination letter
from the IRS, and nothing has occurred which may reasonably be expected to
impair such determination; (v) all contributions required to be made to any
Employee Plan, or the terms of the Employee Plan or any collective bargaining
agreement, have been made on or before their due dates and a reasonable amount
has been accrued for contributions to each Employee Plan for the current plan
years; (vi) with respect to each Employee Plan, no "reportable event" within
the meaning of Section 4043 of ERISA (excluding any such event for which the
thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and (vii) neither the Company nor any ERISA Affiliate has
incurred, nor reasonably expects to incur, any liability under Title IV of
ERISA (other than liability for premium payments to the Pension Benefit
Guaranty Corporation arising in the ordinary course).

(c) Each Employee Plan that is required or intended to be qualified under
applicable law or registered or approved by a governmental agency or authority,
has been so qualified, registered or approved by the appropriate governmental
agency or authority, and nothing has occurred since the date of the last
qualification, registration or approval to adversely affect, or cause the
appropriate governmental agency or authority to revoke, such qualification,
registration or approval.

(d) All contributions (including premiums) required by law or contract to
have been made or approved by the Company under or with respect to Employee
Plans have been paid or accrued by the Company. Except as disclosed in Section
2.11(d) of the Company Disclosure Schedule, without limiting the foregoing,
there are no material unfunded liabilities under any Employee Plan.

(e) There are no pending or, to the knowledge of the Company, threatened
investigations, litigation or other enforcement actions against the Company
with respect to any of the Employee Plans.

(f) There are no actions, suits or claims pending or, to the best knowledge
of the Company, threatened by former or present employees of the Company (or
their beneficiaries) with respect to Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).

(g) No condition or event has occurred with respect to the Employee Plans
which has or could reasonably be expected to result in a material liability to
the Company.

(h) Section 2.11(h) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds any option to purchase Company
Common Stock as of the date hereof, together with the number of shares of
Company Common Stock subject to such option, the date of grant of such option,
the extent to which such option is vested, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended
to qualify as an incentive stock option within the meaning of Section 422(b) of
the Code (an "ISO"), and the expiration date of such option. Section 2.11(h) of
the Company Disclosure Schedule also sets forth the total number of such ISOs
and such nonqualified options.

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(i) The Company has made available to Parent (i) copies of all employment
agreements with officers of the Company; (ii) copies of all agreements with
consultants who are individuals obligating the Company to make annual cash
payments in an amount exceeding $100,000; (iii) a schedule listing all officers
of the Company who have executed a non-competition agreement with the Company;
(iv) copies of all plans, programs, agreements and other arrangements of the
Company with or relating to its employees which contain change in control
provisions; and (vi) the form of standard employment agreement, if any, of the
Company for its non-executive employees.

Section 2.12. Labor Matters. There are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees, which
controversies have or may have a Material Adverse Effect; neither the Company
nor any of its subsidiaries is a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company or
its subsidiaries nor does the Company or any of its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees;
and neither the Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any of its subsidiaries.

Section 2.13. Registration Statement; Proxy Statement. None of the
information supplied or to be supplied by the Company in writing for inclusion
or incorporation by reference in (i) the Registration Statement on Form S-4 to
be filed with the SEC by Parent in connection with the issuance of Parent
Common Shares in the Merger (the "Registration Statement") or (ii) the proxy
statement relating to the meeting of the Company's stockholders (the "Company
Stockholders' Meeting") to be held in connection with the Merger (the "Proxy
Statement" and, together with the Registration Statement, the "Proxy
Statement/Prospectus") will, at the respective times filed with the SEC or
other regulatory agency and, in addition, (A) in the case of the Proxy
Statement/Prospectus, at the date it or any amendments or supplements thereto
are mailed to stockholders, at the time of the Company Stockholders' Meeting
and at the Effective Time and (B) in the case of the Registration Statement,
when it becomes effective under the Securities Act and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the applicable provisions of the Exchange Act and the rules and
regulations thereunder, and the Registration Statement will comply as to form
in all material respects with the applicable provisions of the Securities Act
and the rules and regulations promulgated thereunder. If at any time prior to
the Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
Parent and Merger Sub. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent
or Merger Sub which is contained in any of the foregoing documents.

Section 2.14. Restrictions on Business Activities. Except for this Agreement,
there is no material agreement, judgment, injunction, order or decree binding
upon the Company or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or impairing any material business
practice of the Company or any of its subsidiaries, acquisition of property by
the Company or any of its subsidiaries or the conduct of business by the
Company or any of its subsidiaries as currently conducted or as proposed to be
conducted by the Company.

Section 2.15. Title to Property. The Company owns no real property. Section
2.15(b) of the Company Disclosure Statement sets forth a true and complete list
of all real property leased by the Company or any of its subsidiaries requiring
annual lease payments of more than $50,000, and the aggregate monthly rental or
other fee payable under such lease. The Company and each of its subsidiaries
have good, marketable and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances except liens for
taxes not yet due and payable and such liens or other imperfections of title,
if any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which

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would not have a Material Adverse Effect; and all leases pursuant to which the
Company or any of its subsidiaries lease from others material amounts of real
or personal property are in good standing, valid and effective in accordance
with their respective terms, and there is not under any of such leases, any
existing material default or event of default (or event which with notice or
lapse of time, or both, would constitute a material default and in respect of
which the Company or such subsidiary has not taken adequate steps to prevent
such a default from occurring) except where the lack of such good standing,
validity and effectiveness or the existence of such default or event of default
would not have a Material Adverse Effect. All the facilities of the Company and
its subsidiaries, except such as may be under construction, are in good
operating condition and repair, except where the failure of such plants,
structures and equipment to be in such good operating condition and repair
would not, individually or in the aggregate, have a Material Adverse Effect.

Section 2.16. Taxes. (a) For purposes of this Agreement, "Tax" or "Taxes"
shall mean taxes, fees, levies, duties, tariffs, imposts and governmental
impositions or charges of any kind in the nature of (or similar to) taxes,
payable to any federal, state, provincial, local or foreign taxing authority,
including (without limitation) (i) income, franchise, profits, gross receipts,
ad valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes and (ii) interest, penalties, additional
taxes and additions to tax imposed with respect thereto; and "Tax Returns"
shall mean returns, reports and information statements with respect to Taxes
required to be filed with the United States Internal Revenue Service (the
"IRS") or any other taxing authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns.

(b) Other than as disclosed on Section 2.16(b) of the Company Disclosure
Schedule, the Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its subsidiaries is or has been a member, have filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them or any of them, and have paid and discharged all Taxes shown
therein to be due and there are no other Taxes that would be due if asserted by
a taxing authority, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
or with respect to which the Company is maintaining reserves in accordance with
GAAP in its financial statements to the extent currently required in all
material respects adequate for their payment, except, in each instance, to the
extent the failure to do so would not have a Material Adverse Effect. Neither
the IRS nor any other taxing authority or agency is now asserting or, to the
best of the Company's knowledge, threatening to assert against the Company or
any of its subsidiaries any deficiency or claim for additional Taxes other than
additional Taxes with respect to which the Company is maintaining reserves in
accordance with GAAP in its financial statements which are in all material
respects adequate for their payment, except, in each instance, to the extent
the failure to do so would not have a Material Adverse Effect. No Tax Return of
either the Company or any of its subsidiaries is currently being audited by any
taxing authority. No material tax claim has become a lien on any assets of the
Company or any subsidiary thereof and neither the Company nor any of its
subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. Neither the
Company nor any of its subsidiaries is required to include in income (i) any
material items in respect of any change in accounting principles or any
deferred intercompany transactions, or (ii) any installment sale gain where, in
each case, the inclusion in income would result in a tax liability materially
in excess of the reserves therefor.

(c) The Company on behalf of itself and all its subsidiaries hereby
represents that, other than as disclosed on Section 2.16(c) of the Company
Disclosure Schedule, and other than with respect to items the inaccuracy of
which would not have a Material Adverse Effect: (i) neither the Company nor any
of its subsidiaries is a party to any agreement, contract or arrangement that
may result, separately or in the aggregate, in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, determined
without regard to Section 280G(b)(4) of the Code; (ii) neither the Company nor
any of its subsidiaries has

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been subject to any accumulated earning tax or personal holding company tax;
neither the Company nor any of its subsidiaries owns stock in a passive foreign
investment company within the meaning of Section 1296 of the Code; (iv) neither
the Company nor any of its subsidiaries is obligated under any agreement with
respect to industrial development bonds or other obligations with respect to
which the excludability from gross income of the holder for United States
federal or state income tax purposes could be affected by the transactions
contemplated hereunder; (v) neither the Company nor any of its subsidiaries has
entered into any deferred intercompany transaction within the meaning of
section 1.1502-13(a)(2) of the United States Treasury Regulations as to which
material items of deferred gain or loss have not been restored; and (vi) no
material excess loss account within the meaning of section 1.1502-31T(a)(2)(v)
of the United States Treasury Regulations exists with respect to the stock of
any of the Company's subsidiaries.

(d) No power of attorney has been granted by the Company or any of its
subsidiaries with respect to any matter relating to Taxes which is currently in
force.

(e) Except as set forth in Section 2.16(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement or arrangement (written or oral) providing for the allocation or
sharing of Taxes.

(f) The Company and each of its subsidiaries have withheld from each payment
made to any of their respective past or present employees, officers or
directors the amount of all Taxes and other deductions required to be withheld
therefrom and paid the same to the proper tax or other receiving officers
within the time required by law, except to the extent that any failure to do so
would not have a Material Adverse Effect.

(g) Except as set forth in Section 2.16(g) of the Company Disclosure
Schedule, the Company has remitted to the appropriate Tax authority when
required by law to do so all amounts collected by it on account of all retail
sales Tax.

(h) Except as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, there has been no material debt to a third party of the Company or
any of its subsidiaries which has been forgiven and which has given rise to (or
is expected to give rise to) "cancellation of indebtedness income" under the
provisions of the Code.

