PLATINUM TECHNOLOGY INC, 424B4, 1996-11-19

PLATINUM TECHNOLOGY INC
424B4, 1996-11-19
PREPACKAGED SOFTWARE

Previous: PLATINUM TECHNOLOGY INC, 8-A12G/A, 1996-11-19

Next: VANGUARD EQUITY INCOME FUND INC, N-30D, 1996-11-19

<PAGE>

PROSPECTUS
NOVEMBER 18, 1996
$100,000,000

LOGO

6 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2001

The Convertible Subordinated Notes (the "Notes") to be issued by PLATINUM
technology, inc. (the "Company") will be convertible at the option of the
holder into shares of Common Stock, $.001 par value per share (including
preferred stock purchase rights), of the Company (the "Common Stock"), at any
time prior to maturity, unless previously redeemed, at a conversion price of
$13.95 per share (equivalent to a conversion rate of 71.685 shares per $1,000
principal amount of Notes) (the "Conversion Price"), subject to adjustment
under certain circumstances. Interest on the Notes is payable semi-annually on
May 15 and November 15 of each year, commencing May 15, 1997.

The Notes will be redeemable, in whole or in part, at the option of the
Company, for cash at any time on or after November 15, 1999 at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. The Company will be required to offer to purchase the Notes in
the event of a Change of Control (as defined herein) at 100% of the principal
amount thereof, plus accrued and unpaid interest to the date of purchase. The
Notes will mature on November 15, 2001. See "Description of the Notes."

The Notes are unsecured general obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company. In addition, the Notes are effectively subordinated to
all liabilities (including trade payables) of the Company's Subsidiaries (as
defined herein). The Indenture (as defined herein) does not restrict the
incurrence of Senior Indebtedness or other indebtedness by the Company or its
Subsidiaries. As of October 31, 1996, the Company had approximately
$20,228,000 of Senior Indebtedness and the Company's Subsidiaries had
approximately $23,810,000 of trade payables and accrued liabilities. See "Use
of Proceeds" and "Description of the Notes."

On November 18, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market (where it is traded under the symbol "PLAT") was
$11 1/4 per share. The Notes have been approved for listing on The Nasdaq
SmallCap Market under the symbol "PLATG."

FOR A DISCUSSION OF CERTAIN RISKS AND OTHER FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES, SEE "RISK FACTORS"
COMMENCING ON PAGE 7.

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

<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note......................... 100.00% 3.25% 96.75%
Total (4)........................ $100,000,000 $3,250,000 $96,750,000
- --------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $450,000.
(4) The Company has granted to the Underwriters an option, exercisable within
30 days hereof, to purchase up to an additional $15,000,000 aggregate
principal amount of Notes, on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total price to the public, underwriting
discounts and commissions and proceeds to the Company will be
$115,000,000, $3,737,500 and $111,262,500, respectively. See
"Underwriting."

The Notes are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to certain other conditions. The Underwriters reserve their right to
withdraw, cancel or modify the offering and to reject orders in whole or in
part. It is expected that delivery of the Notes will be made in New York, New
York on or about November 22, 1996 to investors in book-entry form through the
facilities of The Depository Trust Company against payment therefor in
immediately available funds.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST

ROBERTSON, STEPHENS & COMPANY
<PAGE>

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES, THE
COMPANY'S COMMON STOCK, OR BOTH, AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
SMALLCAP MARKET, THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNT OR FOR
THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.

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

This Prospectus includes product names and other trade names and trademarks
of the Company and its Subsidiaries and of other companies.

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

The Notes will be available initially in book-entry form and the Company
expects that the Notes sold pursuant hereto will be issued in the form of a
Global Note (as defined herein), which will be deposited with, or on behalf
of, The Depository Trust Company (the "Depositary") and registered in the name
of Cede & Co., its nominee. Beneficial interests in the Global Note
representing the Notes will be shown on, and transfers thereof will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Note, Notes in certified form will be
issued in exchange for the Global Note on the terms set forth in the Indenture
(as defined herein). See "Description of the Notes--Book-Entry, Delivery and
Form."
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein. As used in
this Prospectus, except where the context clearly requires otherwise,
references made to "PLATINUM" and the "Company" shall mean PLATINUM technology,
inc. and its Subsidiaries. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." Prospective investors should carefully consider the information
set forth under the heading "Risk Factors."

THE COMPANY

The Company develops, markets and supports enterprise infrastructure software
products, and provides related professional services, for administering the
prevailing complex, heterogeneous computing environment known as the open
enterprise environment (the "OEE"). These products and services increase the
performance and interoperability of computing systems and databases in the OEE
and provide users, primarily in large and data intensive organizations, with
more efficient and productive access to and use of critical information. The
Company's products typically perform fundamental, mission-critical functions,
such as maintenance of data integrity, systems security, systems scheduling and
project and process management. The Company offers enterprise infrastructure
software products through five business units: systems management, database
management, application lifecycle, business intelligence and data warehouse.
Addressing businesses' increasing demand for simplified vendor relationships
and complete solutions to information technology ("IT") problems, the Company's
goal is to become the leading provider of enterprise infrastructure solutions
by offering a comprehensive set of "best of breed" point products, fully
integrated product suites and a wide array of professional services, including
consulting, systems integration and educational programs.

To achieve its goal, the Company identified enterprise infrastructure systems
technologies and skill sets, and, through a combination of an aggressive
acquisition program and vigorous internal product development efforts, the
Company has assembled the competencies to create complete enterprise
infrastructure solutions. Since mid-1994, the Company has acquired 32
businesses and 23 technologies. The Company is now leveraging the breadth of
its product lines and its professional service capabilities, and is devoting
substantial resources to integrating its products and technologies, to provide
complete, customized solutions for enterprise infrastructure problems. These
solutions range from single products to sets of integrated products from
multiple business units bundled into a product suite, along with design and
implementation services provided by the Company's professional services staff.
These solutions also include ongoing product upgrades, maintenance and support,
sometimes pursuant to multi-year contracts. Evidencing the increasing demand of
the Company's customers for comprehensive solutions, the Company executed 32
transactions of over $1 million each during the first nine months of 1996, as
compared to only one such transaction during the first nine months of 1995. The
Company's total revenues and software products revenue increased 43% and 50%,
respectively, for the first nine months of 1996 as compared to the same period
in 1995.

During 1996, the Company's software developers have focused on product
integration and the bundling of products to satisfy critical customer needs,
along with continued expansion and enhancement of the Company's product line.
The Company has also been enabling its products and suites for application with
intranets, the Internet and the World Wide Web. The cornerstone of the
Company's integration efforts is the PLATINUM Open Enterprise Management
Solution ("POEMS"), an architecture designed to give the Company's products a
common look and feel, common installation and distribution and common
communication, data and events handling. The Company is creating solutions for
general business needs, as well as the needs of specific industries. For
example, the Company recently released PLATINUM RiskAdvisor, a data warehouse
decision support application developed specifically for the insurance industry.
The Company has also released its "Netcessities" product suite for building,
testing and deploying intranet applications, and has developed a comprehensive
solution for the Year 2000 problem. In addition, the Company intends to use a
number of its current products and technologies as the foundation for a new,
integrated product offering designed to enable companies to simultaneously
manage, maintain and deploy multiple Web sites.

3
<PAGE>

THE OFFERING

Securities Offered........ $100,000,000 principal amount of 6 3/4% Convertible
Subordinated Notes due November 15, 2001.

Payment of Interest....... May 15 and November 15, commencing May 15, 1997.

Conversion Rights......... The Notes will be convertible, at the holder's
option, into shares of Common Stock, at any time at
or prior to maturity, unless previously redeemed,
at a conversion price of $13.95 per share, subject
to adjustment under certain circumstances as
described herein (the "Conversion Price").
Accordingly, each $1,000 principal amount of Notes
is initially convertible into 71.685 shares of
Common Stock, subject to adjustment, for an
aggregate of 7,168,458 shares for all the Notes.
See "Capitalization."

Optional Redemption....... The Notes will be redeemable, in whole or in part,
at the option of the Company, at any time on or
after November 15, 1999, at the redemption prices
set forth herein, plus accrued and unpaid interest,
if any, to the date of redemption.

Change of Control......... If a Change of Control (as defined herein) occurs,
each holder of Notes will have the right to require
the Company to purchase all or any part of such
holder's Notes at 100% of the principal amount
thereof, plus accrued and unpaid interest to the
date of purchase.

Subordination............. The Notes will be unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior Indebtedness (as defined
herein) of the Company. In addition, the Notes are
effectively subordinated to all liabilities
(including trade payables) of the Company's
Subsidiaries. As of October 31, 1996, the Company
had approximately $20,228,000 of Senior
Indebtedness, and the Company's Subsidiaries had
approximately $23,810,000 of trade payables and
accrued liabilities. The indenture governing the
Notes (the "Indenture") will not include any
covenants limiting or restricting the ability of
the Company or its Subsidiaries to incur Senior
Indebtedness or any other indebtedness.

Maturity.................. November 15, 2001

Use of Proceeds........... The net proceeds from the sale of the Notes will be
used for general corporate purposes, including
working capital and possible future acquisitions of
businesses, products or technologies complementary
to the Company's business. See "Use of Proceeds."

Trading................... The Notes have been approved for listing on The
Nasdaq SmallCap Market under the symbol "PLATG."
The Common Stock is traded on the Nasdaq National
Market under the symbol "PLAT."

4
<PAGE>

SUMMARY FINANCIAL INFORMATION(1)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......... $123,177 $141,964 $175,380 $225,439 $304,676 $206,643 $296,386
Operating income (loss). (6,011) 3,012 (2) 3,336(3) (2,223)(4) (128,162)(5) (59,056)(6) (53,082)(7)
Net income (loss)....... (11,231) (2,433)(2) 625(3) (2,644)(4) (111,933)(5) (45,061)(6) (37,988)(7)
Net income (loss) per
share.................. $ (0.32) $ (0.06)(2) $ 0.02(3) $ (0.07)(4) $ (2.59)(5) $ (1.09)(6) $ (0.69)(7)
Shares used in per share
calculation............ 37,671 35,507 37,971 39,890 43,267 41,212 55,271
OTHER OPERATING DATA:
Adjusted EBITDA(8)(9)... $ (946) $ 17,470 $ 25,196 $ 34,589 $ 12,134 $ 5,569 $(10,406)
Depreciation and
amortization expense... 5,065 6,585 8,466 12,218 20,984 14,408 25,799
Operating income (loss),
exclusive of pre-tax
charges for acquired
in-process technology,
merger costs and
restructuring
costs(9)(10)........... (6,011) 10,885 16,730 22,371 (8,850) (8,839) (36,205)
Ratio of earnings to
fixed charges(11)...... -- (12) 8.38 (2) 13.40(3) 4.01(4) -- (5)(12) -- (6)(12) -- (7)(12)
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------
(IN THOUSANDS, EXCEPT RATIOS)
ACTUAL AS ADJUSTED(13)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments........ $ 56,508 $ 152,808
Working capital............................... 82,058 178,358
Total assets.................................. 414,584 514,584
Long term obligations and acquisition-related
payables, less current portion............... 8,957 108,957
Total stockholders' equity.................... 263,011 263,011
Ratio of total debt to total capitalization... 0.07 0.32
</TABLE>
- --------------------
(1) The Summary Financial Information presented in this table is derived from
the Selected Consolidated Financial Data and the Consolidated Financial
Statements included elsewhere in this Prospectus and gives retroactive
effect to the acquisitions of Prodea Software Corporation ("Prodea") as of
February 8, 1996, Paradigm Systems Corporation ("Paradigm") as of March
26, 1996, and Axis Systems International, Inc. ("Axis") as of March 29,
1996, each of which has been accounted for as a pooling of interests for
financial reporting purposes. As a result, the financial position and
results of operations are presented as if the combining companies had been
consolidated for all periods presented. The statement of operations data
for the years ended December 31, 1991 and 1992 and for the nine months
ended September 30, 1995 and 1996, as well as the balance sheet data as of
September 30, 1996 are derived from unaudited consolidated financial
statements and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the data for the periods and as of the dates presented. The Summary
Financial Information should be read in conjunction with the Selected
Consolidated Financial Data, the Consolidated Financial Statements and the
other financial information included in this Prospectus.
(2) Reflects a pre-tax charge of $7,873,000 relating to Trinzic Corporation
("Trinzic") restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to the Company's acquisition of the stock of Datura
Corporation ("Datura") and a pre-tax charge of $4,659,000 relating to
Trinzic and Locus Computing Corporation ("Locus") restructuring costs.
(4) Reflects a pre-tax charge for acquired in-process technology of
$24,594,000 relating primarily to the Company's acquisitions of the stock
of Dimeric Development, Inc. ("Dimeric") and the net assets of Aston
Brooke Software, Inc. ("Aston Brooke") and AutoSystems Corporation
("AutoSystems").
(5) Reflects a pre-tax charge for acquired in-process technology of
$88,493,000 relating primarily to the Company's acquisitions of the stock
of Advanced Software Concepts, Inc. ("ASC"), SQL Software Corporation
("SQL"), Reltech Group, Inc. ("Reltech"), Protellicess Software, Inc.
("Protellicess"), AIB Software Corporation ("AIB") and BMS Computer, Inc.
("BMS") and the net assets of ViaTech Development, Inc. ("ViaTech"),
BrownStone Solutions, Inc. ("BrownStone") and ProtoSoft, Inc.
("ProtoSoft") and to certain product acquisitions, and a pre-tax charge
for merger costs of $30,819,000 relating to acquisitions accounted for as
poolings of interests.

5
<PAGE>

(6) Reflects a pre-tax charge for acquired in-process technology of
$25,453,000 relating primarily to the Company's acquisitions of the stock
of SQL, Reltech and ASC, the net assets of Viatech and BrownStone, and the
purchase of certain product technologies. Also reflects a pre-tax charge
for merger costs of $24,764,000 relating to acquisitions accounted for as
poolings of interest.
(7) Reflects a pre-tax charge for acquired in-process technology of
$11,095,000 relating to the Company's acquisitions of the stock of
Advanced Systems Technologies, Inc. ("AST"), Software Alternatives, Inc.
(d/b/a System Software Alternatives) ("Software Alternatives") and
Grateful Data, Inc. (d/b/a TransCentury Data Systems) ("Grateful Data"),
and the purchase of certain product technologies. Also reflects a pre-tax
charge for merger costs of $5,782,000 relating to acquisitions accounted
for as poolings of interests.
(8) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) excludes pre-tax charges for acquired in-process technology
of $0, $0, $8,735,000, $24,594,000, $88,493,000, $25,453,000 and
$11,095,000, merger costs of $0, $0, $0, $0, $30,819,000, $24,764,000 and
$5,782,000, and restructuring costs of $0, $7,873,000, $4,659,000, $0, $0,
$0 and $0 for the years ended December 31, 1991, 1992, 1993, 1994 and 1995
and the nine months ended September 30, 1995 and 1996, respectively.
(9) Adjusted EBITDA and operating income (loss), exclusive of pre-tax charges
for acquired in-process technology, merger costs and restructuring costs,
are presented because the Company believes they allow for a more complete
analysis of the Company's results of operations. This information should
not be considered as an alternative to, nor is there any implication that
this information is more meaningful than, any measure of performance or
liquidity as promulgated under generally accepted accounting principles
(such as operating income (loss), net income (loss) or cash provided by or
used in operating, investing and financing activities). This information
should not be considered as an indicator of the Company's overall
financial performance.
(10) Excludes pre-tax charges for acquired in-process technology of $0, $0,
$8,735,000, $24,594,000, $88,493,000, $25,453,000 and $11,095,000, merger
costs of $0, $0, $0, $0, $30,819,000, $24,764,000 and $5,782,000, and
restructuring costs of $0, $7,873,000, $4,659,000, $0, $0, $0 and $0 for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively.
(11) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of rental expense which
represents interest).
(12) Earnings available for fixed charges of $(2,792,000), $(123,136,000),
$(55,506,000) and $(49,859,000) were inadequate to cover fixed charges of
$366,000, $745,000, $559,000 and $657,000 for the years ended December 31,
1991 and 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
(13) Adjusted to reflect the issuance and sale of the Notes and the application
of the estimated net proceeds therefrom, after deducting underwriting
discounts and commissions and estimated expenses of the Offering.

The Company was incorporated in Delaware on April 16, 1987. Its principal
executive offices are at 1815 South Meyers Road, Oakbrook Terrace, Illinois
60181, its telephone number is (630) 620-5000 and its Internet address is
http://www.platinum.com. The Company's Web site is not part of this Prospectus.

6
<PAGE>

RISK FACTORS

This Prospectus contains, and incorporates by reference, certain forward-
looking statements (as such term is defined in the rules promulgated pursuant
to the Securities Act of 1933, as amended (the "Securities Act")) that are
based on the beliefs of the Company's management, as well as assumptions made
by and information currently available to the Company's management. Such
forward-looking statements are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. When used in this document
and in the documents incorporated herein by reference, the words "anticipate,"
"believe," "estimate," "expect" and similar expressions, as they relate to the
Company or its management, are intended to identify such forward-looking
statements. Such statements reflect the current views of the Company or its
management with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the factors set forth in the following
Risk Factors. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, the Company's actual results,
performance or achievements in 1996, 1997 and beyond could differ materially
from those expressed in, or implied by, any such forward-looking statements.
The Company undertakes no obligation to release publicly any revisions to any
such forward-looking statements that may reflect events or circumstances after
the date of this Prospectus or to reflect the occurrence of unanticipated
events.

In addition to the other information in this Prospectus, prospective
investors should carefully consider the following Risk Factors before
purchasing any of the Notes offered hereby.

NET LOSSES; UNCERTAINTY OF FUTURE RESULTS AND ABILITY TO SATISFY DEBT
OBLIGATIONS

The Company's ability to pay the interest on, and repay the principal of, the
Notes and the Company's Senior Indebtedness is dependent upon the Company's
future operating results. The Company has experienced operating and net losses
in 1994, 1995 and the first nine months of 1996. In addition, during 1995 and
the first nine months of 1996, the Company's earnings available for fixed
charges (earnings before income taxes plus fixed charges less capitalized
interest) were insufficient to satisfy its fixed charges (interest expense plus
capitalized interest and the portion of rental expense which represents
interest). See "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements included in this Prospectus. The Company
anticipates that it will report an operating and net loss for the full year
ending December 31, 1996 and that 1996 earnings available for fixed charges
will not be sufficient to cover fixed charges. There can be no assurance that
the Company will not continue to incur operating and net losses or that future
earnings available for fixed charges will be sufficient to cover fixed charges.
The Company's future operating results will depend upon a number of business
factors, including other factors discussed in these "Risk Factors," as well as
general economic conditions. Furthermore, prior to a given year or other fiscal
period, the Company hires sales and product development personnel and makes
other decisions which will result in increased expenses in such year or other
period, based upon anticipated revenues for such year or other period. Due to
the seasonality and concentration of the Company's revenues at the end of
fiscal periods, particularly the fourth quarter, the Company's lack of backlog
and the Company's cost structure, if revenue targets are not met, the Company's
operating results would be materially adversely affected. See "--Seasonality
and Variability of Quarterly Operating Results." The Company has already made
many of its hiring and other decisions with respect to expenditures for 1997.
No assurances can be given that any of the Company's revenue expectations will
be fulfilled, and the Company's business, results of operations and financial
condition will be materially adversely affected if these expectations are not
fulfilled. If anticipated revenues and income are not achieved, the Company's
ability to pay interest on, or ultimately repay the principal amount of, its
indebtedness, including the Notes and the Company's Senior Indebtedness, could
become impaired. If the Company is unable to generate cash flow sufficient to
service its obligations in respect of the Notes and the Company's Senior
Indebtedness, the market value and marketability of the Notes could be
significantly, adversely affected.

DEPENDENCE ON SUCCESS OF ENTERPRISE INFRASTRUCTURE STRATEGY

The Company's business substantially depends on the success of the Company's
strategy of providing complete enterprise infrastructure solutions, including
integrated product suites. This enterprise infrastructure

7
<PAGE>

strategy is a relatively new and untested initiative for the Company, which
involves a significant investment of resources and upon which the Company's
future success is substantially dependent. No assurances can be given that
this strategy will succeed or that the market for the Company's new products
will develop as expected. The failure of this strategy would have a material
adverse effect on the Company's results of operations and financial condition.
See "Business--Business Strategy."

RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND MARKETS

The Company expects that the market for IT software products will continue
to be subject to frequent and rapid changes in technology and customer
preferences. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. For example, there has been a substantial change in customer
preferences to open enterprise systems rather than exclusively mainframe
technologies. The Company's growth and future financial performance will
depend upon its ability to develop and introduce new products and enhancements
of existing products that accommodate the latest technological advances and
customer requirements. Moreover, the Company has a relatively limited history
of developing and marketing products for the expanding enterprise
infrastructure market. Most of the Company's enterprise infrastructure
software products were recently acquired. There can be no assurance that
additional new products will be successfully developed or marketed by the
Company, that any new products will achieve market acceptance, or that other
software vendors will not develop and market products which are superior to
the Company's products or that such products will not achieve greater market
acceptance. Furthermore, customers may delay purchases in anticipation of
technological changes. The Company's ability to develop and market enterprise
infrastructure software products and other new products depends upon its
ability to attract and retain qualified employees. Any failure by the Company
to anticipate or respond adequately to the changes in technology and customer
preferences, to develop and introduce new products in a timely fashion, or to
attract and retain qualified employees, could materially adversely affect the
Company's business, results of operations and financial condition. See
"Business--Product Development."

DEPENDENCE ON DB2

A significant portion of the Company's revenues will continue to be derived
from products that enhance the performance and functionality of IBM's DB2
relational database management software, which operates on IBM and compatible
mainframe computer systems running the MVS operating system. A decline or a
perceived decline in IBM's commitment to DB2 or a decline in the market's
acceptance and utilization of DB2 would have an adverse effect on the Company,
and such adverse effect could be material. Also, if IBM were to enhance DB2 or
its DB2 utilities so as to render the Company's products obsolete or
unnecessary, or devote more resources to developing and marketing IBM's own
DB2 tools and utilities, the Company's business could be materially adversely
affected.

DEPENDENCE ON RELATIONSHIPS WITH RELATIONAL DATABASE VENDORS

The Company believes that in order to provide solutions for the OEE,
including enterprise infrastructure technologies, the Company must develop,
maintain and enhance close associations with, and obtain access to the
technical personnel of, leading relational database vendors. This may become
increasingly difficult due to competition among such vendors. The Company has
entered into alliances with Oracle Systems Corporation ("Oracle"), Sybase,
Inc. ("Sybase") and Informix Software, Inc. ("Informix"). There can be no
assurance that

the Company will be able to maintain existing relationships or enter into new
relationships with such vendors. The Company's failure to do so would have an
adverse effect on its business, results of operations and financial condition,
and such adverse effect could be material.

SUBORDINATION; COMPANY STRUCTURE; SUBSIDIARY CASH FLOW

The Notes are general, unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness of the
Company. Although, to date, the Company has not incurred a

8
<PAGE>

substantial amount of Senior Indebtedness, the Indenture does not restrict the
incurrence of Senior Indebtedness or other indebtedness by the Company or its
Subsidiaries. Under the Indenture, generally, the Company will not be
permitted to pay the principal of, or premium, if any, or interest on the
Notes or repurchase, redeem or otherwise retire any Notes in the event of a
default in the payment of any principal of, premium, if any, or interest on
any Senior Indebtedness when it becomes due and payable, whether at maturity
or at a date fixed for prepayment or by acceleration or otherwise, unless and
until such payment default has been cured or waived, or in the event of
certain other defaults with respect to Senior Indebtedness. In addition, the
Notes are effectively subordinated to all liabilities of the Company's
Subsidiaries, including trade payables. Certain of the Company's principal
assets, including the rights to a significant portion of the Company's
proprietary software technology, are owned by the Company's Subsidiaries. If
the Company were to default on any of its payment obligations in respect to
the Notes, trade creditors of such Subsidiaries would have a senior claim to
such assets as compared to Holders (as defined herein) of the Notes. As of
October 31, 1996, the Company had approximately $20,228,000 of Senior
Indebtedness, and the Company's Subsidiaries had approximately $23,810,000 of
trade payables and accrued liabilities.