Section 2.17. Environmental Matters. Except in all cases, in the aggregate,
as have not had and could not reasonably be expected to have a Material Adverse
Effect, the Company and each of its subsidiaries to the best of the Company's
knowledge (i) have obtained all applicable permits, licenses and other
authorizations which are required under federal, state, provincial or local
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous or toxic materials or wastes into ambient
air, surface water, ground water or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company or its subsidiaries (or their respective
agents); (ii) are in compliance with all terms and conditions of such required
permits, licenses and authorization, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in
any regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder; (iii) as of the date
hereof, are not aware of nor have received notice of any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, based on or resulting from the
Company's or any of its subsidiary's (or any of their respective agent's)
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste; and (iv) have taken all actions necessary under applicable requirements
of federal, state or local laws, rules or regulations to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.

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Section 2.18. Brokers. No broker, finder or investment banker (other than
Volpe, Welty & Company) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and Volpe, Welty & Company pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated
hereunder.

Section 2.19. Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by the Company or its subsidiaries to
Parent or Merger Sub in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein or therein
not misleading.

Section 2.20. Intellectual Property. (a) The Company owns, or is licensed or
otherwise possesses legally sufficient rights to use, all patents, trademarks,
trade names, service marks, copyrights and any applications therefor,
technology, know-how, computer software programs or applications (in both
source code and object code form) and tangible or intangible proprietary
information or material that are used or proposed to be used in the business of
the Company as currently conducted in any material respect. Section 2.20(a) of
the Company Disclosure Schedule lists all current and past (lapsed, expired,
abandoned or cancelled) patents, registered and material unregistered
trademarks and service marks, registered and material unregistered copyrights,
trade names and any applications therefor owned by the Company (the "Company
Intellectual Property Rights"), and specifies the jurisdictions in which each
such Company Intellectual Property Right has been issued or registered or in
which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners, together with a list of all of the Company's currently
marketed software products and an indication as to which, if any, of such
software products have been registered for copyright protection with the United
States Copyright Office and any foreign offices and by whom such items have
been registered. Section 2.20(a) of the Company Disclosure Schedule includes
and specifically identifies all third-party patents, trademarks or copyrights
(including software) (the "Third Party Intellectual Property Rights"), to the
knowledge of the Company, which are incorporated in, are, or form a part of,
any Company product. Section 2.20(a) of the Company Disclosure Schedule lists
(i) any requests the Company has received to make any registration of the type
referred to in the penultimate sentence prior hereto, including the identity of
the requestor and the item requested to be so registered, and the jurisdiction
for which such request has been made; (ii) except for object code license
agreements for the Company's products executed in the ordinary course of
business and in accordance with the Company's past practices, all material
licenses, sublicenses and other agreements as to which the Company is a party
and pursuant to which any person is authorized to use any Company Intellectual
Property Right, or any trade secret material to the Company; and (iii) all
material licenses, sublicenses and other agreements as to which the Company is
a party and pursuant to which the Company is authorized to use any Third Party
Intellectual Property Rights, or other trade secret of a third party in or as
any product, and includes the identity of all parties thereto, a description of
the nature and subject matter thereof, the applicable royalty and the term
thereof.

(b) Except as set forth in Section 2.20(b) of the Company Disclosure
Schedule, the Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any license, sublicense or agreement described in Section 2.20(a)
of the Company Disclosure Schedule. No claims with respect to the Company
Intellectual Property Rights, any trade secret material to the Company, or
Third Party Intellectual Property Rights to the extent arising out of any use,
reproduction or distribution of such Third Party Intellectual Property Rights
by or through the Company, are currently pending or, to the knowledge of the
Company, are threatened by any person, nor does the Company know of any valid
grounds for any bona fide claims (i) to the effect that the manufacture, sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by the Company infringes on any copyright, patent,
trademark, service mark or trade secret; (ii) against the use by

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the Company of any trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or as proposed to be conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property Rights or other trade secret material to the
Company; or (iv) challenging the Company's license or legally enforceable right
to use of the Third Party Intellectual Rights. To the Company's knowledge,
after reasonable investigation, all patents, registered trademarks, maskworks
and copyrights held by the Company are valid and subsisting. Except as set
forth in Section 2.20(b) of the Company Disclosure Schedule, to the Company's
knowledge, there is no material unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third
party, including any employee or former employee of the Company or any of its
subsidiaries. Except as set forth in Section 2.20(b) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries (i) has been sued or
charged in writing as a defendant in any claim, suit, action or proceeding
which involves a claim or infringement of trade secrets, any patents,
trademarks, service marks, maskworks or copyrights and which has not been
finally terminated prior to the date hereof or been informed or notified by any
third party that the Company may be engaged in such infringement or (ii) has
knowledge of any infringement liability with respect to, or infringement by,
the Company or any of its subsidiaries of any trade secret, patent, trademark,
service mark, maskwork or copyright of another.

(c) Each employee of the Company has executed a confidentiality and invention
agreement in the forms previously delivered to Parent.

Section 2.21. Interested Party Transactions. Except as set forth in Section
2.21 of the Company Disclosure Schedule or in the Company SEC Reports, since
December 5, 1994, no event has occurred that would be required to be reported
as a Certain Relationship or Related Transaction, pursuant to Item 404 of
Regulation S-K promulgated by the SEC.

Section 2.22. Insurance. Section 2.22 of the Company Disclosure Schedule
lists all material insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company and its subsidiaries. There is no claim by the Company or any of
its subsidiaries pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums payable under all such policies and bonds have
been paid and the Company and its subsidiaries are otherwise in full compliance
with the terms of such policies and bonds (or other policies and bonds
providing substantially similar insurance coverage). Such policies of insurance
and bonds are of the type and in amounts customarily carried by persons
conducting businesses similar to those of the Company and its subsidiaries. The
Company does not know of any threatened termination of, or material premium
increase with respect to, any of such policies.

Section 2.23. Option Plans. Except as set forth in Section 2.23 of the
Company Disclosure Schedule, the Board of Directors of the Company has taken
all necessary action (or refrained from taking action, where appropriate) under
the Company Stock Option Plan (as defined in Section 5.05) so that no Stock
Options (or any portion thereof) will be accelerated or entitled to receive
cash or other property as a result of the consummation of the transactions
contemplated hereby, but instead shall be assumed as provided in Section
1.06(c) hereof.

Section 2.24. Vote Required. The affirmative vote of the holders of at least
a majority of the outstanding shares of the Company Common Stock is the only
vote of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.

Section 2.25. Pooling Matters. Neither the Company nor any of its affiliates,
to the Company's knowledge and based upon consultation with its independent
accountants, is aware of any facts or has taken or agreed to take any action
that (without giving effect to any action taken or agreed to be taken by Parent
or any of its affiliates) would affect the ability of Parent to account for the
business combination to be effected by the Mergers as a pooling of interests.

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Section 2.26. Opinion of Financial Advisor. The Company has been advised by
its financial advisor, Volpe, Welty & Company, that in its opinion, as of the
date hereof, the terms of the Merger are fair to the stockholders of the
Company from a financial point of view, and has delivered a written copy of
such opinion to Parent.

ARTICLE III

Representations and Warranties of Parent and Merger Sub

Parent and Merger Sub hereby, jointly and severally, represent and warrant to
the Company that:

Section 3.01. Organization and Qualification. Parent and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and Approvals would not have a Material Adverse Effect.
Parent and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature
of its activities makes such qualification or licensing necessary, except for
such failures to be so duly qualified or licensed and in good standing that
would not have a Material Adverse Effect.

Section 3.02. Authority Relative to this Agreement. Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions so contemplated. The
Board of Directors of Parent has determined that it is advisable and in the
best interest of Parent's stockholders for Parent to enter into a business
combination with the Company upon the terms and subject to the conditions of
this Agreement. This Agreement has been duly and validly executed and delivered
by Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
Parent and Merger Sub.

Section 3.03. No Conflict; Required Filings and Consents. (a) Section 3.03(a)
of the written disclosure schedule previously delivered by Parent and Merger
Sub to the Company (the "Parent Disclosure Schedule") includes a list of all
Material Contracts of Parent and its subsidiaries.

(b) Except as set forth in Section 3.03(b) of the Parent Disclosure Schedule,
the execution and delivery of this Agreement by Parent and Merger Sub do not,
and the performance of this Agreement by Parent and Merger Sub shall not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws of Parent
or the Articles of Incorporation or By-Laws of Merger Sub, (ii) conflict with
or violate any law, rule, regulation, order, judgment or decree applicable to
Parent or any of it subsidiaries or by which its or their respective properties
are bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or impair Parent's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material Contract or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected, except in any such case for any such
breaches, defaults or other occurrences that would not have a Material Adverse
Effect.

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(c) The execution and delivery of this Agreement by Parent and Merger Sub
will not require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, the Blue Sky Laws and the pre-merger notification
requirements of the HSR Act and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise prevent
Parent or Merger Sub from performing their respective obligations under this
Agreement, and would not have a Material Adverse Effect.

Section 3.04. Certificate of Incorporation and By-Laws. Parent has heretofore
furnished to the Company a complete and correct copy of its Certificate of
Incorporation and the By-Laws, as amended to date. Such Certificate of
Incorporation and By-Laws are in full force and effect. Neither Parent nor
Merger Sub is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.

Section 3.05. Capitalization. As of January 31, 1995, the authorized capital
stock of Parent consisted of (i) 500,000,000 shares of Parent Common Shares of
which: 143,485,318 shares were issued and outstanding, no shares were held in
treasury, 28,839,039 shares were reserved for issuance pursuant to outstanding
options under Parent's stock option plans, 3,202,649 were reserved for future
issuance under Parent's employee purchase plan, 7,402,395 shares were reserved
for future issuance with respect to Parent's outstanding Zero Coupon
Convertible Subordinated Debentures due 2013, and an indefinite number of
shares were reserved for future issuance with respect to Parent's outstanding
Series A Convertible Preferred Stock; and (ii) 2,000,000 shares of Preferred
Stock, $0.001 par value ("Parent Preferred Stock"), 35,000 shares of Series A
Convertible Preferred Stock of which were issued and outstanding. Other than
the grant by Parent on February 1, 1995 of options to purchase 2,230,600 shares
of Parent Common Shares, no material change in such capitalization has occurred
between January 31, 1995 and the date hereof. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $0.001 per
share, 100 shares of which, as of the date hereof, are issued and outstanding.
All of the outstanding shares of Parent's and Merger Sub's respective capital
stock have been duly authorized and validly existing and are fully paid and
nonassessable. Parent owns all of the capital stock of Merger Sub.