The Company conducts a significant portion of its operations through its
foreign Subsidiaries. Accordingly, the Company may be dependent, from time to
time, in whole or in part, on its ability to obtain funds from such foreign
Subsidiaries in order to service its indebtedness, including the Notes. The
Company's foreign Subsidiaries may, from time to time, face governmentally
imposed and other restrictions on their ability to transfer funds to the
Company and may incur costs in connection with any such transfers.

RISKS OF COMPLETED ACQUISITIONS

As an integral part of PLATINUM's growth strategy, the Company has
consummated a number of significant acquisitions. The anticipated benefits of
these acquisitions may not be achieved, and the Company's enterprise
infrastructure strategy will not be fully realized, unless the Company
successfully integrates and markets its acquired products and services in a
timely manner. The difficulties of such integration may initially be increased
by the necessity of integrating personnel with disparate business backgrounds
and corporate cultures. Management's focus on the integration of acquired
companies and the implementation of the Company's strategy has caused, and may
continue to cause, interruption, or loss of momentum, in the ongoing
activities of the Company, which has had, and could in the future have, a
material adverse effect on the Company's business, results of operations and
financial condition.

In order to realize the increases in revenues expected as a result of these
acquisitions, the Company has recently hired, and may need to continue hiring,
a substantial number of additional sales representatives, and the Company must
train both existing and new sales representatives in the Company's complete
range of product offerings and successfully motivate them to sell the
Company's entire range of point products, integrated software suites and
services. There are no assurances that the Company will be able to
successfully integrate acquired products or services into the Company's sales,
marketing or distribution channels or that any expectations with respect to
product or service revenues will be fulfilled. Failure to fulfill these
expectations could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Sales and
Marketing."

RELIANCE ON AND RISK OF ACQUISITION STRATEGY

The Company expects to continue its strategy of identifying, acquiring and
developing enterprise infrastructure products, services and technologies
through the acquisition of specific products and of businesses which have
developed such products, services and technologies, including acquisitions
which could be material in size and scope. The Company believes that its
future growth depends, in part, upon the success of this strategy. There can
be no assurance that the Company will successfully identify, acquire on
favorable terms or integrate such businesses, products, services or
technologies. The Company may in the future face increased competition for
acquisition opportunities, which may inhibit the Company's ability to
consummate suitable acquisitions and increase the costs of such acquisitions.
See "Business--Product Development."

9
<PAGE>

Acquisitions involve a number of special risks and challenges, including the
diversion of management's attention, assimilation of the operations and
personnel of acquired companies, incorporation of acquired products into
existing product lines, adverse short-term effects on reported operating
results, amortization of acquired intangible assets, assumption of the
liabilities of acquired companies, possible loss of key employees and
difficulty of presenting a unified corporate image. No assurance can be given
that any potential acquisition by the Company will or will not occur, or that,
if an acquisition does occur, it will not ultimately have a material adverse
effect on the Company or that any such acquisition will succeed in enhancing
the Company's business.

The Company has recorded charges for acquired in-process technology and
merger costs in connection with certain of its past acquisitions, which
materially reduced operating and net income for the periods in which the
acquisitions were recorded. The Company expects to continue to incur such
charges in connection with future acquisitions, which could materially reduce
operating and net income in the periods in which such acquisitions are
consummated. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations."

HIGHLY COMPETITIVE MARKETS

The market for the Company's products is highly competitive, and the Company
expects competition to intensify. The Company expects to encounter increased
competition and new competitors as it continues to penetrate the enterprise
infrastructure software market, including competition from relational database
vendors and systems software companies. Many of the Company's current and
prospective competitors have significantly greater financial, technical and
marketing resources than the Company. Competitive pressures could cause the
Company's products to lose market acceptance or result in significant price
erosion, with a material adverse effect upon the Company's results of
operations. See "Business--Competition."

A variety of external and internal factors could adversely affect the
Company's ability to compete in the enterprise infrastructure software market.
Such factors include the following: relative functionality, integration,
performance and reliability of the products offered by the Company and its
competitors; the success and timing of new product development efforts; changes
affecting the hardware, operating systems or database systems which the Company
supports; the level of demonstrable economic benefits for users relative to
cost; relative quality of customer support and user documentation; ease of
installation; vendor reputation, experience and financial stability; and price.

The Company also encounters competition from a broad range of firms in the
market for professional services. Many of the Company's current and prospective
competitors in the professional services market have significantly greater
financial, technical and marketing resources than the Company. The competitive
factors affecting the market for the Company's professional services include
the following: breadth and quality of services offered, vendor reputation and
the ability to retain qualified technical personnel.

SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS

The Company's revenues and results of operations will be subject to
fluctuations based upon general economic conditions. If there were a general
economic downturn or a recession in the United States or certain other markets,
the Company believes that certain of its customers might reduce or delay their
purchases of the Company's products or services, leading to a reduction in the
Company's revenues. The factors that might influence current and prospective
customers to reduce their IT budgets under these circumstances are beyond the
Company's control. In the event of an economic downturn, the Company's
business, results of operations and financial condition could be materially
adversely affected. There can be no assurance that growth in the markets for
the Company's products and services will occur or that such growth will result
in increased demand for the Company's products and services. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

10
<PAGE>

SEASONALITY AND VARIABILITY OF QUARTERLY OPERATING RESULTS

The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest total revenues and
operating income. Further, revenues for the Company's fourth quarters have
historically been higher than those for the first quarters of the following
years. Since operating expenses continued to increase in the first quarters of
those years, the Company realized substantially lower operating margins and
net income (excluding the effect of charges for acquired in-process technology
and merger costs) for such quarters. The Company expects this pattern to
continue for the foreseeable future. The Company believes the seasonality of
its revenues results primarily from the budgeting cycles of its software
product customers and the structure of the Company's sales commission and
bonus programs.

The Company operates with relatively little order backlog, and substantially
all of its software product revenue in each quarter results from sales made in
that quarter. Consequently, if near term demand for the Company's products
weakens or if sales do not close in any quarter as anticipated, the Company's
results of operations for that quarter would be adversely, and perhaps
materially, affected. In addition, the timing and amount of the Company's
revenues are subject to a number of factors that make estimation of operating
results prior to the end of a quarter extremely uncertain. Historically, a
substantial majority of the Company's quarterly software products revenue has
been recorded in the third month of any given quarter, with a concentration of
such revenues in the last week of that third month.

The Company's operating results may vary significantly from quarter to
quarter depending on other factors such as the size and timing of customer
orders, price and other competitive conditions in the industry, the timing of
new product announcements and releases by the Company and its competitors, the
ability of the Company to develop, introduce and market new and enhanced
versions of the Company's products on a timely basis, changes in the Company's
level of operating expenses, changes in the Company's sales incentive plans,
budgeting cycles of its customers, customer order deferrals in anticipation of
enhancements or new products, the cancellation of licenses during the warranty
period or nonrenewal of maintenance agreements, product life cycles, software
bugs and other risks discussed in these "Risk Factors." See "--Rapid
Technological Change; Dependence on New Products and Markets," "--Highly
Competitive Markets" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

RISKS OF INTERNATIONAL SALES

Approximately 24% and 23% of the Company's revenues in 1995 and the first
nine months of 1996, respectively, were attributable to international sales
and were made at prices based either on U.S. dollars or foreign currencies.
The risks inherent in conducting international business generally include
exposure to currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collection and the burdens of complying with a wide
variety of foreign laws. Exchange rate fluctuations can have a material
adverse effect on the total level of foreign sales and the profitability of
those sales. During the past several years, the Company has changed the
primary means of international distribution of its products from a network of
independent distributors to wholly-owned PLATINUM Subsidiaries. The Company
may encounter difficulties in integrating and managing these new overseas
Subsidiaries.

RISKS OF CONSULTING SERVICES BUSINESS

The Company has rapidly expanded its consulting services group, which is
part of the Company's professional services business unit, through several
acquisitions. Although the acquired professional services companies had
substantial experience in providing consulting services, this is a relatively
new, lower-margin business area for the Company. There can be no assurance
that the consulting services business will be successfully integrated with the
Company's software product licensing and educational programs businesses or
that the Company will be able to effectively compete in this market. See "--
Risks of Completed Acquisitions" and "--Highly Competitive Markets." In
addition, the Company is subject to the risks associated with a consulting
services business, including dependence on its reputation with existing
customers, volatility of

11
<PAGE>

workload and dependence on its ability to attract and retain qualified
technical personnel. Also, a substantial portion of the Company's consulting
services revenue may be derived from the performance of services under fixed-
price contracts. There can be no assurance that the Company can consistently
perform in a profitable manner under these contracts, especially in the field
of software development, where cost overruns are commonplace. See "Business--
Professional Services."

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's success is heavily dependent upon its proprietary software
technology. See "--Dependence on Success of Enterprise Infrastructure
Strategy." The Company relies on a combination of contractual rights,
trademarks, trade secrets, patents and copyright laws to establish or protect
its proprietary rights in its products. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary rights or independent third party
development of functionally equivalent technologies. Additionally, although
the Company's license agreements restrict a customer's use of the Company's
software and prohibit disclosure to third persons, it may be possible for
unauthorized persons to obtain copies of the Company's software products.
Although the Company does not believe that it is materially infringing on the
intellectual property rights of others, there can be no assurance that such a
claim will not be successfully asserted against the Company in the future or
that any attempt to protect its technology will not be challenged. See
"Business--Intellectual Property Rights."

DEPENDENCE ON KEY PERSONNEL

Competition for qualified personnel in the software industry is intense, and
there can be no assurance that the Company will be able to attract and retain
a sufficient number of qualified employees. The Company's success depends to a
significant degree upon the continued contributions of its key management,
marketing, product development, professional services and operational
personnel, including key personnel of acquired companies. As the business of
the Company grows, it may become increasingly difficult for it to hire, train
and assimilate the number of new employees required. In addition, it is
possible that the business changes or uncertainty brought about by
acquisitions may cause key employees to leave the Company, and certain key
members of the management of acquired companies may not continue with the
Company. Any difficulty in attracting and retaining key employees could have a
material adverse effect on the Company's business, results of operations and
financial condition.

The Company's success to date has depended in large part on the skills and
efforts of Andrew J. Filipowski, the Company's President and Chief Executive
Officer, and Paul L. Humenansky, the Company's Executive Vice President--
Product Development and Chief Operations Officer. The Company has not entered
into non-competition agreements with Messrs. Filipowski or Humenansky or any
of its other key personnel, nor does the Company have "key man" life insurance
policies covering these individuals.

VOLATILITY OF THE COMPANY'S STOCK PRICE

The Company's stock price has historically been volatile. The Company
believes factors such as quarterly fluctuations in results of operations,
announcements of new products and acquisitions by the Company or by its
competitors, changes in earnings estimates by analysts, changes in accounting
treatments or principles and other factors may cause the market price of the
Common Stock and the Notes to fluctuate, perhaps substantially. The market
price of the Common Stock and the Notes also may be affected by the Company's
ability to meet analysts' expectations, and any failure to meet such
expectations, even if minor, could have a material adverse effect on the
market price of the Common Stock and the Notes. In addition, securities prices
for many technology companies fluctuate widely for reasons which may be
unrelated to operating results of such companies. These fluctuations, as well
as general economic, political and market conditions may adversely affect the
market price of the Common Stock and the Notes in the future. In the past,
following periods of volatility in the market price of a company's securities,
class action litigation has often been instituted against such company. Any
such litigation instigated against the Company could result in substantial
costs and a diversion of management's attention and resources, which could
have a material adverse effect on the Company's business, results of
operations and financial condition. See "Price Range of Common Stock."

12
<PAGE>

RISK OF INABILITY TO SATISFY CHANGE OF CONTROL REPURCHASE OFFER

Upon the occurrence of a Change of Control (as defined under the Indenture),
each Holder of Notes will have the right to require the Company to repurchase
all or any part of any part of such Holder's Notes at 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the date
of purchase. There can be no assurance that the Company will have the funds
necessary to effect such a purchase if such an event were to occur. In the
event a Change of Control occurs at time when the Company is unable to
purchase the Notes, the Company could seek to refinance the Notes. If the
Company was unsuccessful in refinancing the Notes, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture. See "Description of Notes--Repurchase of Notes at the Option of the
Holder upon a Change of Control."

ABSENCE OF PRIOR PUBLIC MARKET FOR THE NOTES

Prior to this offering of the Notes (the "Offering"), there has been no
public market for the Notes. Even though the Notes have been approved for
listing on The Nasdaq SmallCap Market, there can be no assurance as to the
liquidity of the trading market for the Notes or that an active trading market
for the Notes will develop or be sustained.

ANTITAKEOVER EFFECT OF RIGHTS AGREEMENT, CHARTER AND STATUTORY PROVISIONS

The Company has entered into a rights agreement (the "Rights Agreement")
which provides that, in the event that 15% or more of the outstanding shares
of Common Stock are acquired by a person or group of persons, the holder of
each outstanding share of Common Stock other than such acquiring person(s),
shall have the right to purchase from the Company additional shares of Common
Stock having a market value equal to two times the exercise price of such
right. In addition, the Company's Restated Certificate of Incorporation, as
amended, provides that the Board of Directors shall be classified with respect
to the terms for which its members shall hold office by dividing the members
into three classes. The Company is also subject to Section 203 of the Delaware
General Corporation Law which, in general, imposes restrictions upon acquirors
of 15% or more of the Company's Common Stock. The Rights Agreement and these
other provisions may have the effect of delaying, deferring or preventing a
change of control of the Company, even if such event would be beneficial to
stockholders. In addition, the Change in Control repurchase feature of the
Notes may make more difficult or discourage a takeover of the Company. See
"Description of Capital Stock" and "Description of the Notes--Repurchase of
Notes at the Option of the Holder upon a Change of Control."

ABSENCE OF DIVIDENDS

The Company has never declared any cash dividends or distributions on its
capital stock. The Company currently intends to retain its earnings to finance
future growth and therefore does not anticipate paying any cash dividends in
the foreseeable future. See "Dividend Policy."

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes offered hereby,
after deducting underwriting discounts and commissions and estimated expenses
of this Offering, are estimated to be approximately $96,300,000 (approximately
$110,812,500 if the Underwriters' over-allotment option is exercised in full).
The Company anticipates that its net proceeds, including interest thereon,
will be used for general corporate purposes, including working capital and
possible future acquisitions of businesses, products or technologies
complementary to the Company's business. From time to time, the Company is
involved in the evaluation of, and discussions with, potential acquisition
candidates, but the Company currently has no agreements, commitments or
understandings with respect to any material future acquisitions. The Company
expects that the net proceeds from the Offering will enable the Company to
reduce its reliance on the sale of receivables as a source of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Pending any of the above-
described uses, the Company plans to invest its net proceeds in short-term
investment grade, interest bearing securities.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "PLAT." The following table sets forth, for the quarters indicated, the
range of high and low closing sale prices for the Common Stock on the Nasdaq
National Market.

<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
----------------
HIGH LOW
<S> <C> <C>
Year Ended December 31, 1994:
1st Quarter.............................................. $14 3/4 $10
2nd Quarter.............................................. 14 1/4 11 1/2
3rd Quarter.............................................. 21 12 1/2
4th Quarter.............................................. 23 1/4 18 5/8
Year Ended December 31, 1995:
1st Quarter.............................................. $25 $19
2nd Quarter.............................................. 20 1/4 15
3rd Quarter.............................................. 25 1/4 18 1/8
4th Quarter.............................................. 20 5/8 14 1/2
Year Ended December 31, 1996:
1st Quarter.............................................. $18 3/8 $11 7/8
2nd Quarter.............................................. 18 3/16 12 7/8
3rd Quarter.............................................. 15 1/4 9 3/4
4th Quarter (through November 18, 1996).................. 14 3/4 11 1/4
</TABLE>

On November 18, 1996, the reported last sale price for the Common Stock was
$11 1/4, and the Common Stock was held by 1,146 holders of record.

DIVIDEND POLICY

The Company has not paid dividends on its Common Stock, and the Board of
Directors intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes. The Company does not anticipate
paying any dividends in the foreseeable future.

14
<PAGE>

CAPITALIZATION

The following table sets forth the Company's cash, cash equivalents and
investments, short-term debt and capitalization (long-term debt plus
stockholders' equity) as of September 30, 1996, and as adjusted to reflect the
issuance and sale of the Notes and the application of the estimated net
proceeds therefrom (after deducting underwriting discounts and commissions and
estimated expenses of the Offering) as described herein under "Use of
Proceeds."

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
---------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash, cash equivalents and investments................... $ 56,508 $152,808
======== ========
Short-term debt and current maturities of long-term debt. $ 10,848 $ 10,848
======== ========
Long-term debt:
Long-term obligations and acquisition-related payables,
net of current portion................................ $ 8,957 $108,957
Stockholders' equity:
Class II preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued or outstanding.... -- --
Common stock, $.001 par value; 180,000,000 shares
authorized; 55,954,000 shares issued and outstanding.. 56 56
Paid-in capital........................................ 446,265 446,265
Notes receivable....................................... (315) (315)
Accumulated deficit.................................... (182,605) (182,605)
Foreign currency translation adjustment................ (390) (390)
-------- --------
Total stockholders' equity........................... 263,011 263,011
-------- --------
Total capitalization..................................... $271,968 $371,968
======== ========
</TABLE>

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA(1)

The selected consolidated financial data set forth below have been derived
from the historical financial statements of the Company. The historical
consolidated financial statements of the Company as of December 31, 1994 and
1995 and for the years ended December 31, 1993, 1994 and 1995 have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
whose report thereon appears elsewhere herein. The selected consolidated
financial data set forth below as of December 31, 1991, 1992 and 1993, and
September 30, 1996, and for the years ended December 31, 1991 and 1992, and
for the nine-month periods ended September 30, 1995 and 1996, have been
derived from the Company's unaudited internal financial statements and reflect
all adjustments which management considers necessary for a fair and consistent
presentation of the results of operations for those periods. These selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto contained
elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $123,177 $141,964 $175,380 $225,439 $304,676 $206,643 $296,386
Operating income (loss). (6,011) 3,012 (2) 3,336(3) (2,223)(4) (128,162)(5) (59,056)(6) (53,082)(7)
Net income (loss)....... (11,231) (2,433)(2) 625(3) (2,644)(4) (111,933)(5) (45,061)(6) (37,988)(7)
Net income (loss) per
share.................. $ (0.32) $ (0.06)(2) $ 0.02(3) $ (0.07)(4) $ (2.59)(5) $ (1.09)(6) $ (0.69)(7)
Shares used in per share
calculation............ 37,671 35,507 37,971 39,890 43,267 41,212 55,271
OTHER OPERATING DATA:
Adjusted EBITDA(8)(9)... $ (946) $ 17,470 $ 25,196 $ 34,589 $ 12,134 $ 5,569 $(10,406)
Depreciation and
amortization expense... 5,065 6,585 8,466 12,218 20,984 14,408 25,799
Operating income (loss),
exclusive of pre-tax
charges for acquired
in-process technology,
merger costs and
restructuring costs
(9)(10)................ (6,011) 10,885 16,730 22,371 (8,850) (8,839) (36,205)
Ratio of earnings to
fixed charges(11)...... -- (12) 8.38(2) 13.40(3) 4.01(4) -- (5)(12) -- (6)(12) -- (7)(12)
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Cash, cash equivalents
and investments........ $54,125 $60,054 $69,554 $124,563 $132,775 $56,508
Working capital......... 49,504 40,530 43,607 89,651 126,679 82,058
Total assets............ 118,825 136,307 169,882 262,760 438,188 414,584
Long-term obligations
and acquisition-related
payables, less current
portion................ 191 181 3,416 9,075 11,342 8,957
Total stockholders'
equity................. 75,667 82,963 92,944 158,837 288,452 263,011
</TABLE>
- -------------------

(1) The Selected Consolidated Financial Data give retroactive effect to the
acquisitions of Prodea as of February 8, 1996, Paradigm as of March 26,
1996, and Axis as of March 29, 1996, each of which has been accounted for
as a pooling of interests for financial reporting purposes. As a result,
the financial position and results of operations are presented as if the
combining companies had been consolidated for all periods presented. The
Selected Consolidated Financial Data should be read in conjunction with
the other financial information included in this Prospectus.
(2) Reflects a pre-tax charge of $7,873,000 relating to Trinzic restructuring
costs.
(3) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to the Company's acquisition of the stock of Datura and
a pre-tax charge of $4,659,000 relating to Trinzic and Locus restructuring
costs.

(4) Reflects a pre-tax charge for acquired in-process technology of
$24,594,000 relating primarily to the Company's acquisitions of the stock
of Dimeric and the net assets of Aston Brooke and AutoSystems.
(5) Reflects a pre-tax charge for acquired in-process technology of
$88,493,000 relating primarily to the Company's acquisitions of the stock
of ASC, SQL, Reltech, Protellicess, AIB and BMS, the net assets of
ViaTech, BrownStone and Protosoft and certain product technologies, and a
pre-tax charge for merger costs of $30,819,000 relating to acquisitions
accounted for as poolings of interests.

(8) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) excludes pre-tax charges for acquired in-process technology
of $0, $0, $8,735,000, $24,594,000, $88,493,000, $25,453,000 and
$11,095,000, merger costs of $0, $0, $0, $0, $30,819,000, $24,764,000 and
$5,782,000, and restructuring costs of $0, $7,873,000, $4,659,000, $0, $0,
$0 and $0 for the years ended December 31, 1991, 1992, 1993, 1994 and 1995
and the nine months ended September 30, 1995 and 1996, respectively.

(9) Adjusted EBITDA and operating income (loss), exclusive of pre-tax charges
for acquired in-process technology, merger costs and restructuring costs,
are presented because the Company believes they allow for a more complete
analysis of the Company's results of operations. This information should
not be considered as an alternative to, nor is there any implication that
this information is more meaningful than, any measure of performance or
liquidity as promulgated under generally accepted accounting principles
(such as operating income (loss), net income (loss) or cash provided by or
used in operating, investing and financing activities). This information
should not be considered as an indicator of the Company's overall
financial performance.

(10) Excludes pre-tax charges for acquired in-process technology of $0, $0,
$8,735,000, $24,594,000, $88,493,000, $25,453,000 and $11,095,000, merger
costs of $0, $0, $0, $0, $30,819,000, $24,764,000 and $5,782,000, and
restructuring costs of $0, $7,873,000, $4,659,000, $0, $0, $0 and $0 for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively.

(11) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of rental expense which
represents interest).

(12) Earnings available for fixed charges of $(2,792,000), $(123,136,000),
$(55,506,000) and $(49,859,000) were inadequate to cover fixed charges of
$366,000, $745,000, $559,000 and $657,000 for the years ended December
31, 1991 and 1995 and the nine months ended September 30, 1995 and 1996,
respectively.

16
<PAGE>

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

The discussion below contains certain forward-looking statements (as such
term is defined in the rules promulgated pursuant to the Securities Act) that
are based on the beliefs of the Company's management, as well as assumptions
made by, and information currently available to, the Company's management. The
Company's actual results, performance or achievements in 1996, 1997 and beyond
could differ materially from those expressed in, or implied by, any such
forward-looking statements. See "Risk Factors" for a discussion of factors
that could cause or contribute to such material differences.