Section 3.06. Compliance; Permits. (a) Neither Parent nor any of its
subsidiaries is in conflict with, in default with respect to or in violation of
(i) any law, rule, regulation, order, judgment or decree applicable to Parent
or any of its subsidiaries or by which its or any of their respective
properties is bound or affected or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries is or any of their respective properties is
bound or affected, except for any such conflicts, defaults or violations which
would not have a Material Adverse Effect.

(b) Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
the Company and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "Parent Permits"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure to so
comply would not have a Material Adverse Effect.

Section 3.07. SEC Filings; Financial Statements. (a) Parent has filed all
forms, reports and documents required to be filed with the SEC since June 30,
1992, and has heretofore delivered to the Company, in the form filed with the
SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended June 30,
1994, 1993 and 1992, and its quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1994, (ii) all proxy statements relating to
Parent's meetings of stockholders (whether annual or special) held since June
30, 1992, (iii) all other reports or registration statements (other than
Reports on Form 10-Q and Reports on Form 3, 4 or 5 filed on behalf of
affiliates of the Parent) filed by Parent with the SEC since June 30, 1992 and
(iv) all amendments and supplements to all such reports and registration
statements filed by Parent with the SEC (collectively, the "Parent SEC
Reports"). The Parent SEC Reports (i) were prepared in accordance with

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the requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms,
reports or other documents with the SEC.

(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and each
fairly presents the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.

(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.

Section 3.08. Absence of Certain Changes or Events. Except as set forth in
Section 3.08 of the Parent Disclosure Schedule, since June 30, 1994, Parent has
conducted its business in the ordinary course and there has not occurred: (i)
any Material Adverse Effect; (ii) any amendments or changes in the Certificate
of Incorporation or By-Laws of Parent; (iii) any damage to, destruction or loss
of any assets of the Parent (whether or not covered by insurance) that could
have a Material Adverse Effect; (iv) any revaluation by Parent of any of its
assets, including, without limitation, writing down the value of capitalized
software or inventory or writing off notes or accounts receivable other than in
the ordinary course of business; or (v) except as disclosed in Section 3.08 of
the Parent Disclosure Schedule, any other action or event that would have
required the consent of the Company pursuant to Section 4.03 had such action or
event occurred after the date of this Agreement.

Section 3.09. Restrictions on Business Activities. Except for this Agreement,
there is no material agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition of property by
Parent or any of its subsidiaries or the conduct of business by Parent or any
of its subsidiaries as currently conducted or as proposed to be conducted by
Parent.

Section 3.10. Title to Property. Parent and each of its subsidiaries have
good, marketable and defensible title to all of their properties and assets,
free and clear of all liens, charges and encumbrances except liens for taxes
not yet due and payable and such liens or other imperfections of title, if any,
as do not materially detract from the value of or interfere with the present
use of the property affected thereby or which would not have a Material Adverse
Effect; and, to Parent's knowledge, all leases pursuant to which Parent or any
of its subsidiaries lease from others material amounts of real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of Parent, under any of
such leases, any existing material default or event of default (or event which,
with notice or lapse of time, or both, would constitute a material default and
in respect of which Parent or such subsidiary has not taken adequate steps to
prevent such a default from occurring) except where the lack of such good
standing, validity and effectiveness, or the existence of such default or event
of default would not have a Material Adverse Effect.

Section 3.11. Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by Parent or Merger Sub to the Company
in, or pursuant to the provisions of, this Agreement

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contains or will contain any untrue statement of a material fact or omits or
shall omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein or therein
not misleading.

Section 3.12. No Undisclosed Liabilities. (a) Except as is disclosed in
Section 3.12 of the Parent Disclosure Schedule or the Parent SEC Reports,
neither Parent nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) which are, in the aggregate, material to the
business, operations or financial condition of Parent and its subsidiaries
taken as a whole, except liabilities (i) adequately provided for in Parent's
balance sheet (including any related notes thereto) as of June 30, 1994
included in the Parent SEC Reports (the "June 30 Balance Sheet"), (ii) incurred
in the ordinary course of business and not required under GAAP to be reflected
on the June 30 Balance Sheet, or (iii) incurred since June 30, 1994 in the
ordinary course of business and consistent with past practice, and liabilities
incurred in connection with this Agreement.

(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.

Section 3.13. Absence of Litigation. Except as set forth in Section 3.13 of
the Parent Disclosure Schedule or as reflected in the Parent SEC Reports, there
are no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of Parent, threatened against Parent or any of its subsidiaries, or
any properties or rights of Parent or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that could have a Material Adverse Effect.

Section 3.14. Insurance. Parent and its subsidiaries maintain fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance that Parent believes to be reasonably
prudent for its business.

Section 3.15. Registration Statement; Proxy Statement/Prospectus. Subject to
the accuracy of the representations of the Company in Section 2.13, the
Registration Statement pursuant to which the Parent Common Shares to be issued
in the Merger will be registered with the SEC shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
included therein, in light of the circumstances under which they were made, not
misleading. Subject to the accuracy of the representations of the Company in
Section 2.13, the information supplied by Parent for inclusion in the Proxy
Statement/Prospectus will not, on the date the Proxy Statement/Prospectus is
first mailed to stockholders, at the time of the Company Stockholders' Meeting
and at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or will omit to state any material fact
necessary in order to make the statements therein not false or misleading. If
at any time prior to the Effective Time any event relating to Parent, Merger
Sub or any of their respective affiliates, officers or directors should be
discovered by Parent or Merger Sub which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement/ Prospectus,
Parent or Merger Sub will promptly inform the Company. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in, or furnished in
connection with the preparation of, any of the foregoing.

Section 3.16. Taxes. Other than as disclosed on Section 3.16 of the Parent
Disclosure Schedule, Parent and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Parent or any of
its subsidiaries is or has been a member, have filed all United States federal

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income Tax Returns and all other material Tax Returns required to be filed by
them or any of them, and have paid and discharged all Taxes shown therein to be
due and there are no other Taxes that would be due if asserted by a taxing
authority, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) or with
respect to which Parent is maintaining reserves in accordance with GAAP in its
financial statements to the extent currently required in all material respects
adequate for their payment, except, in each instance, to the extent the failure
to do so would not have a Material Adverse Effect. Neither the IRS nor any
other taxing authority or agency is now asserting or, to the best of Parent's
knowledge, threatening to assert against Parent or any of its subsidiaries any
deficiency or claim for additional Taxes other than additional Taxes with
respect to which Parent is maintaining reserves in accordance with GAAP in its
financial statements which are in all material respects adequate for their
payment, except, in each instance, to the extent that the failure to do so
would not have a Material Adverse Effect. Except as set forth in Section 3.16
of the Parent Disclosure Schedule, no Tax Return of either Parent or any of its
subsidiaries is currently being audited by any taxing authority except as would
not have a Material Adverse Effect. Except as set forth in Section 3.16 of the
Parent Disclosure Schedule, no material tax claim has become a lien on any
assets of Parent or any subsidiary thereof and neither Parent nor any of its
subsidiaries has, except as would not have a Material Adverse Effect, granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax.

Section 3.17. Brokers. No broker, finder or investment banker (other than
Morgan Stanley & Co. Incorporated and Unterberg Harris L.P.) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Merger Sub.

Section 3.18. Opinion of Financial Advisor. Parent has been advised by its
financial advisor, Morgan Stanley & Co. Incorporated, that in its opinion, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to Parent, and has delivered a copy of such opinion to the Company.

Section 3.19. Pooling Matters. Neither Parent nor any of its affiliates, to
its knowledge and based upon consultation with its independent accountants, is
aware of any fact or has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by the Company or any
of its affiliates) would affect the ability of Parent to account for the
business combination to be effected by the Mergers as a pooling of interests.

Section 3.20. No Stockholder Vote. No vote of the stockholders of Parent is
necessary to approve the Merger or the issuance of Parent Common Shares
therein.

ARTICLE IV

Conduct of Business Pending the Merger

Section 4.01. Conduct of Business by the Company Pending the Merger. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company covenants
and agrees that, unless Parent shall otherwise agree in writing, the Company
shall conduct its business and shall cause the businesses of its subsidiaries
to be conducted only in, and the Company and its subsidiaries shall not take
any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company shall use reasonable commercial
efforts to preserve substantially intact the business organization of the
Company and its subsidiaries, to keep available the services of the present
officers, employees and consultants of the Company and its subsidiaries, to
take all reasonable action in the ordinary course of business and in a manner
consistent with past practice necessary to prevent the loss, cancellation,
abandonment, forfeiture or expiration of any Company Intellectual Property, and
to preserve the present relationships of the Company and its subsidiaries with
customers, suppliers and other persons with which the Company or any of its
subsidiaries has significant business relations. By way of

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amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its subsidiaries shall, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, directly or indirectly do, or propose
to do, any of the following without the prior written consent of Parent:

(a) amend or otherwise change the Company's Articles of Incorporation or
By-Laws;

(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) of the Company, any of its subsidiaries or affiliates
(except for the issuance of shares of the Company Common Stock issuable
pursuant to employee stock options under the Company Stock Option Plans (as
defined in Section 5.05) or pursuant to rights to purchase such shares
under the Company Stock Purchase Plan (as defined in Section 5.06), which
options or rights, as the case may be, are outstanding on the date hereof);

(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice and (ii)
dispositions of obsolete or worthless assets);

(d) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options granted under the Employee Plans
(including the Company Stock Option Plan) or authorize cash payments in
exchange for any options granted under any of such plans;

(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii) amend
the terms of, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, or propose to do any of
the foregoing;

(f) sell, transfer, license, sublicense or otherwise dispose of any
Company Intellectual Property, or amend or modify any existing agreements
with respect to any Company Intellectual Property or Third Party
Intellectual Property Rights, other than nonexclusive object and source
code licenses in the ordinary course of business consistent with past
practice;

(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee (other than guarantees of bank
debt of the Company's subsidiaries entered into in the ordinary course of
business) or endorse or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans or advances, except
in the ordinary course of business consistent with past practice; (iii)
enter into or amend any contract or agreement other than in the ordinary
course of business; (iv) authorize any capital expenditures or purchase of
fixed assets which are, in the aggregate, in excess of $1,000,000 for the
Company and its subsidiaries, taken as a whole; or (v) enter into or amend
any contract, agreement, commitment or arrangement to effect any of the
matters prohibited by this Section 4.01(g);

(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees
of the Company or its subsidiaries who are not officers of the Company in
accordance with past practices, or grant any severance or termination pay
to, or enter into any employment or severance agreement with any director,
officer (except for officers who are terminated on an involuntary basis) or
other employee of the Company or any of its subsidiaries, or establish,
adopt, enter into or amend any Employee Plan;

(i) take any action, other than as required by GAAP, to change accounting
policies or procedures (including, without limitation, procedures with
respect to revenue recognition, capitalization of software development
costs, payments of accounts payable and collection of accounts receivable);

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(j) make any material Tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations for any
assessment of any Tax, except to the extent the amount of any such
settlement has been reserved for on the Company's most recent SEC Report;

(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice;

(l) except as may be required by law, take any action to terminate or
amend any of its Employee Plans other than in connection with the Merger;

(m) take or allow to be taken or fail to take any act or omission which
would jeopardize the treatment of the Mergers as a pooling of interests for
accounting purposes under GAAP; or

(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (m) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing
or cause the Company not to perform its covenants hereunder or result in
any of the conditions to the Merger set forth herein not being satisfied.

Section 4.02. No Solicitation. (a) The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent of
the Company or any of its subsidiaries, solicit or encourage (including by way
of furnishing information) the initiation of any inquiries or proposals
regarding any merger, amalgamation, take-over bid, sale of substantial assets,
sale of shares of capital stock (including without limitation by way of a
tender offer) or similar transactions involving the Company or any subsidiaries
of the Company (any of the foregoing inquiries or proposals being referred to
herein as an "Acquisition Proposal"); provided, however, that nothing contained
in this Agreement shall prevent the Board of Directors of the Company from
referring any third party to this Section 4.02(a). Nothing contained in this
Section 4.02(a) or any other provision of this Agreement shall prevent the
Board of Directors of the Company from considering, negotiating, approving and
recommending to the stockholders of the Company an unsolicited bona fide
written Acquisition Proposal which the Board of Directors of the Company
determines in good faith (after consultation with its financial advisors, and
after receiving a written opinion of outside counsel, or the advice of outside
counsel that is reflected in the minutes of the Board of Directors of the
Company, to the effect that the Board of Directors is required to do so in
order to discharge properly its fiduciary duties) would result in a transaction
more favorable to the Company's stockholders than the transaction contemplated
by this Agreement (any such Acquisition Proposal being referred to herein as a
"Superior Proposal").

(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its subsidiaries in connection with an Acquisition Proposal
or for access to the properties, books or records of the Company or any
subsidiary by any person or entity that informs the Board of Directors of the
Company or such subsidiary that it is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in writing
and shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact.

(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a party who makes a bone fide Acquisition Proposal and
the Board of Directors of the Company determines that such proposal, if
consummated pursuant to its terms, would be a Superior Proposal, then, and only
in such case, the Company may, subject to the execution of a confidentiality
and standstill agreement substantially similar to that then in effect between
the Company and Parent, provide such party with access to information regarding
the Company.

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(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.

(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section, and shall be responsible for any breach of this Section 4.02
by such bankers, advisors and representatives.

Section 4.03. Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and
agrees that, unless the Company shall otherwise agree in writing, Parent shall
conduct its business, and cause the businesses of its subsidiaries to be
conducted, in the ordinary course of business and consistent with past
practice, other than actions taken by Parent or its subsidiaries in
contemplation of the Merger and the Other Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:

(a) amend or otherwise change Parent's Articles of Incorporation, or
amend the terms of the Parent Common Shares, except for the filing of the
certificate of designation referred to in the Other Merger Agreement;

(b) except for the Other Merger, acquire or agree to acquire, by merging
or consolidating with, by purchasing an equity interest in or a portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets of any other
person, which, in each case, would materially delay or prevent the
consummation of the transactions contemplated by this Agreement;

(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of
Parent may declare and pay a dividend to its parent;

(d) sell, transfer, license, sublicense or otherwise dispose of any
material assets; or

(e) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.

ARTICLE V

Additional Agreements

Section 5.01. Proxy Statement/Prospectus; Registration Statement. As promptly
as practicable after the execution of this Agreement, the Company and Parent
shall prepare and file with the SEC preliminary proxy materials which shall
constitute the Proxy Statement of the Company and the Registration Statement of
Parent with respect to the Parent Common Shares to be issued in connection with
the Merger. As promptly as practicable after comments are received from the SEC
thereon and after the furnishing by the Company and Parent of all information
required to be contained therein, the Company and Parent shall file with the
SEC a combined proxy and registration statement on Form S-4 (or on such other
form as shall be appropriate) relating to the approval of the Merger and the
transactions contemplated hereby by the stockholders of the Company and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. The Proxy Statement shall include
the recommendation of the Board of Directors of the Company in favor of the
Merger, subject to the second sentence of Section 4.02.

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Section 5.02. Stockholders' Meeting. The Company shall in accordance with
California Law and the Company's Articles of Incorporation and Bylaws call and
hold the Company Stockholders' Meeting as promptly as practicable for the
purpose of voting upon the approval of the Merger. The Company shall use its
reasonable best efforts to hold the Company Stockholders' Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective or, if requested by Parent, the date on which the Other Merger is
consummated provided the Other Merger is consummated after the effective date
of the Registration Statement. The Company shall use its reasonable best
efforts to solicit from their respective stockholders proxies in favor of the
approval of the Merger, and shall take all other action necessary or advisable
to secure the vote or consent of stockholders required by California Law to
obtain such approvals.

Section 5.03. Access to Information; Confidentiality. (a) Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject, the Company and Parent shall each (and shall cause
each of their subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either party may reasonably request. Each party shall keep such information
confidential in accordance with the terms of the currently effective
confidentiality agreement (the "Confidentiality Agreement") between Parent and
the Company.

(b) The Company shall provide to Parent promptly as available drafts and
printers' proofs of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and the Company's proxy statement related to its
1995 annual meeting of shareholders, and Parent shall provide to the Company,
promptly as available, drafts and printers' proofs of Parent's Form 10-Q for
the quarter ended December 31, 1994.

Section 5.04. Consents; Approvals. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations
or orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated
hereby. The Company and Parent shall furnish all information required to be
included in the Proxy Statement and the Registration Statement, or for any
application or other filing to be made pursuant to the rules and regulations of
any United States, Canadian or foreign governmental body in connection with the
transactions contemplated by this Agreement.

Section 5.05. Stock Options. (a) At the Effective Time, the Company's
obligations with respect to each outstanding option to purchase shares of
Company Common Stock (each, a "Company Option") under the Company's 1990 Stock
Option Plan (the "Company Stock Option Plan"), whether vested or unvested, will
be assumed by Parent. Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Option Plan and agreement pursuant to
which such Company Option was issued as in effect immediately prior to the
Effective Time, except that (i) such Company Option will be exercisable for
that number of Parent Common Shares equal to the product of the number of
shares of Company Common Stock that were purchasable under such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded up to the nearest whole number of shares of Parent Common Shares, and
(ii) the per share exercise price for the shares of Parent Common Shares
issuable upon exercise of such assumed Company Option will be equal to the
quotient determined by dividing the exercise price per share of Company Common
Stock at which such Company Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, and rounding the resulting exercise price
up to the nearest whole cent.

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(b) It is the intention of the parties that the Company Options assumed by
Parent qualify following the Effective Time as incentive stock options as
defined in the Code ("ISO's") to the extent the Company Options qualified as
ISO's prior to the Effective Time.

(c) After the Effective Time, Parent will issue to each holder of an
outstanding Company Option a document evidencing the foregoing assumption by
Parent.

Section 5.06. Company Employee Stock Purchase Plan. (a) The Company shall
take such actions as are necessary to cause the exercise date (as such term is
used in the Company's Employee Stock Purchase Plan (the "Company Stock Purchase
Plan")) applicable to the then current offering period (as such term is used in
the Company Stock Purchase Plan) to be the last trading day on which the Parent
Common Shares are traded on the New York Stock Exchange immediately prior to
the Effective Time (the "Final Company Purchase Date"); provided, that, such
change in the Purchase Date shall be conditioned upon the consummation of the
Merger. On the Final Company Purchase Date, the Company shall apply the funds
credited as of such date under the Company Stock Purchase Plan within each
participant's payroll withholdings account to the purchase of whole shares of
Company Common Stock in accordance with the terms of the Company Stock Purchase
Plan. The cost to each participant in the Company Stock Purchase Plan for
shares of Company Common Stock shall be the lower of 85% of the closing sale
price of Company Common Stock on the Nasdaq National Market on (i) the first
day of the then current offering period or (ii) the Final Company Purchase
Date.

(b) Employees of the Company as of the Effective Time shall be permitted to
participate in Parent's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with the Company).

Section 5.07. Agreements of Affiliates. The Company shall deliver to Parent,
prior to the date the Registration Statement becomes effective under the
Securities Act, a letter (the "Affiliate Letter") identifying all persons who
are, or may deemed to be, at the time of the Company Stockholders' Meetings,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each person who is identified
as an "affiliate" in the Affiliate Letter to deliver to Parent, prior to the
Effective Time, a written agreement (an "Affiliate Agreement") in substantially
the form of Exhibit A hereto.