GENERAL

The Company develops, markets and supports enterprise infrastructure
software products, and provides related professional services, for
administering the prevailing complex, heterogenous computing environment known
as the OEE. The Company's products and services increase the performance and
interoperability of computing systems and databases in the OEE and provide
users, primarily in large and data intensive organizations, with more
efficient and productive access to and use of critical information. As an
integral part of the Company's growth strategy, it has consummated a number of
significant business acquisitions, including acquisitions of Software
Interfaces, Inc., Locus, Answer Systems, Inc., Altai, Inc., Trinzic, Softool
Corporation, Prodea, Paradigm and Axis, each of which has been accounted for
using the pooling-of-interests method. As a result, the Company's consolidated
financial statements are presented as if the Company and such acquired
companies had been consolidated for all periods presented. Consequently,
information regarding the Company in this Management's Discussion and Analysis
of Financial Condition and Results of Operations ("MD&A") gives retroactive
effect to these acquisitions. See Note 2 of the Notes to the Company's
Consolidated Financial Statements for a more detailed discussion of these
acquisitions.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated (i) the statement
of operations items expressed as a percentage of revenues, and (ii) the
percentage change in each line item from the prior period.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
------------------------------------
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, PERIOD-TO-PERIOD PERCENTAGE CHANGES
----------------- ---------------- -----------------------------------
NINE MONTHS ENDED
1994 1995 SEPTEMBER 30,
COMPARED COMPARED 1996 COMPARED TO
1993 1994 1995 1995 1996 TO 1993 TO 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Software products...... 50% 51% 52% 49% 51% 29% 39% 50%
Maintenance............ 27 26 25 27 25 26 30 36
Professional services.. 23 23 23 24 24 31 32 39
--- --- --- ------ ------
Total revenues....... 100 100 100 100 100 29 35 43
--- --- --- ------ ------
Costs and expenses:
Professional services.. 18 19 19 23 20 35 41 25
Product development
and support........... 25 23 31 30 39 19 82 87
Sales and marketing.... 34 34 39 40 44 27 55 58
General and
administrative........ 13 14 14 11 9 38 27 13
Restructuring costs.... 3 -- -- -- -- * -- --
Merger costs........... -- -- 10 12 2 -- * (77)
Acquired in-process
technology............ 5 11 29 12 4 182 260 (56)
--- --- --- ------ ------
Total costs and
expenses............ 98 101 142 128 118 32 90 32
--- --- --- ------ ------
Operating income (loss). 2 (1) (42) (28) (18) (167) * 10
Other income............ 1 1 1 1 1 48 40 (14)
--- --- --- ------ ------
Income (loss) before
income taxes........... 3 0 (41) (27) (17) (85) * 10
Income taxes............ 3 1 (4) (5) (4) (27) * *
--- --- --- ------ ------
Net income (loss)....... 0% (1)% (37)% (22)% (13)% *% *% 16%
=== === === ====== ======
</TABLE>
- ---------------------
*Not meaningful.

17
<PAGE>

REVENUES

The Company's revenues are currently derived from three sources: (i) license
fees for licensing the Company's proprietary software products; (ii)
maintenance fees for maintaining, supporting, and providing current upgrades
of the Company's software products; and (iii) revenues from professional
services, which consist of consulting services and education programs. Total
revenues for the first nine months of 1996 were $296,386,000, an increase of
$89,743,000, or 43%, over total revenues of $206,643,000 for the comparable
prior-year period. Total revenues from all sources for fiscal 1995 were
$304,676,000, an increase of $79,237,000, or 35%, from 1994 total revenues of
$225,439,000. Total revenues in 1994 increased $50,059,000, or 29%, over 1993
revenues of $175,380,000.

Revenue from customers in North America represented 85%, 82%, 76% and 77% of
the Company's total revenues in 1993, 1994, 1995 and the first nine months of
1996, respectively. Revenue from international customers represented 15%, 18%,
24% and 23% of the Company's total revenues in 1993, 1994, 1995 and the first
nine months of 1996, respectively. The increased proportion of international
revenue to total revenue was the result of significant investment in the
global marketplace. International revenue is now generated almost entirely by
the Company's international subsidiaries. For the first nine months of 1996,
approximately 3% of the Company's international revenue was provided by the
Company's international affiliates, which were independent businesses through
which the Company previously generated a substantial portion of the Company's
international product and service revenue.

Software Products. Software products revenue represented 50%, 51%, 52%, 49%
and 51% of total revenues in 1993, 1994, 1995, the first nine months of 1995
and the first nine months of 1996, respectively. For the first nine months of
1996, software products revenue increased 50% to $152,074,000 from
$101,578,000 for the comparable prior-year period as a result of increases of
66%, 44%, 60%, 47% and 9%, respectively, experienced by the Company's database
management, systems management, application lifecycle, business intelligence
and data warehouse business units. In 1995, software products revenue was
$158,597,000, a 39% increase over 1994. From 1993 to 1994, software products
revenue increased 29% from $88,063,000 to $113,749,000. The Company believes
the growth in software products revenue over the past two years and the first
nine months of 1996 has resulted from the continued marketplace acceptance of
the Company's products and the Company's aggressive expansion of its sales and
marketing efforts, as well as new product offerings. During the first nine
months of 1996, the Company has expanded its customer base, increased sales of
integrated product suites and executed larger sales transactions. The
Company's database management, systems management, application lifecycle,
business intelligence and data warehouse business units represented 47%, 24%,
12%, 11% and 6%, respectively, of total software products revenue in 1994;
38%, 29%, 11%, 9% and 13%, respectively, of total software products revenue in
1995; and 41%, 29%, 11%, 10% and 9%, respectively, of total software products
revenue for the first nine months of 1996.

Maintenance. Maintenance revenue for the first nine months of 1996 increased
36% to $74,694,000 from $54,872,000 for the comparable prior-year period.
Maintenance revenue in 1995 increased 30% over 1994 to $76,498,000, and 1994
maintenance revenue of $58,837,000 represented an increase of 26% over 1993
maintenance revenue of $46,856,000. Maintenance revenue is derived from
recurring fees charged to perpetual license customers and the implicit first
year maintenance fees bundled in software product sales. The Company provides
maintenance customers with technical support and product enhancements.
Maintenance revenue is deferred and recognized ratably over the term of the
agreement. The increases during 1994, 1995 and the first nine months of 1996
were primarily attributable to expansion of the Company's installed customer
base, which supports recurring fees for maintenance and, to a lesser extent,
to increased revenues associated with maintenance fees implicit in certain
software product sales. Management believes that maintenance revenue should
continue to increase in absolute terms as the installed base of the Company's
software products increases and matures.

Professional Services. Professional services revenue is associated with the
Company's consulting services business and educational programs. Professional
services revenue for the first nine months of 1996 increased 39% to
$69,618,000 from $50,193,000 for the comparable prior-year period. In 1995,
professional services revenue was $69,581,000, a 32% increase over 1994. From
1993 to 1994, professional services revenue increased

18
<PAGE>

31% from $40,461,000 to $52,853,000. The growth in revenue was due primarily
to the addition of established consulting practices through various
acquisitions during 1995 and 1996. The Company expects its professional
services business to continue to grow as it focuses on providing support for
its full range of products, as well as comprehensive enterprise infrastructure
solutions.

COSTS AND EXPENSES

Total expenses for the first nine months of 1996, excluding merger costs and
acquired in-process technology charges, were $332,591,000, an increase of
$117,109,000, or 54%, compared to $215,482,000 for the comparable prior-year
period. Total expenses for 1995, excluding merger costs and acquired in-
process technology charges, were $313,526,000, an increase of $110,458,000, or
54%, compared to $203,068,000 for 1994. Total expenses for 1994, excluding
acquired in-process technology charges, increased 28%, compared to 1993 total
expenses, excluding acquired in-process technology charges and restructuring
costs, of $158,650,000. During 1995 and the first nine months of 1996, the
Company incurred significant costs in supporting its development laboratories
and in building the infrastructure to support the significantly larger
combined Company that is the result of recent acquisitions. These costs were
primarily associated with the hiring of product developers, technical writers,
and in-house and field technical support personnel; expanding the inside and
outside sales forces; informing customers of the Company's technical strategy;
training all personnel in enterprise infrastructure systems issues and new
products; accelerated hiring of key management personnel; and augmenting
internal support systems. Management believes that such investments have been,
and continue to be, necessary to fully exploit the market opportunity for the
newly acquired products and to adequately manage the significantly larger
enterprise.

Professional Services. For the first nine months of 1996, costs of
professional services increased to $59,012,000 from $47,213,000 for the
comparable prior-year period. Costs of professional services increased to
$60,341,000 in 1995, from $42,858,000 in 1994 and $31,855,000 in 1993. Costs
of professional services as a percentage of professional services revenue were
79%, 81%, 87%, 94% and 85% in 1993, 1994, 1995, the first nine months of 1995
and the first nine months of 1996, respectively. The increase in these
expenses in 1994, 1995 and the first nine months of 1996 was related to
salaries and other direct employment expenses as a result of the Company's
rapid hiring to support this business and the addition of established
consulting practices through various acquisitions. The increase in these
expenses as a percentage of professional services revenue in 1994 and 1995 was
primarily attributable to investments in the North American professional
services business. The decrease in these expenses as a percentage of
professional services revenue in the first nine months of 1996, as compared to
the first nine months of 1995, was primarily attributable to the streamlining
of the professional services workforce and better containment of occupancy and
overhead costs.

Product Development and Support. For the first nine months of 1996, product
development and support expenses increased to $117,480,000 from $62,952,000
for the comparable prior-year period. Product development and support expenses
increased to $94,027,000 in 1995, from $51,781,000 in 1994 and $43,467,000 in
1993. The increases in these expenses in 1994, 1995 and the first nine months
of 1996 were primarily attributable to the hiring of additional product
developers, in-house as well as field technical support personnel, and
technical writers; increased allocated charges for office space and overhead;
and increased hardware and software costs related to the product development
effort. Also contributing to the increase in 1994, 1995 and the first nine
months of 1996 were higher bonus and royalty expenses associated with
increased software products revenue. The costs of producing software
documentation for an expanding product line and growing customer base also
contributed to the increases in 1994, 1995 and the first nine months of 1996.

The Company has invested heavily in the development of infrastructure
software products for enterprise-wide information systems that integrate
mainframes, minicomputers, workstations, PCs, client/server networks and
intranets. As a result, through the second quarter of 1996, the Company hired
a significant number of product development and support personnel. The Company
believes that these actions were required in order to strengthen its
competitive position in the enterprise infrastructure marketplace, enhance
existing products and satisfactorily support the Company's growing customer
base. Although these costs will continue to be a significant component of
annual operating expenses, the Company anticipates that these expenses will
decrease as a percentage of total revenues as hiring is tempered and the
Company's infrastructure is solidified.

19
<PAGE>

In 1993, 1994, 1995 and the first nine months of 1996, the Company
capitalized $4,790,000, $5,987,000, $13,591,000 and $18,494,000, respectively,
of internal software development costs, net of related amortization expense,
in accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Product development and support costs plus capitalized
internal software development costs, net of related amortization expense, were
$48,257,000 in 1993, $57,768,000 in 1994, $107,618,000 in 1995 and
$135,974,000 in the first nine months of 1996, which amounted to 36%, 33%, 46%
and 60%, respectively, of software product and maintenance revenue during
those periods.

Sales and Marketing. For the first nine months of 1996, sales and marketing
expenses increased to $130,063,000 from $82,275,000 for the comparable prior-
year period. Sales and marketing expenses increased to $117,906,000 in 1995,
from $75,885,000 in 1994 and $59,802,000 in 1993. Sales and marketing expenses
as a percentage of total revenues were 34%, 34%, 39%, 40% and 44% in 1993,
1994, 1995, the first nine months of 1995 and the first nine months of 1996,
respectively. The increase in these expenses as a percentage of total revenues
in 1995, as compared to 1994 and 1993, and in the first nine months of 1996,
as compared to the first nine months of 1995, was primarily attributable to
costs associated with the significant expansion of the outside sales force and
telemarketing organizations in the U.S. and in international subsidiaries.
Also contributing to the increase were higher commission expenses associated
with the increase in software products revenue, increased product marketing
costs associated with an expanded product line, higher costs for sponsorship
of seminars and user groups, and increased allocated charges for office space
and overhead. The Company believes the large investment in sales and marketing
made during 1995 and the first nine months of 1996 was necessary in order to
build the sales organization required to distribute the Company's expanded
product line and exploit new market opportunities. The Company expects that
sales and marketing expenses will decrease as a percentage of revenues as the
sales force gains tenure and as the Company continues to focus on
consolidating marketing resources for its global marketing strategy.

General and Administrative. For the first nine months of 1996, general and
administrative expenses increased to $26,036,000 from $23,042,000 for the
comparable prior-year period. General and administrative expenses increased to
$41,252,000 in 1995, from $32,544,000 in 1994 and $23,526,000 in 1993. General
and administrative expenses as a percentage of total revenues were 13%, 14%,
14%, 11% and 9% in 1993, 1994, 1995, the first nine months of 1995 and the
first nine months of 1996, respectively. The increase in these expenses from
1993 to 1995 was primarily related to salaries and other direct employment
expenses attributable to an expanded administrative staff in both the U.S and
international subsidiaries, amortization of cost in excess of net assets
acquired related to the Company's acquisitions accounted for as purchases and
increased professional fees. During the first nine months of 1996, a concerted
effort to consolidate redundant administrative functions at the Company's
various domestic locations resulted in a significant reduction in these
expenses as a percentage of total revenue.