Section 5.08. Indemnification and Insurance. (a) The Articles of
Incorporation of the Surviving Corporation shall contain the provisions with
respect to indemnification set forth in the By-Laws of the Company, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.

(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after
the Effective Time, the Surviving Corporation and Parent shall, to the fullest
extent permitted under applicable law or under the Surviving Corporation's and
Parent's, as the case may be, Articles of Incorporation or By-Laws, indemnify
and hold harmless, each present and former director, officer, employee,
fiduciary and agent of the Company or any of its subsidiaries (collectively,
the "Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission occurring at or prior to
the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) for a period of six years after the Effective
Time. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time shall be
reasonably

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satisfactory to the Surviving Corporation and Parent, (ii) after the Effective
Time, the Surviving Corporation and Parent shall pay the reasonable fees and
expenses of such counsel, and (iii) the Surviving Corporation and Parent will
cooperate in the defense of any such matter; provided, however, that neither
the Surviving Corporation nor Parent shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld); and provided, further, that in the event that any claim or claims
for indemnification are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until the disposition of any and all such claims. The Indemnified Parties as a
group may retain only one law firm to represent them with respect to any single
action unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties.

Section 5.09. Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate, (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder and (iii) any termination of the Other Agreement; provided,
however, that the delivery of any notice pursuant to this Section shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice; and provided, further, that failure to give such notice
shall not be treated as a breach of covenant for the purposes of Sections
6.02(a) and 6.03(a) unless the failure to give such notice results in material
prejudice to the other party.

Section 5.10. Further Action/Tax Treatment. Upon the terms and subject to the
conditions hereof, each of the parties hereto in good faith shall use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings, and to otherwise satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement. Each of Parent, Merger Sub
and the Company shall use its best efforts to cause the Mergers to qualify, and
will not (both before and after consummation of the Mergers) take any actions
which could prevent the Mergers from qualifying as a reorganization under the
provisions of Section 368 of the Code. Each of Parent, Merger Sub and the
Company shall report the Mergers as a reorganization under the provisions of
Section 368 of the Code and, to the extent permitted, on all state and local
Tax returns, filed after the Effective Time of the Mergers.

Section 5.11. Public Announcements. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which shall not be unreasonably withheld; provided,
however, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may upon the advice of
counsel be required by law, the National Association of Securities Dealers or
the NYSE if it has used all reasonable efforts to consult with the other party.

Section 5.12. Listing of Parent Common Shares. Parent shall use its
reasonable best efforts to cause the shares of Parent Common Shares to be
issued in the Merger to be approved for listing on the New York Stock Exchange.

Section 5.13. Conveyance Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Effective Time.

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Section 5.14. Accountants' Letters. Upon reasonable notice from Parent, the
Company shall use its best efforts to cause Arthur Andersen & Company LLP to
deliver to Parent a letter covering such matters as are requested by Parent and
as are customarily addressed in accountant's "comfort" letters.

Section 5.15. Pooling Accounting Treatment. Each of Parent and the Company
agree not to take any action that would adversely affect the ability of Parent
to treat the Mergers as a pooling of interests under GAAP.

Section 5.16. Other Merger. Parent will not close the Other Merger unless the
Merger closes substantially contemporaneously therewith.

Section 5.17. Other Merger Exchange Ratio. Parent shall not increase the
Other Merger Exchange Ratio, other than increasing such ratio in response to an
Acquisition Proposal with respect to Alias, without proportionately increasing
the Exchange Ratio.

ARTICLE VI

Conditions to the Merger

Section 6.01. Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:

(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose and no similar proceeding in respect of the Proxy
Statement shall have been initiated or, to the knowledge of Parent or the
Company, threatened by the SEC;

(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of the
Company;

(c) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;

(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by any administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; and there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal;

(e) Tax Opinions. Parent and the Company shall have received
substantially identical written opinions of Shearman & Sterling and Wilson,
Sonsini, Goodrich & Rosati, respectively, in form and substance reasonably
satisfactory to them to the effect that the Mergers will constitute a
reorganization within the meaning of Section 368 of the Code, and such
opinions shall not have been withdrawn. In rendering such opinions, counsel
shall be entitled to rely upon representations of Parent, Merger Sub and
the Company and certain affiliates and shareholders of the Company;

(f) NYSE Listing. The Parent Common Shares shall have been approved for
listing, subject to notice of issuance, on the NYSE; and

(g) Other Merger. The Other Merger shall have been closed.

Section 6.02. Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:

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(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement (together with the Company
Disclosure Schedule) shall be true and correct in all respects on and as of
the Effective Time, except for (i) changes contemplated by this Agreement,
(ii) those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such date) and
(iii) instances where the failure to be true and correct would not have a
Material Adverse Effect on the Company, with the same force and effect as
if made on and as of the Effective Time, and Parent and Merger Sub shall
have received a certificate to such effect signed by the President and Vice
President--Finance and Administration of the Company;

(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent and Merger Sub shall have received
a certificate to such effect signed by the President and Vice President--
Finance and Administration of the Company;

(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company;

(d) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other
inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, nor
shall there be in effect any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction, in
either case, seeking to prohibit or limit Parent from exercising all
material rights and privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Parent or any of its
subsidiaries of all or a material portion of the business or assets of
Parent or any of its subsidiaries, or seeking to compel Parent or any of
its subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of Parent or any of its subsidiaries, as a result
of the Merger or the transactions contemplated by this Agreement;

(e) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the business,
results of operations or financial condition of the Company or any
subsidiary of the Company having or reasonably likely to have a Material
Adverse Effect;

(f) Accountants' Pooling Letters. Each of the parties to the Agreement
shall have received letters dated as of the Effective Date, from Ernst &
Young LLP and Arthur Andersen & Company LLP regarding the appropriateness
of pooling of interests accounting treatment for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement; and

(g) Affiliate Agreements. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of the Company an
Affiliate Agreement, and each such Affiliate Agreement shall be in full
force and effect.

Section 6.03. Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:

(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement (together with the Parent
Disclosure Schedule) shall be true and correct in all respects on and as of
the Effective Time, except for (i) changes contemplated by this Agreement,
(ii) those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such date) and
(iii) failures to be true and correct that would not have a Material
Adverse Effect on Parent and Merger Sub, with the same force and effect as
if made on and as of the Effective Time, and the Company shall have
received a certificate to such effect signed by the President and Chief
Executive Officer of Parent;

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(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by the President and Chief Financial
Officer of Parent;

(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub; and

(d) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the business,
results of operations or financial condition of Parent or any subsidiary of
Parent having or reasonably likely to have a Material Adverse Effect.

ARTICLE VII

Termination

Section 7.01. Termination. This Agreement may be terminated at any time prior
to the Effective Time, notwithstanding approval thereof by the stockholders of
the Company:

(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or

(b) by either Parent or the Company if the Merger shall not have been
consummated by August 31, 1995 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date); or

(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued a non-appealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or

(d) by Parent or the Company, if, at the Company Stockholders' Meeting
(including any adjournment or postponement thereof), the requisite vote of
the stockholders of the Company shall not have been obtained; or

(e) by Parent, if (i) the Board of Directors of the Company shall
withdraw, modify or change its recommendation of this Agreement or the
Merger in a manner adverse to Parent or shall have resolved to do so; or
(ii) the Board of Directors of the Company shall have taken a "neutral"
position with respect to (or shall have failed to reject as inadequate or
failed to have reaffirmed its recommendation of this Agreement and the
Merger within 10 business days after the public announcement or
commencement of) an Alternative Transaction (as defined in Section
7.03(d)); or

(f) by Parent or the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent and
Merger Sub, respectively, set forth in this Agreement or if any
representation or warranty of the Company or Parent and Merger Sub,
respectively, shall have become untrue, in either case, such that the
conditions set forth in Section 6.02(a) or 6.02(b), or Section 6.03(a) or
6.03(b), would not be satisfied (a "Terminating Breach"), provided that, if
such Terminating Breach is curable prior to the expiration of 30 days from
its occurrence (but in no event later than August 31, 1995) by Parent or
the Company, as the case may be, through the exercise of its reasonable
best efforts and for so long as Parent or the Company, as the case may be,
continues to exercise such reasonable best efforts, neither the Company nor
Parent, respectively, may terminate this Agreement under this Section
7.01(f) unless such 30-day period expires without such Terminating Breach
having been cured; or

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(g) by the Company or Parent, if the Board of Directors of the Company
shall have resolved to accept, or accepted, a Superior Proposal; or

(h) by the Company, at any time after the tenth business day following
termination of the Other Merger Agreement; or

(i) by the Parent, at any time after the tenth business day following
termination of the Other Merger Agreement.

Section 7.02. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.03 and Section 8.01 hereof, and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof (provided that any fee paid
pursuant to Section 7.03(b) or (c) shall be credited towards any such liability
of the paying party). If the Board of Directors of the Company, in good faith,
after receiving the advice of outside counsel, concludes that it would be in
violation of its fiduciary duties if it did not take or omit to take the
actions enumerated in Section 7.01(e) as giving rise to a right of termination
by Parent, then any such action or omission shall not be considered a breach of
this Agreement.

Section 7.03. Fees and Expenses. (a) Except as set forth in this Section
7.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.

(b) The Company shall pay Parent a fee of $6,000,000 upon the earliest to
occur of the following events:

(i) the termination of this Agreement by Parent pursuant to Section
7.01(e); or

(ii) the termination of this Agreement by Parent pursuant to Section
7.01(f) after a willful and material breach by the Company of this
Agreement; or

(iii) the termination of this Agreement by Parent or the Company pursuant
to Section 7.01(g); or

(iv) the termination of this Agreement by the Company or Parent pursuant
to Section 7.01(d) if, at the time of termination (and on the day of the
vote referred to in Section 7.01(d)), an Alternative Transaction shall be
outstanding or a proxy statement recommending the implementation of such
Alternative Transaction shall have been published or sent or given to the
holders of the Shares.

(c) (i) The Company shall pay Parent a fee of $5,000,000 upon the Company's
termination of this Agreement pursuant to Section 7.01(h); provided, that, no
such fee shall be payable unless (A) the Other Merger Agreement has been
terminated as a result of a Third Party (as defined in Section 7.03(d)) having
engaged in, or having entered into a contract to engage in, an Alternative
Transaction (as defined in the Other Merger Agreement) with Alias, (B) prior to
the expiration of the ten business day period referred to in Section 7.01(h),
Parent has delivered to the Company Parent's written waiver of the condition
specified in Section 6.01(g) and (C) prior to the expiration of the ten
business day period referred to in Section 7.01(h), the Company has not
delivered to Parent the Company's written waiver of the condition specified in
Section 6.01(g).

(ii) Parent shall pay the Company a fee of $5,000,000 upon Parent's
termination of this Agreement pursuant to Section 7.01(i); provided, that, no
such fee shall be payable unless (A) the Other Merger Agreement has been
terminated as a result of a Third Party having engaged in, or having entered
into a contract to engage in, an Alternative Transaction (as defined in the
Other Merger Agreement) with Alias, (B) prior to the expiration of the ten
business day period referred to in Section 7.01(i), the Company has delivered
to Parent the Company's written waiver of the condition specified in Section
6.01(g) and (C) prior to the expiration of the ten business day period referred
to in Section 7.01(i), Parent has not delivered to the Company Parent's written
waiver of the condition specified in Section 6.01(g).

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(d) As used herein, "Alternative Transaction" means (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "Third Party") acquires (or publicly proposes to acquire) more
than 50 percent of the outstanding Shares, whether from the Company or pursuant
to a tender offer or exchange offer or otherwise, (ii) a merger or other
business combination involving the Company pursuant to which any Third Party
acquires (or publicly proposes to acquire) more than 50 percent of the
outstanding equity securities of the Company or the entity surviving such
merger or business combination or (iii) any other transaction pursuant to which
any Third Party acquires (or publicly proposes to acquire) control of assets
(including for this purpose the outstanding equity securities of subsidiaries
of the Company, and the entity surviving any merger or business combination
including any of them) of the Company and its subsidiaries having a fair market
value equal to more than 50 percent of the fair market value of all the assets
of the Company and its subsidiaries, taken as a whole, immediately prior to
such transaction (or proposal).

(e) The fee payable pursuant to Section 7.03(b)(i), (ii) and (iii) shall be
paid within one business day after the first to occur of the events described
in Section 7.03(b)(i), (ii) and (iii). The fee payable pursuant to Section
7.03(c)(i) and (ii) shall be paid within one business day after the dates of
termination referred to therein. The fee payable pursuant to Section
7.03(b)(iv) shall be paid on the date of the closing of the Alternative
Transaction giving rise to such termination, provided, however, that if such
Alternative Transaction is not closed within twelve months of such termination,
the fee shall not be payable. In no event shall the Company or Parent be
required to pay any fee pursuant to Section 7.03(b) or (c) if, immediately
prior to the termination of the Agreement, the party to whom the fee is due was
in material breach of its obligations under this Agreement.

ARTICLE VIII

General Provisions

Section 8.01. Effectiveness of Representations, Warranties and Agreements.
Except as otherwise provided in this Section 8.01, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. Any disclosure made with reference to one or more sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such
disclosure is relevant provided such relevance is reasonably apparent. The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to
Section 7.01, as the case may be, except that the agreements set forth in
Sections 5.05 and 5.06 shall survive the Effective Time indefinitely and those
set forth in Sections 5.03 and 7.03 shall survive termination indefinitely. The
Confidentiality Agreement shall survive termination of this Agreement as
provided therein.

Section 8.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally, three days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), one day after dispatch by recognized overnight courier (provided
delivery is confirmed by the carrier) and upon transmission by telecopy,
confirmed received, to the parties at the following addresses (or at such other
address for a party as shall be specified by like changes of address):

(a) If to Parent or Merger Sub:

Silicon Graphics, Inc.
2011 N. Shoreline Blvd.
Mail Stop 710
Mountain View, CA 94043-1389
Telecopier No.: (415) 965-1586
Attention: Legal Services

31
<PAGE>

With a copy to:

Shearman & Sterling
555 California Street, Suite 2000
San Francisco, CA 94104
Telecopier No.: (415) 616-1199
Attention: Michael J. Kennedy, Esq.

(b) If to the Company:

Wavefront Technologies, Inc.
530 East Montecito Street
Santa Barbara, CA 93103
Telecopier No.: (805) 963-0410
Attention: Michael S. Noling

With a copy to:

Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Telecopier No: (415) 493-6811
Attention: Alan K. Austin, Esq.

Section 8.03. Certain Definitions. For purposes of this Agreement, the term:

(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person, including, without limitation,
any partnership or joint venture in which the Company (either alone, or
through or together with any other subsidiary) has, directly or indirectly,
an interest of 10 percent or more;

(b) "business day" means any day other than a day on which banks in San
Francisco are required or authorized to be closed;

(c) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and

(d) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.

Section 8.04. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto; provided, however, that, prior to the Effective
Time, Parent may, by an instrument signed only by Parent, amend this Agreement
solely to cause the Mergers to be effected as a forward merger of the Company
with and into Parent.

Section 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements
or conditions contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be
bound thereby.

32
<PAGE>

Section 8.06. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

Section 8.07. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.

Section 8.08. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.

Section 8.09. Assignment, Merger Sub. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Merger Sub may assign all
or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Parent guarantees the full and punctual performance by Merger Sub of all of the
obligations hereunder of Merger Sub.

Section 8.10. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.08 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties).

Section 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.

SECTION 8.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS EXECUTED AND FULLY PERFORMED WITHIN THE STATE OF
CALIFORNIA.

Section 8.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

33
<PAGE>

In Witness Whereof, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.

Silicon Graphics, Inc.

/s/ THOMAS A. JERMOLUK
By___________________________________
Name: Thomas A. Jermoluk
Title: President and Chief
Operating Officer

S Acquisition Corporation

/s/ WILLIAM M. KELLY
By___________________________________
Name: William M. Kelly
Title: President

Wavefront Technologies, Inc.

/s/ MICHAEL S. NOLING
By___________________________________
Name: Michael S. Noling
Title: President and Chief
Executive Officer

34
<PAGE>

EXHIBIT A

FORM OF AFFILIATE AGREEMENT

, 1995

Silicon Graphics, Inc.
2011 N. Shoreline Blvd.
Mail Stop 710
Mountain View, CA 94043-1389
Attention: Legal Services

Ladies and Gentlemen:

Pursuant to the terms of the Agreement and Plan of Merger dated as of
February 6, 1995 (the "Agreement"), among Silicon Graphics, Inc., a Delaware
corporation ("Parent"), S Acquisition Corporation, a California corporation and
wholly owned subsidiary of Parent ("Merger Sub"), and Wavefront Technologies,
Inc., a California corporation (the "Company"), Parent will acquire the Company
through the merger of Merger Sub with and into the Company (the "Merger").
Subject to the terms and conditions of the Agreement, at the Effective Time (as
defined in the Agreement), outstanding shares of the common stock, no par
value, of the Company (the "Company Common Stock") will be converted into the
right to receive shares of the common stock, par value $0.001 per share, of
Parent (the "Parent Common Stock"), on the basis described in the Agreement.

The undersigned has been advised that as of the date hereof it may be deemed
to be an "affiliate" of the Company, as the term "affiliate" is (i) defined for
purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and/or
(ii) used in and for purposes of Accounting Series Releases 130 and 135, as
amended, and Staff Accounting Bulletins 65 and 76 of the Commission.

The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company, other shareholders of the Company and their respective
counsel and accountants.

The undersigned represents and warrants to and agrees with Parent that:

1. The undersigned has full power to execute and deliver this Affiliate
Agreement and to make the representations and warranties herein and to
perform its obligations hereunder.

2. The undersigned has carefully read this letter and the Agreement and
discussed its requirements and other applicable limitations upon its
ability to sell, transfer or otherwise dispose of Parent Common Stock to
the extent the undersigned felt necessary, with its counsel or counsel for
the Company.

3. The undersigned shall not make any sale, transfer or other disposition
of Parent Common Stock in violation of the Act or the Rules and
Regulations.

4. The undersigned has been advised that the issuance of shares of Parent
Common Stock to the undersigned in connection with the Merger has been or
will be registered with the Commission under the Act on a Registration
Statement on Form S-4. However, the undersigned has also been advised that,
since at the time the Merger was submitted for a vote of the shareholders
of the Company the undersigned may be deemed to have been an affiliate of
the Company and the distribution by the undersigned of any Parent Common
Stock has not been registered, and is not exempt, under the Act, the
undersigned may not sell, transfer or otherwise dispose of Parent Common
Stock issued to the undersigned in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such
sale, transfer or other disposition is made in conformity with the
requirements of Rule
<PAGE>

145 promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to Parent, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.

5. Parent is under no obligation to register the sale, transfer or other
disposition of Parent Common Stock by the undersigned or on its behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.

6. Stop transfer instructions will be given to Parent's transfer agent
with respect to the Parent Common Stock and that there will be placed on
the certificates for the Parent Common Stock issued to the undersigned, or
any substitutions therefor, a legend stating in substance:

"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
, 1995 BETWEEN THE REGISTERED HOLDER HEREOF AND SILICON
GRAPHICS, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF SILICON GRAPHICS, INC."

7. Unless the transfer by the undersigned of its Parent Common Stock has
been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following
legend on the certificates issued any transferee of the undersigned:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."

8. The legends set forth in paragraphs 6 and 7 above shall be removed by
delivery of substitute certificates without such legend if the undersigned
shall have delivered to Parent a copy of a letter from the staff of the
Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Parent, to the effect that such legend is not required for
purposes of the Act.

9. The undersigned is the beneficial owner of (i.e. has sole or shared
voting or investment power with respect to) all the shares of Company
Common Stock and options to purchase Company Common Stock indicated on the
last page hereof (the "Company Securities"). Except for the Company
Securities, the undersigned does not beneficially own any shares of Company
Common Stock or any other equity securities of the Company or any options,
warrants or other rights to acquire any equity securities of the Company.