Restructuring Costs. In 1993, total restructuring costs of $4,659,000 were
incurred by Trinzic and Locus. In connection with its stabilization of its
KBMS software product, Trinzic recorded restructuring costs of $2,844,000,
consisting of $1,509,000 for the write-off of capitalized software development
costs and $1,335,000 for the closing of the data center used for development
activities and for employee severance payments. In connection with a reduction
of its presence in Europe and its work force in the U.S., Locus recorded a
$1,815,000 charge to income for repositioning operations. The charge was
primarily composed of amounts needed for reductions in work force and a loss
on subleasing the unused portion of its corporate facility.

Merger Costs. For the first nine months of 1996, merger costs were
$5,782,000 as compared to $24,764,000 for the comparable prior-year period.
Merger costs were $30,819,000, $0 and $0 in 1995, 1994 and 1993, respectively.
Merger costs relate to acquisitions accounted for as poolings of interests and
include investment banking and other professional fees, employee severance
payments, costs of closing excess office facilities and various other
expenses. The Company expects to incur similar costs and expenses in
connection with future acquisitions accounted for as poolings of interests.
These costs will be expensed in the periods in which the transactions are
consummated.

20
<PAGE>

Acquired In-Process Technology. For the first nine months of 1996, acquired
in-process technology charges were $11,095,000 as compared to $25,453,000 for
the comparable prior-year period. During the first nine months of 1996, the
Company made a small number of strategic acquisitions, each of which makes a
significant and specific contribution to the Company's market position.
However, the acquisition volume has decreased significantly from the 1995
activity. Acquired in-process technology charges were $88,493,000, $24,594,000
and $8,735,000, in 1995, 1994 and 1993, respectively. These charges relate to
numerous acquisitions of software companies and product technologies made in
support of the Company's goal to become the leading provider of enterprise
infrastructure software products and services. These acquisitions were
accounted for under the purchase method and portions of the purchase prices
were allocated to acquired in-process technology. See Note 2 of the Notes to
Company's Consolidated Financial Statements for a more detailed discussion of
these acquisitions.

Prior to completing these acquisitions, in order to determine the fair
market value of the organizations and technologies to be acquired, the Company
conducted reviews, which included an evaluation of existing products, research
and development in process (projects that had reached technological
feasibility and had no alternative future use), customers and financial and
other matters. These acquisitions were made primarily for the research and
development in process and were based upon the expected cash flows in future
periods. The acquired in-process research and development represent unique and
emerging technologies, the application of which is limited to the Company's
enterprise infrastructure strategy. Accordingly, these acquired technologies
have no alternative future use. The Company believes it has budgeted adequate
research and development resources to complete the contemplated projects over
time periods ranging from six to eighteen months from the dates of
acquisition. The Company expects to continue to incur charges for acquired in-
process technology in connection with future acquisitions, which will reduce
operating and net income for the periods in which the acquisitions are
consummated.

OTHER INCOME

For the first nine months of 1996, other income was $2,566,000 as compared
to $2,991,000 for the comparable prior-year period. Other income was
$4,281,000 in 1995 as compared to $3,052,000 in 1994 and $2,057,000 in 1993.
The increase in 1995 over 1994 and 1994 over 1993 was primarily attributable
to interest earned on higher cash and investment balances maintained during
the respective year as compared to the prior year. The decrease in other
income for the first nine months of 1996 as compared to the same period in
1995 is primarily attributable to interest income earned on lower cash and
investment balances in the first nine months of 1996 as compared to the prior-
year period.

INCOME TAXES

For the nine-month period ended September 30, 1996, the Company recognized
an income tax benefit of $12,528,000 as compared to $11,004,000 for the
comparable prior-year period. The Company recognized an income tax benefit of
$11,948,000 in 1995 and income tax expense of $3,473,000 in 1994, and
$4,768,000 in 1993.

The exercise of certain stock options results in income tax benefits to the
Company. The benefit is equal to the difference between the market price at
the date of exercise and the option price at the applicable tax rate. The
benefit does not flow through the statement of operations, but is credited
directly to paid-in capital. As a result of stock option exercises during
1993, 1994, 1995 and the first nine months of 1996, $3,705,000, $108,000, $0
and, $0, respectively, were credited to paid-in capital. The Company has
available approximately $131,700,000 of net operating loss carryforwards and
$7,500,000 of tax credit carryforwards for Federal income tax purposes
expiring through the year 2010. Some of the Company's tax carryforwards are
subject to limitations as to the amounts which may be used in future years.

In order to take advantage of U.S. income tax rates on income derived from
export transactions, the Company utilizes PLATINUM TECHNOLOGY International,
Inc. as a Foreign Sales Corporation. The Foreign Sales Corporation reduced the
Company's effective tax rate by 10.8%, 10.3%, 0.2% and 0% in 1993, 1994, 1995

21
<PAGE>

and the first nine months of 1996, respectively. The lesser reductions in 1995
and the first nine months of 1996 resulted primarily from the net losses in
1995 and the first nine months of 1996 and the impact of terminating
distribution agreements with PLATINUM affiliates and establishing foreign
subsidiaries in their place.

INFLATION

To date, inflation has not had a material impact on the Company's revenues
or income.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and investments were $56,508,000 as of
September 30, 1996 as compared to $132,775,000 as of December 31, 1995,
$124,563,000 as of December 31, 1994 and $69,554,000 as of December 31, 1993.
See "--Cash Flows."

The Company had trade and installment accounts receivable, net of
allowances, of $133,758,000, $122,461,000, $74,556,000 and $55,838,000 as of
September 30, 1996 and December 31, 1995, 1994 and 1993, respectively. The
Company sells software products and services to customers in diversified
industries and geographic regions and, therefore, has no significant
concentration of credit risk. Historically, a substantial amount of the
Company's revenues have been recorded in the third month of any given quarter,
with a concentration of such revenues in the last week of the third month.
This trend results in a high balance of accounts receivable relative to
reported revenues at the end of any quarterly reporting period.

The Company had long-term acquisition-related payables of $8,026,000,
$9,756,000 and $8,450,000 and other long-term obligations of $931,000,
$1,586,000 and $625,000 as of September 30, 1996 and December 31, 1995 and
1994, respectively. The Company currently has an unsecured bank line of credit
of $25,000,000, under which borrowings bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate. As of November 15, 1996,
the Company had no outstanding borrowings under this line of credit. The
Company had approximately $1,407,000 of short-term borrowings outstanding
under this line of credit as of December 31, 1995. The Company is in the
process of increasing its line of credit.

The Company's sources of liquidity have traditionally been cash generated
from operations and funds from capital markets, including bank facilities.
During 1996, the sale of receivables has become a significant source of
liquidity. The Company believes the funding available to it from these sources
will be sufficient to satisfy its working capital requirements for the
foreseeable future. The Company's capital requirements are dependent on
management's business plan regarding the levels and timing of investments in
existing and newly-acquired businesses and technologies. These plans and the
related capital requirements may change, based upon various factors, such as
the Company's strategic opportunities, developments in the Company's markets,
the timing of closing and integrating acquisitions and the conditions of
financial markets.

The Company sells a significant portion of its installment accounts
receivables to third parties. Proceeds from the sale of receivables for the
first nine months of 1996 were $85,776,000. Sales of installment receivables
for the same period in 1995 were minimal. In 1996, a portion of the
receivables were sold with recourse. As of September 30, 1996, the Company's
maximum exposure under the recourse provisions was $32,422,000. The Company
has assessed the exposure related to these recourse provisions and determined
the potential liability to be minimal.

The installment accounts receivable are recorded net of unamortized
discounts and maintenance fees. When these receivables are sold, the Company
reduces the related receivable balance and records the deferred maintenance as
an obligation. This obligation is recognized into income ratably over the term
of the maintenance agreement.

CASH FLOWS

Cash used in operating activities was $99,249,000 for the first nine months
of 1996 compared to $12,724,000 used in operating activities for the same
period in 1995. A number of factors resulted in this utilization of cash. The
Company incurred a loss before income taxes of $50,516,000 (net loss of
$37,988,000 grossed up for $12,528,000 of non-cash deferred tax benefits),
which was substantially offset by non-cash expenditures including $25,799,000
of depreciation and amortization and $11,095,000 in the write-off of acquired
in-process technology. The most significant utilization of cash was due to an
increase in trade and installment receivables (prior to financing) of
$85,127,000, which increase resulted primarily from the concentration of sales
volume near the end of the third quarter of 1996. This was partially offset by
cash provided by an increase in deferred revenue of $19,272,000. Other changes
in cash resulted from fluctuations in various working capital accounts, the
most significant being a reduction of $9,096,000 of accrued liabilities. Full
year cash flows from operating activities were $20,323,000 provided in 1993,
$32,331,000 provided in 1994 and $27,570,000 used in 1995.

22
<PAGE>

Cash used in investing activities was $52,828,000 for the first nine months
of 1996 compared to $55,320,000 for the same period in 1995. The cash
utilization was primarily due to $25,546,000 in purchases of property and
equipment, $27,269,000 in capitalized software development costs and
$12,819,000 in payments for acquisitions. In the first nine months of 1995,
payments for acquisitions were significantly higher at $43,203,000. The
acquisitions in 1995 were primarily financed through the sale and maturities
of $37,546,000 of investment securities. Full year cash flows from investing
activities were $21,362,000 used in 1993, $51,076,000 used in 1994 and
$136,095,000 used in 1995. Certain proceeds from the Company's October 1995
public offering of 10,840,155 shares of Common Stock were used to fund
$103,085,000 in payments relating to acquisitions and approximately
$38,780,000 in capital expenditures.

Cash provided by financing activities was $90,772,000 for the first nine
months of 1996 compared to $18,311,000 for the same period in 1995. The
primary source of cash was an $85,776,000 sale of receivables. Full year cash
flows from financing activities were $8,145,000 provided in 1993, $67,506,000
provided in 1994 and $199,257,000 provided in 1995. The Company received
aggregate proceeds, net of issuance costs, of approximately $194,420,000 in
connection with its October 1995 public offering.

QUARTERLY COMPARISONS

The following tables set forth an unaudited summary of certain quarterly
financial data. This quarterly information has been prepared on the same basis
as the annual consolidated financial statements and, in management's opinion,
reflects all adjustments necessary for a fair presentation of the information
for the periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.

The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest total revenues and
operating income. For example, 31% and 32% of the Company's total revenues in
1994 and 1995, respectively, were generated in the fourth quarter. Further,
revenues for the fourth quarter of 1994 were higher than for the first quarter
for 1995 and revenues for the fourth quarter of 1995 were higher than revenues
for the first quarter of 1996. Since operating expenses continued to increase
in the first quarter, the Company realized substantially lower operating
margins and net income for this period. The Company expects this pattern to
continue for the foreseeable future. The Company believes the seasonality of
its revenue results primarily from the budgeting cycles of its software
product customers and the structure of the Company's sales commission and
bonus programs. In addition, the Company's software products revenue may vary
significantly from quarter to quarter depending upon other factors such as the
timing of new product announcements and releases by the Company and its
competitors. The Company operates with relatively little backlog and
substantially all of its software products revenue in each quarter results
from sales made in that quarter.