10. Notwithstanding any other provision hereof to the contrary, the
undersigned has not at any time since February 6, 1995 or in contemplation
of the Merger engaged, and will not, after the Effective Time (as defined
in the Agreement) and until such time as results covering at least 30 days
of combined operations of the Company and Parent have been published by
Parent, in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the combined results of operations, engage, in
any sale, exchange, transfer, pledge, disposition of or grant of any
option, the establishment of any "short" or put-equivalent position with
respect to or the entry into any similar transaction intended to reduce the
risk of the undersigned's risk of ownership of or investment in, any of

2
<PAGE>

the following (other then sales of shares of Company Common Stock in the
Company's registered offering pursuant to its final prospectus dated
December 5, 1994):

(a) any shares of Parent Common Stock which the undersigned may
acquire in connection with the Merger, or any securities which may be
paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefor
(all such shares and other securities being referred to herein,
collectively, as "Restricted Securities"), or any option, right or
other interest with respect to any Restricted Securities;

(b) any Company Securities; or

(c) any shares of Company Common Stock or other Company equity
securities which the undersigned purchases or otherwise acquires after
the execution of this Affiliate Agreement.

11. As promptly as practicable following the Merger, Parent shall publish
results covering at least 30 days of combined operations of the Company and
Parent in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the combined results of operations; provided,
however, that Parent shall be under no obligation to publish any such
financial information other than with respect to a fiscal quarter of
Parent.

12. The undersigned intends to vote all Company Common Stock held by him
in favor of the Merger.

13. The undersigned will not exercise dissenters' rights in connection
with the Merger.

NUMBER OF SHARES OF COMPANY COMMON STOCK
BENEFICIALLY OWNED BY THE UNDERSIGNED:

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

NUMBER OF SHARES OF COMPANY COMMON STOCK
SUBJECT TO OPTIONS
BENEFICIALLY OWNED BY THE UNDERSIGNED:

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

Very truly yours,

-------------------------------------
(print name of shareholder above)

By: _________________________________
Name:
Title:
(if applicable)

Accepted this day of
, 1995, by

Silicon Graphics, Inc.

By: _________________________________
Name:
Title:

3
<PAGE>

AMENDMENT AGREEMENT

AMENDMENT AGREEMENT, dated as of May 9, 1995 (this "Amendment"), by and among
SILICON GRAPHICS, INC., a Delaware corporation ("Parent"), S ACQUISITION
CORPORATION, a California corporation and wholly owned subsidiary of Parent
("Merger Sub"), and WAVEFRONT TECHNOLOGIES, INC., a California corporation (the
"Company" and together with Parent and Merger Sub, the "Parties"),

WITNESSETH:

Whereas, the Parties have entered into an Agreement and Plan of Merger and
Reorganization dated as of February 6, 1995 (the "Agreement"; the terms defined
in the Agreement being used in this Amendment as so defined unless otherwise
defined herein);

Whereas, the Parties desire to supplement and amend the Agreement to provide
for certain agreements among the Parties;

Now, Therefore, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Parties hereby agree as follows:

Section 1. Amendment to the Agreement. The Agreement is, effective as of the
date of this Amendment, amended as follows:

(a) The fourth whereas clause of the Agreement is hereby amended by
deleting the phrase "and the Upstream Merger (as defined in Section 1.01
(b))" therefrom;

(b) Section 1.01 of the Agreement is hereby amended by deleting
subsection (b) therefrom and by denoting subsection (c) thereof as
subsection (b) thereof;

(c) Section 1.09(d) of the Agreement is amended by deleting the phrase
"Prior to the consummation of the Upstream Merger," therefrom; and

(d) The Agreement is amended by substituting for the word "Mergers" the
word "Merger" throughout the Agreement including, without limitation, in
the table of contents of the Agreement and in Sections 1.01, 1.09(d), 1.12,
2.25, 3.19, 4.01(m), 5.10, 5.15 and 6.01(e) thereof.

Section 2. Reference to and Effect on the Agreement. (a) Upon the
effectiveness of Section 1 of this Amendment, on and after the date of this
Amendment each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein," and words of like import shall mean and be a reference to
the Agreement as amended by Section 1 of this Amendment.

(b) Except as specifically amended above, the Agreement shall remain in full
force and effect and is hereby ratified and confirmed.

Section 3. Execution in Counterparts. This Amendment may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.

SECTION 4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS EXECUTED AND FULLY PERFORMED WITHIN THE STATE OF CALIFORNIA.
<PAGE>

In Witness Whereof, each of the Parties has executed this Amendment as of the
day and year first above written.

Silicon Graphics, Inc.

/s/ THOMAS A. JERMOLUK
By: ________________________________
Name: Thomas A. Jermoluk
Title: President and Chief
Operating Officer

S Acquisition Corporation

/s/ WILLIAM M. KELLY
By: ________________________________
Name: William M. Kelly
Title: President

Wavefront Technologies, Inc.

/s/ MICHAEL S. NOLING
By: ________________________________
Name: Michael S. Noling
Title: President and Chief
Executive Officer

<PAGE>

ANNEX B

WAVEFRONT TECHNOLOGIES, INC.

EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the Employee Stock Purchase Plan
of Wavefront Technologies, Inc.

1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.

2. Definitions.

(a) "Board" shall mean the Board of Directors of the company.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Company" shall mean Wavefront Technologies, Inc. and any Designated
Subsidiary of the Company.

(e) "Compensation" shall mean all base straight time gross earnings and
sales commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.

(f) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall
be treated as continuing intact while the individual is on sick leave or
other leave of absence approved by the Company. Where the period of leave
exceeds 90 days and the individual's right to reemployment is not
guaranteed either by statute or by contract, the employment relationship
will be deemed to have terminated on the 91st day of such leave.

(h) "Enrollment Date" shall mean the first day of each Offering Period.

(i) "Exercise Date" shall mean the last day of each Offering Period.

(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:

(1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be
the closing sale price for the Common Stock (or the mean of the closing
bid and asked prices, if no sales were reported), as quoted on such
exchange (or the exchange with the greatest volume of trading in Common
Stock) or system on the date of such determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable,
or;

(2) If the Common Stock is quoted on the NASDAQ system (but not on
the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not

1
<PAGE>

reported, its Fair Market Value shall be the mean of the closing bid
and asked prices for the Common Stock on the date of such
determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;

(3) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the
Board.

(k) "Offering Period" shall mean a period of approximately six (6)
months, commencing on the first Trading Day on or after December 1 and
terminating on the last Trading Day in the period ending the following May
31, or commencing on the first Trading Day on or after June 1 and
terminating on the last Trading Day in the period ending the following
November 30, during which an option granted pursuant to the Plan may be
exercised. The duration of Offering Periods may be changed pursuant to
Section 4 of this Plan.

(l) "Plan" shall mean this Employee Stock Purchase Plan.

(m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the Exercise
Date, whichever is lower.

(n) "Reserves" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the
Plan but not yet placed under option.

(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.

(p) "Trading Day" shall mean a day on which national stock exchanges and
the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.

3. Eligibility.

(a) Any Employee (as defined in Section 2(g)), who shall be employed by
the Company on a given Enrollment Date shall be eligible to participate in
the Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the
Code) would own capital stock of the Company and/or hold outstanding
options to purchase such stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of the capital stock of
the Company or of any Subsidiary, or (ii) to the extent his or her rights
to purchase stock under all employee stock purchase plans of the Company
and its subsidiaries to accrue at a rate which exceeds Eleven Thousand
Seven Hundred Sixty-Five Dollars ($11,765) worth of stock (determined at
the fair market value of the shares at the time such option is granted) for
each calendar year in which such option is outstanding at any time.

4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after June 1 and December 1 each year, or on such other date as the Board shall
determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.

5. Participation.

(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll
office at least five (5) days prior to the applicable Enrollment Date.

2
<PAGE>

(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.

6. Payroll Deductions.

(a) At the time a participant files his or her subscription agreement, he
or she shall elect to have payroll deductions made on each pay day during
the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.

(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.

(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his
or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change
in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change
in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in
participation more quickly. A participant's subscription agreement shall
remain in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.

(d) Notwithstanding the foregoing, a participant's payroll deductions may
be decreased to 0% at such time during any Offering Period which is
scheduled to end during the current calendar year (the "Current Offering
Period") that the aggregate of all payroll deductions which were previously
used to purchase stock under the Plan in a prior Offering Period which
ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $10,000. Payroll
deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which
is scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10 hereof.

(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provisions for the
Company's federal, state, or other tax withholding obligations, if any,
which arise upon the exercise of the option or the disposition of the
Common Stock. At any time, the Company may, but will not be obligated to,
withhold from the participant's compensation the amount necessary for the
Company to meet applicable withholding obligations, including any
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.

7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $5,000 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof, and shall expire on the last day of the Offering Period.

8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number
of full shares subject to option shall be purchased for such participant at the
applicable

3
<PAGE>

Purchase Price with the accumulated payroll deductions in his or her account.
No fractional shares shall be purchased; any payroll deductions accumulated in
a participant's account which are not sufficient to purchase a full share shall
be retained in the participant' s account for the subsequent Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10
hereof. Any other monies left over in a participant's account after the
Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.

9. Delivery. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.

10. Withdrawal; Termination of Employment.

(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically
terminated, and no further payroll deductions for the purchase of shares
will be made during the Offering Period. If a participant withdraws from an
Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a
new subscription agreement.

(b) Upon a participant's ceasing to be an Employee (as defined in Section
2(g) hereof) for any reason, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to
exercise the option will be returned to such participant or, in the case of
his or her death, to the person or persons entitled thereto under Section
14 hereof, and such participant's option will be automatically terminated.
The preceding sentence notwithstanding, a participant who receives payment
in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of
hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.

(c) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.

11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.

12. Stock.

(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 200,000 shares,
subject to adjustment upon changes in capitalization of the Company as
provided in Section 18 hereof. If on a given Exercise Date the number of
shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.

(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse.

13. Administration.

(a) Administrative Body. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive

4
<PAGE>

discretionary authority to construe, interpret and apply the terms of the
Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. Every finding, decision and determination made by the Board
or its committee shall, to the full extent permitted by law, be final and
binding upon all parties.

(b) Rule 16b-3 Limitations. Notwithstanding the provisions of Subsection
(a) of this Section 13, in the event that Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only
by such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee
or person that is not "disinterested" as that term is used in Rule 16b-3.

14. Designation of Beneficiary.

(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to
such participant of such shares and cash. In addition, a participant may
file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.

(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.

15. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.

17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.

18. Adjustments Upon Changes in Capitalization.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the

5
<PAGE>

number of shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board.

(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless
the Board determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Exercise Date (the "New Exercise Date") or to
cancel each outstanding right to purchase and refund all sums collected
from participants during the Offering Period then in progress. If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall
notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for his option has been
changed to the New Exercise Date and that his option will be exercised
automatically on the New Exercise Date, unless prior to such date he has
withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be
deemed to be assumed if, following the sale of assets or merger, the option
confers the right to purchase, for each share of option stock subject to
the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for
each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares
of Common Stock); provided, however, that if such consideration received in
the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the
Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair
market value to the per share consideration received by holders of Common
Stock and the sale of assets or merger.

The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event the Company effects one or more reorganizations, recapitalization,
rights offerings or other increases or reductions of shares of its
outstanding Common Stock, and in the event of the Company being
consolidated with or merged into any other corporation.

19. Amendment or Termination.

(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Plan is
in the best interests of the Company and its shareholders. Except as
provided in Section 18 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Rule 16b-3 or under
Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.

6
<PAGE>

(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during
an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent
with the Plan.

20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.

22. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders
of the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 19 hereof.

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<PAGE>

EXHIBIT A

WAVEFRONT TECHNOLOGIES, INC.

EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

Original Application Enrollment Date:
Change in Payroll Deduction Rate
Change of Beneficiary(ies)

1. hereby elects to participate in the
Wavefront Technologies, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common Stock
in accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount of
% of my Compensation on each payday (not to exceed 10% or an aggregate
maximum of $10,000 per year) during the Offering Period in accordance with the
Employee Stock Purchase Plan. (Please note that no fractional percentages are
permitted.)

3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Employee Stock Purchase Plan. I understand that if I do
not withdraw from an Offering Period, any accumulated payroll deductions will
be used to automatically exercise my option.

4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in all
respects subject to the terms of the Plan. I understand that the grant of the
option by the Company under this Subscription Agreement is subject to obtaining
shareholder approval of the Employee Stock Purchase Plan.

5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse
Only):

6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were purchased by me over the price which I
paid for the shares. I hereby agree to notify the Company in writing within 30
days after the date of any disposition of shares and I will make adequate
provision for Federal, state or other tax withholding obligations, if any,
which arise upon the disposition of the Common Stock. The Company may, but will
not be obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such shares at
any time after the expiration of the 2-year holding period, I understand that I
will be treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the excess of
the fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market value
of the shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital gain.

7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.

8
<PAGE>

8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:

NAME: (Please
print)
(First) (Middle) (Last)

- ------------------------------- ------------------------------------------
Relationship
------------------------------------------
(Address)

NAME: (Please
print)
(First) (Middle) (Last)

- ------------------------------- ------------------------------------------
Relationship
------------------------------------------
(Address)

Employee's Social
Security Number: ------------------------------------------

Employee's Address: ------------------------------------------
------------------------------------------
------------------------------------------

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated: ________________________ ------------------------------------------
Signature of Employee

------------------------------------------
Spouse's Signature (If beneficiary
other than spouse)

9
<PAGE>

EXHIBIT B

WAVEFRONT TECHNOLOGIES, INC.

EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the Wavefront
Technologies, Inc. Employee Stock Purchase Plan which began on 19
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company a
new Subscription Agreement.

Name and Address of Participant:
_____________________________________
_____________________________________
_____________________________________

Signature:
_____________________________________

Date: _______________________________

10
<PAGE>

ANNEX C

[ON VOLPE, WELTY & CO. LETTERHEAD]

February 6, 1995

The Board of Directors
Wavefront Technologies, Inc.
530 East Montecito Street
Santa Barbara, CA 93103

Dear Directors:

You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Shareholders") of common stock, no par value
("Company Common Stock"), of Wavefront Technologies, Inc. (the "Company"), of
the consideration to be received by the Shareholders from Silicon Graphics,
Inc. ("SGI") in a proposed merger (the "Wavefront Merger") of a subsidiary of
SGI with and into the Company pursuant to the Agreement and Plan of Merger,
dated as of February 6, 1995 (the "Merger Agreement"), by and among SGI, such
subsidiary and the Company.

In the event the Wavefront Merger is consummated, each issued and outstanding
share of Company Common Stock, other than shares of Company Common Stock to be
canceled pursuant to the Merger Agreement, would be converted into the right to
receive 0.49 shares of SGI Common Stock ("SGI Shares"). The terms and
conditions of the Wavefront Merger are more fully set forth in the Merger
Agreement.

The consummation of the Wavefront Merger is conditioned upon the consummation
of an acquisition transaction (the "Alias Merger") involving Alias Research
Inc. ("Alias") and SGI pursuant to which shareholders of Alias would receive
SGI Shares. In rendering our opinion, we have assumed, with your permission,
that the Alias Merger will be consummated contemporaneously with the
consummation of the Wavefront Merger and that in the Alias Merger each issued
and outstanding share of common stock of Alias will be converted into the right
to receive no more than 0.90 SGI Shares in a pooling of interests transaction.

Volpe, Welty & Company has acted as financial advisor to the Board of
Directors of the Company in connection with the Wavefront Merger and we will
receive a fee for our services in rendering this opinion. We were not
authorized to solicit, and did not solicit, interest from any party other than
SGI with respect to an acquisition of the Company. In addition, we have
performed investment banking services for, and received compensation from, the
Company from time to time.

In arriving at our opinion we have reviewed the Merger Agreement and certain
business and financial information relating to the Company and its
subsidiaries, including certain financial projections, estimates and analyses
provided to us by the Company, and have reviewed and discussed the businesses
and prospects of the Company and its subsidiaries with representatives of the
Company's management. We have considered certain financial and stock market
data of the Company and have compared that information to similar data for
certain other publicly-held companies in businesses similar to that of the
Company.

We have also reviewed certain business and financial information relating to
SGI, including certain financial projections, estimates and analyses provided
to us by SGI, and have had discussions with certain representatives of
management of SGI. We have considered certain financial and stock market data
of SGI and have compared that information to similar data for certain other
publicly-held companies in businesses similar to that of SGI.

We have also reviewed certain publicly available business and financial
information relating to Alias. However, we have not reviewed or been provided
with any non-public projections, estimates, analyses or other information
relating to Alias and we have not had any discussions with representatives of
Alias' management.

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<PAGE>

In arriving at our opinion, we have also considered the financial terms of
certain other mergers and acquisitions which we believe to be generally
comparable to the Wavefront Merger and have considered such other information,
financial studies and analyses, and financial, economic and market criteria as
we deemed relevant.

In connection with our review, we have not assumed responsibility for
verification of any of the foregoing information and have relied on its being
complete and accurate in all respects. We have not made an independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of the Company, SGI or Alias or any of their respective subsidiaries, nor have
we been furnished with any such evaluation or appraisal that has not been
publicly disclosed. With respect to the financial projections, estimates and
analyses provided to us by the Company and by SGI, we have assumed, with your
permission, that such information was reasonably prepared on bases reflecting
the best currently available estimates and judgments of management of the
Company and of SGI, respectively, as to future financial performance. We have
also relied on, without assuming responsibility for verification of, estimates
by the managements of SGI and the Company of potential cost savings that may be
achieved if the Wavefront Merger and the Alias Merger are consummated. Our
opinion is based on economic, monetary, market and other conditions existing on
the date hereof.

In rendering this opinion, we are not making any recommendation to the
Shareholders in respect of the advisability of disposing of or retaining SGI
Shares received pursuant to the Wavefront Merger. In the ordinary course of
business, we have traded and may trade the securities of the Company, SGI and
Alias for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.

It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent.

Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the consideration to be received by the Shareholders in the
Wavefront Merger is fair, from a financial point of view, to the Shareholders.

Very truly yours,

Volpe, Welty & Company

/s/ BRIAN H. DAVIS
By: _________________________________
Brian H. Davis
General Partner

2
<PAGE>

ANNEX D

CHAPTER 13

DISSENTERS' RIGHTS

Section 1300. Right to Require Purchase--"Dissenting Shares" and "Dissenting
Shareholder" Defined.

(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as
defined in subdivision (b). The fair market value shall be determined as of the
day before the first announcement of the terms of the proposed reorganization
or short-form merger, excluding any appreciation or depreciation in consequence
of the proposed action, but adjusted for any stock split, reverse stock split
or share dividend which becomes effective thereafter.

(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.

(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.

(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.

Section 1301. Demand for Purchase.

(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price

1
<PAGE>

determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in subparagraph (A) or (B) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.

Section 1302. Endorsement of Shares.

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.

Section 1303. Agreed Price--Time for Payment.

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.

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Section 1304. Dissenter's Action to Enforce Payment.

(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.

(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.

Section 1305. Appraisers' Report--Payment Costs.

(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.

(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.

(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).

Section 1306. Dissenting Shareholder's Status as Creditor.

To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together

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with interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.

Section 1307. Dividends Paid as Credit Against Payment.

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.

Section 1308. Continuing Rights and Privileges of Dissenting Shareholders.

Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.

Section 1309. Termination of Dissenting Shareholder Status.

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:

(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.

(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.

(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
share, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months alter the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.

(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.

Section 1310. Suspension of Proceedings for Payment Pending Litigation.

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.

Section 1311. Exempt Shares.

This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.

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Section 1312. Attacking Validity of Reorganization or Merger.

(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except for an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to a shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to shareholders of the controlled party,
and (2) a person who controls two or more parties to a reorganization shall
have the burden of proving that this transaction is just and reasonable as to
the shareholders of any party so controlled.