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues,
as previously
reported....... $39,686 $48,266 $50,855 $63,660 $ 55,481 $64,573 $ 64,641 $ 91,226
Adjustments(1).. 5,466 5,698 5,784 6,024 7,579 7,223 7,146 6,807
Total revenues.. 45,152 53,964 56,639 69,684 63,060 71,796 71,787 98,033 $ 82,471
Operating income
(loss), as
previously
reported....... 1,544 5,334 (8,096)(2) 2,596(3) (17,688)(4) (4,002)(5) (38,401)(6) (68,865)(7)
Adjustments(1).. 166 (1,069) (1,211) (1,487) 370 398 267 (241)
Operating income
(loss)......... 1,710 4,265 (9,307)(2) 1,109(3) (17,318)(4) (3,604)(5) (38,134)(6) (69,106)(7) (32,327)(8)
Net income
(loss), as
previously
reported....... 1,290 3,966 (7,445)(2) 2,804(3) (14,438)(4) (2,559)(5) (28,900)(6) (66,577)(7)
Adjustments(1).. 165 (1,033) (1,165) (1,226) 432 248 156 (295)
Net income
(loss)......... 1,455 2,933 (8,610)(2) 1,578(3) (14,006)(4) (2,311)(5) (28,744)(6) (66,872)(7) (24,504)(8)
Net income
(loss) per
share, as
previously
reported....... $ 0.04 $ 0.11 $ (0.22)(2) $ 0.07(3) $ (0.38)(4) $ (0.07)(5) $ (0.76)(6) $ (1.40)(8)
Net income
(loss) per
share.......... 0.04 0.07 (0.23)(2) 0.04(3) (0.34)(4) (0.06)(5) (0.69)(6) (1.31)(8) $ (0.45)(8)
Shares used in
computing net
income (loss)
per share, as
previously
reported....... 35,827 35,995 33,521 38,175 37,520 37,902 38,117 47,697
Shares used in
computing net
income (loss)
per share...... 39,045 39,213 36,739 41,385 40,738 41,283 41,460 51,032 54,915
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------
JUNE 30, SEPT. 30,
1996 1996

<S> <C> <C>
Total revenues,
as previously
reported.......
Adjustments(1)..
Total revenues.. $100,485 $113,430
Operating income
(loss), as
previously
reported.......
Adjustments(1)..
Operating income
(loss)......... (10,072) (10,636)(9)
Net income
(loss), as
previously
reported.......
Adjustments(1)..
Net income
(loss)......... (5,791) (7,693)(9)
Net income
(loss) per
share, as
previously
reported.......
Net income
(loss) per
share.......... $ (0.10) $ (0.14)(9)
Shares used in
computing net
income (loss)
per share, as
previously
reported.......
Shares used in
computing net
income (loss)
per share...... 55,214 55,678
</TABLE>

23
<PAGE>

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

(1) Adjustments reflect the effect of acquisitions accounted for as poolings
of interests on the amounts previously reported in the Company's Annual
Report on Form 10-K. See Note 2 of the Notes to the Consolidated Financial
Statements for a more detailed discussion of these transactions.
(2) Reflects a pre-tax charge for acquired in-process technology of
$14,564,000 relating to the Company's acquisition of the outstanding stock
of Dimeric, and the net assets of Aston Brooke.
(3) Reflects a pre-tax charge for acquired in-process technology of
$10,030,000 relating to the Company's acquisition of the net assets of
AutoSystems.
(4) Reflects a pre-tax charge for acquired in-process technology of
$18,799,000 relating primarily to the Company's acquisition of the stock
of SQL, Viatech, BrownStone and Reltech.
(5) Reflects a pre-tax charge for acquired in-process technology of $1,354,000
relating to the purchase of certain product technologies. Also reflects a
pre-tax charge for merger costs of $2,152,000 relating to acquisitions
accounted for as poolings of interests.
(6) Reflects a pre-tax charge for acquired in-process technology of $5,300,000
relating to the acquisition of ASC. Also reflects a pre-tax charge for
merger costs of $22,612,000 relating to acquisitions accounted for as
poolings of interests.
(7) Reflects a pre-tax charge for acquired in-process technology of
$63,040,000 relating primarily to the acquisitions of the stock of
ProtoSoft, BMS, AIB and Protellicess. Also reflects a pre-tax charge for
merger costs of $6,055,000 relating to acquisitions accounted for as
poolings of interests.
(8) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to the Company's acquisition of the stock of AST and the purchase
of certain product technologies. Also reflects a pre-tax charge for merger
costs of $5,782,000 relating to acquisitions accounted for as poolings of
interests.
(9) Reflects a pre-tax charge for acquired in-process technology of $4,090,000
relating to the Company's acquisition of Software Alternatives and
Grateful Data.

24
<PAGE>

BUSINESS

The Company develops, markets and supports enterprise infrastructure
software products, and provides related professional services, for
administering the prevailing complex, heterogeneous computing environment
known as the open enterprise environment (the "OEE"). These products and
services increase the performance and interoperability of computing systems
and databases in the OEE and provide users, primarily in large and data
intensive organizations, with more efficient and productive access to and use
of critical information. The Company's products typically perform fundamental,
mission-critical functions, such as maintenance of data integrity, systems
security, systems scheduling and project and process management. The Company
offers enterprise infrastructure software products through five business
units: systems management, database management, application lifecycle,
business intelligence and data warehouse. Addressing businesses' increasing
demand for simplified vendor relationships and complete solutions to
information technology ("IT") problems, the Company's goal is to become the
leading provider of enterprise infrastructure solutions by offering a
comprehensive set of "best of breed" point products, fully integrated product
suites and a wide array of professional services, including consulting,
systems integration and educational programs.

To achieve its goal, the Company identified key enterprise infrastructure
technologies and skill sets, and through a combination of an aggressive
acquisition program and vigorous internal product development efforts, the
Company has assembled the competencies to create complete enterprise
infrastructure solutions. Since mid-1994, the Company has acquired 32
businesses and 23 technologies. The Company is now leveraging the breadth of
its product lines and its professional service capabilities, and is devoting
substantial resources to integrating its products and technologies, to provide
complete, customized solutions for enterprise infrastructure problems. These
solutions range from single products to sets of integrated products from
multiple business units bundled into a product suite, along with design and
implementation services provided by the Company's professional services staff.
These solutions also include ongoing product upgrades, maintenance and
support, sometimes pursuant to multi-year contracts. Evidencing the increasing
demand of the Company's customers for comprehensive solutions, the Company
executed 32 transactions of over $1 million during the first nine months of
1996, as compared to only one such transaction during the first nine months of
1995. The Company's total revenues and software products revenue increased 43%
and 50%, respectively, for the first nine months of 1996 as compared to the
same period in 1995.

During 1996, the Company's software developers have focused on product
integration and the bundling of products to satisfy critical customer needs,
along with continued expansion and enhancement of the Company's product line.
The Company has also been enabling its products and suites for application
with intranets, the Internet and the World Wide Web (the "Web"). The
cornerstone of the Company's integration efforts is the PLATINUM Open
Enterprise Management Solution ("POEMS"), an architecture designed to give the
Company's products a common look and feel, common installation and
distribution and common communication, data and events handling. The Company
is creating solutions for general business needs, as well as the needs of
specific industries. For example, the Company recently released PLATINUM
RiskAdvisor, a data warehouse decision support application developed
specifically for the insurance industry. The Company has also released its
"Netcessities" product suite for building, testing and deploying intranet
applications, and has developed a comprehensive solution for the Year 2000
problem. In addition, the Company intends to use a number of its current
products and technologies as the foundation for a new, integrated product
offering designed to enable companies to simultaneously manage, maintain and
deploy multiple Web sites.

25
<PAGE>

MARKET OVERVIEW

The deployment, management, maintenance and productive use of IT has become
increasingly complex as organizations have moved from centralized host-based
computing systems to networked, open enterprise environments. These modern
computing environments frequently service multiple end-users spread across
numerous locations and are heterogeneous, consisting of various computing
platforms (including mainframes, minicomputers, workstations and desktop
PCs/LANs), relational database management systems ("RDBMS"), operating systems
(including UNIX, Windows, Windows NT, OS/400, OS/2, MVS and VMS) and
applications, and often also including intranets, the Internet and/or the Web.
These open environments are also dynamic; users as well as hardware and
software resources are frequently added, removed or changed and new, mission-
critical applications are continually being developed and deployed.

The Internet, a global web linking thousands of computer networks, has
emerged as an important medium for communications in these complex IT
environments. Much of the recent growth in the use of the Internet is
attributable to the rapid expansion of the network of graphical servers and
information known as the Web. As organizations become familiar with the Web,
they are increasingly using Internet data formats and communications
protocols, Web client and server software and, in some cases, the Internet's
communication facilities as the backbone for private networks ("intranets")
that connect these organizations' various local area networks.

While open enterprise computing environments can provide price-performance
advantages and the potential for greater functionality than host-based
systems, organizations have found that traditional mainframe systems
administration tools and utilities are unable to address the complex
requirements of these environments. As a result, a market need has arisen for
comprehensive, easy to use, high-performance and cost-effective infrastructure
solutions that offer the functionality traditionally associated with mainframe
solutions, but are designed for open enterprise environments. The Company
believes that, due to the complexities of these new computing environments,
persons who are responsible for the administration of these systems are
increasingly seeking to purchase IT products and services from a smaller
number of vendors that can offer, design and implement complete, integrated
infrastructure solutions.

BUSINESS STRATEGY

To capitalize on these market opportunities, the Company's business strategy
is to:

. Offer a Comprehensive Enterprise Infrastructure Software Product Line--
The Company offers a comprehensive set of point products to address each
of five principal enterprise infrastructure software disciplines: systems
management, database management, application lifecycle, business
intelligence and data warehouse. The Company continues to enhance and
expand its product portfolio by internal development and the acquisition
of products in each of these areas. Through its research and development
and field support personnel, the Company works closely with its customers
to determine their requirements and to develop solutions which address
their needs.

. Integrate Products--The Company is devoting substantial financial and
software development resources to enhancing its products' common
functionality and their interoperability with each other and the products
of other vendors and to combining its products within and across business
units into integrated product suites designed to solve customer problems.
The Company is employing its POEMS architecture to give products a common
look and feel, common installation and distribution and common
communication, data and events handling. The Company is then bundling
these products into suites designed to address general or industry
specific needs. The Company is positioning itself as a vendor that can
solve all of a business' enterprise infrastructure problems.

. Develop Complete Solutions for Targeted Vertical Markets--The Company is
designing customized product suites to address the needs of targeted
vertical markets. The Company is engaging the services of individuals
with substantial experience and expertise in particular industries, such
as the insurance,

26
<PAGE>

telecommunications and pharmaceuticals industries, to provide the
Company's software developers with an understanding of how IT systems
function within those industries. The Company can then develop suites of
products tailored to meet such systems' specific needs, with user
interfaces appropriate for each industry. For example, the Company
recently released PLATINUM RiskAdvisor, a data warehouse decision-support
application developed specifically for the insurance industry. The Company
expects to expand its presence in the vertical applications marketplace.

. Offer a Wide Range of Professional Services--In furtherance of the
Company's strategy to offer comprehensive solutions, the Company provides
a wide range of professional services, including consulting, systems
integration and educational programs. The Company can provide complete
solutions to customers' enterprise infrastructure problems, from design
to full implementation and installation of products. The Company believes
this ability to provide end-to-end solutions, including both products and
services, enables the Company to satisfy customer desires for single-
source solutions, strengthening the Company's position in the marketplace
for enterprise infrastructure products. Additionally, the Company is
beginning to package professional services as a standard feature of its
product sales, and the Company believes that solutions developed by its
professional services group will lead to sales of the Company's products
as part of such solutions. The Company continues to enhance its
professional service capabilities.

. Build Strong Customer Relationships--The Company focuses significant
efforts on building strong, lasting relationships with its customers. The
Company's direct sales approach, with each customer dealing with only one
salesman for the Company's entire product line, is the foundation of
these efforts. Additionally, the Company provides comprehensive customer
service and technical support as integral components of its product
offerings, which the Company believes is essential to creating customer
satisfaction and building long-term relationships.

PRODUCTS

The Company provides tools and technologies that help organizations
efficiently operate and manage their complex OEEs, which contain multiple
platforms and multiple operating systems. These tools increase the efficiency
of individual computing systems and databases, as well as the interoperability
of these systems and databases in distributed environments of any size. The
Company's solutions support platforms and operating systems that span
mainframe, midrange and PC/LAN computing environments, including MVS, UNIX,
OS/2, OS/400, Windows and Windows NT. They also support multiple heterogeneous
databases, such as the DB2 family, Oracle, Sybase, Microsoft SQL Server and
Informix. Software products revenue constituted 50%, 51%, 52% and 51% of total
revenues of the Company for each of 1993, 1994, 1995 and the nine-month period
ended September 30, 1996, respectively.

The Company now offers approximately 140 robust and adaptable point products
through five business units:

Systems Management Products--The Company offers products that enable
organizations to manage resources and events to optimize and centralize
different platforms, whether local or remote, so that applications can scale to
large numbers of machines and reside where they are most cost-efficient; to
automate routine systems maintenance tasks and processes, thereby streamlining
enterprise management, enhancing system reliability and reducing costs; and to
simplify the management of disparate systems and applications enterprise-wide
and increase end-use productivity. Included in these product offerings are
solutions for systems management spanning several related disciplines,
including job and process management, enterprise automation, storage
management, output management, problem resolution, security management,
distribution management, asset management, change and configuration management,
performance management, finance and resource

27
<PAGE>

management, capacity planning, and networking and connectivity. The Company
offers over 20 products developed to provide the functionality required by
businesses, while scaling across multiple platforms that include UNIX,
Windows, Windows NT, OS/400, OS/2, MVS and VMS. Principal systems management
products include the following:

. AutoSys--a reliable batch job scheduler, AutoSys simplifies the task of
managing and monitoring multiple jobs in distributed UNIX environments.
It provides centralized control of job execution across heterogeneous
platforms and offers flexible features, such as self-correcting job
control and automated restart and recovery capabilities.

. DBVision--a scaleable, UNIX-based tool for continuous monitoring and
centralized management of Oracle, Sybase, Microsoft SQL Server and
Informix databases in any size network. DBVision collects and displays
performance measurements in real time or retrospect. It automatically
detects and corrects performance problems and predicts space shortages.

. TransTracker--a distributed systems measurement tool that enables
application developers, infrastructure architects and operations
managers to analyze detailed metrics to improve client/server
application performance.

. WireTap--a tool that monitors and measures network packet traffic and
can yield details on network utilization by protocol and application. It
also provides statistics on response times and occurrences of
client/server requests.

. AutoSecure--a tool that provides mainframe-caliber security for UNIX
hosts, AutoSecure makes administration consistent across UNIX platforms.
It protects LOGINs to the system, password quality, execution of
privileged programs, file access, user ID substitutions and network
connections.

Database Management Products--The Company provides a leading set of tools
and utilities for centralized or distributed administration, analysis and
monitoring of heterogeneous databases. The Company's solutions for DB2 give
users the power and flexibility that they require for applications
development, database administration, performance analysis and utilities. By
automating administrative and maintenance tasks, these software solutions
enable users to achieve the highest performance levels possible, increase data
availability, automate arduous administrative tasks, dramatically reduce
completion time and deliver new products or enhancements to end-users faster
and with more flexibility. Principal database management products include the
following:

. Database Analyzer--a DB2 DASD and database monitoring, analysis,
validation, forecasting and tuning tool. It provides extensive
statistical reporting capabilities, automated maintenance and auditing of
internal structures and a DB2 page editor.

. Plan Analyzer--a tool that provides advanced analyses for monitoring and
maintaining the SQL in DB2 plans and packages. Its reporting options
provide full details on access path choices, SQL syntax and plan or
package problems so that businesses can maximize application efficiency.

. RC Migrator--a tool that automates DB2 object and data migrations and
alterations, while maintaining object dependencies and preserving data
security. Migrations may be performed on a one-to-one or one-to-many
basis.

. RC Update--a complete object and data management tool for DB2 that
creates, drops and alters DB2 objects. It also provides object
restoration capabilities as well as facilities for comparing, copying and
editing data.

. TS Reorg--a powerful tablespace reorganization tool for Oracle, Informix
and Sybase databases of any size. TS Reorg delivers fast reorganizations
of entire tablespaces, individual tables and indexes. It also provides
efficient fragmentation of used and free space and automatic data
partitioning. TS Reorg can run on UNIX, VMS or Windows NT-based server
systems.

28
<PAGE>

Application Lifecycle Products--The Company offers products that enable
organizations to streamline the entire application lifecycle, from estimation
to deployment and maintenance. These products also facilitate the development
of sophisticated, high-performance systems that can adapt to changes in
evolving, open environments. Business processes are automated through
solutions for project and process management, analysis and design,
construction, testing, distribution, change and configuration management and
help desk support. Principal application lifecycle products include the
following:

. AionDS--a complete application development solution that combines rule-
based technology and object-oriented programming. Developers can use its
powerful language to build applications that automate complex business
policies and process logic.

. CCC/Harvest--a tool that provides software change and configuration
management, integrated problem tracking and software process automation
in open, client/server environments through a consistent interface. It
integrates with other tools and monitors the development process for
individual developers, development teams and application managers.

. Paradigm Plus--a powerful, object-oriented analysis and design tool that
supports Enterprise Component Modeling (ECM), code generation and
reverse engineering. Using ECM, companies can identify business
requirements, model and build reusable application components and manage
long-term information systems.

Business Intelligence Products --The Company offers an integrated tool set
that enables organizations to better leverage their corporate data
investments. These products enable end-users to derive value and insight from
corporate information by facilitating the access, analysis, reporting and
delivery of enterprise data. Powerful point products can be used separately to
meet specific needs, or as part of an integrated business intelligence
solution. By bringing database and warehouse information to enterprise
desktops, users can effectively identify business trends, analyze complex
information, create timely reports and make informed decisions. Principal
business intelligence products include the following:

. Forest & Trees--a data analysis and reporting tool for sophisticated
business intelligence and decision support systems. It enables end-users
and developers to collect, combine, monitor and analyze information from
a variety of sources, including PC spreadsheets and databases, database
servers, mainframe systems and Lotus Notes.

. InfoBeacon--a next-generation decision support solution that contains an
analytical processing engine to handle user requests for multi-
dimensional views of data stored in relational database management
systems and to perform standard and custom calculations. Based on a
three-tier client/server architecture, InfoBeacon brings rapid response
and enterprise scalability to the data warehouse analysis environment.

. InfoReports--an advanced reporting tool that lets end-users create ad
hoc and production reports using a familiar Windows interface. Users can
build multiple-query reports that combine data from different databases.
These reports can be executed on any client or server while retaining
identical formatting attributes.

. Report Facility--a versatile reporting tool for DB2, VSAM, QSAM and
other data sources, Report Facility executes online or in batch and
features a variety of report types, including those from InfoReports. It
optimizes resource consumption by user or environment.

Data Warehouse Products--The Company offers an integrated set of solutions
for all major warehousing functions, including data extraction and refinement,
data distribution, and data access and analysis. This comprehensive solution
set helps organizations build, manage and maintain data warehouses. A data
warehouse is a data store that gives end-users full access to periodically
consolidated, historical data for making business decisions and analyzing
trends without jeopardizing the performance of mission-critical operations.
Warehousing tools can capture data in many forms on numerous platforms,
transfer it to multiple database platforms and provide users with the means to
access and manage such information. Repository tools play a key role in data
warehouses as places for centralized control and collection points for status
information concerning the warehouses and their activities. Principal data
warehouse products include the following:

29
<PAGE>

. InfoPump--a bi-directional client/server middleware tool, InfoPump
automates the process of replicating, transferring and integrating data
in heterogeneous environments on a scheduled or event-driven basis.

. InfoHub--a tool that enables end users to transparently access and
update a variety of host-based relational and nonrelational legacy
databases using PC-based applications or front-end query and reporting
tools.

. Repository--a metadata source that links warehouse resources, targets
and end-user query tools, enterprise-wide. Repository stores the
information necessary to define a migration environment and for the
mapping of sources to targets, as well as translation requirements,
business rules and selection criteria for building a warehouse.

. InfoTransport--a reliable, high-speed tool for transferring data
extracted from DB2, IMS, VSAM and sequential files to DB2 for OS/2, DB2
for AIX, Oracle7, Sybase, Microsoft SQL Server and Informix.

In the past, businesses licensed products on a stand-alone basis to address
each of their enterprise infrastructure needs as they arose, including
management performance, systems security, object design and quality assurance.
By combining tools and technologies within and across its business units, the
Company now provides product suites that feature a variety of functions which
present complete solutions to businesses' enterprise infrastructure problems.
These integrated product offerings allow businesses to experience
comprehensive benefits without having to deal with multiple products or
multiple vendors. The Company has designed product suites that address
enterprise infrastructure problems that are shared by businesses from various
industries, as well as product suites that target enterprise infrastructure
problems that are unique to specific industries. The following provides a
brief description of some of the Company's recent product suite offerings:

SystemVision 2000--this product suite, developed through a combination of
tools and technologies made available through internal development,
acquisitions and marketing agreements, provides an end-to-end solution to
the problem created by the century date change, commonly known as the Year
2000 problem. It enables businesses to analyze, plan, implement and test
century date changes in an integrated manner. As a result, businesses can
minimize exposure, more effectively plan resources and reduce costs and
time associated with the Year 2000 problem.

Netcessities--this product suite, which is the result of integration
between, and enhancements to, the Company's application lifecycle solution
products, enables professional developers to analyze, construct, test and
deploy enterprise-wide intranet applications. It offers a complete solution
for delivering mission-critical applications to businesses' intranets,
emphasizing object-oriented technologies and sophisticated database access.

RiskAdvisor--this product suite, which provides a comprehensive strategic
solution for analyzing large amounts of stored business data, was designed
specifically for the insurance industry. It provides multiple analytical
facilities, all keyed to insurance business indicators. This allows
companies to proactively manage their businesses by identifying loss
activity trends, reducing operating costs in policy issuance and claims
control and understanding claim caseload activity.

PRODUCT LICENSES

The Company provides its software products to customers under non-exclusive,
non-transferable license agreements (including standard shrink-wrap licenses
for certain products). As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its software products to customers. Under the Company's
current standard form license agreement, licensed software may be used solely
for the customers' internal operations and only on designated hardware at
specified sites, which may be comprised of a stand-alone computer, a single
network server with multiple terminals or multiple network servers with
multiple terminals.

Licenses for the Company's software are almost exclusively perpetual,
although annual and monthly licenses are also offered. License fees may be due
upon execution by the customer of the applicable product

30
<PAGE>

agreement or may be payable over time for contracts involving multi-year
commitments for maintenance and product upgrades. List prices are based upon
the size of the processor, number of servers and/or number of users, depending
upon the type of license and product being licensed. The Company's published
list price includes discounts for suite, enterprise and multi-site licenses.
Licenses generally include more than one product. Under the Company's current
standard form license agreement, maintenance is renewed on an annual basis by
the customer paying the current maintenance fee. Customers may also commit for
maintenance and product support over extended periods of time. See "Technical
Support and Maintenance."

PRODUCT DEVELOPMENT

The Company is pursuing its strategy by continuing its emphasis on
developing new software products and enhancements in-house, acquiring
products, technologies and businesses complementary to the Company's existing
product line and forming alliances with leading technology companies. The
Company has formed separate in-house development teams to efficiently
integrate acquired products and technologies into existing product lines.
During 1993, 1994, 1995 and the nine-month period ended September 30, 1996,
product development and support expenses of the Company were $43,467,000,
$51,781,000, $94,027,000 and $117,480,000, respectively. As of October 31,
1996, the Company employed approximately 1,650 persons in product development
and support.

Internal Development--The Company will continue to rely to a large extent on
the internal development of products to expand its product lines. The Company
believes its RDBMS expertise and experience give it a competitive advantage in
developing products that address increasingly complex environments and that
meet evolving customer needs. In order to fully exploit acquired software
development personnel, and to access new sources of talent, the Company has
established approximately 32 independent development laboratories, generally
at the locations of newly-acquired companies. These development laboratories
are interconnected via video conferencing, e-mail, Lotus Notes and other
communication technologies and use various hardware, operating systems and
database systems which give the Company the ability to simulate the open
enterprise environments of its customers. Laboratories have responsibility for
their product lines and receive guidance from POEMS teams to foster
interoperability.

Acquisitions--The Company continually reviews acquisition candidates with
leading-edge products and technologies that could enhance the Company's
product portfolio. The Company has particularly emphasized this approach to
accelerate the Company's expansion beyond the relational database management
market. The technologies associated with the products of the acquired
businesses are being incorporated into the Company's existing internally
developed products and are being used in developing new enterprise
infrastructure products. In addition to providing the Company with new
products and technologies, these acquisitions have provided the Company with
experienced teams of product developers who now staff the Company's
independent development laboratories. The Company plans to continue to pursue
acquisition opportunities, because it believes that acquisitions are an
essential part of the Company's strategy to compete effectively in its rapidly
evolving marketplace.

Technology Relationships--To reinforce its commitment to providing solutions
for the open enterprise environment, the Company has implemented its PLATINUM
Partner Program, whereby the Company has established strategic and technology
relationship with several hardware, software and database vendors. The Company
believes that in order to provide solutions for heterogeneous computing
environments, it will need to continue to establish and maintain key
relationships with leading technology companies, such as IBM/Tivoli, Hewlett-
Packard, Oracle, Sybase, Informix and Microsoft. These technical and marketing
alliances provide the Company early access to product information and pre-
release software.

PROFESSIONAL SERVICES

As part of its strategy to provide complete solutions for the OEE, the
Company offers a range of professional services, including consulting services
and educational programs. These services help businesses

31
<PAGE>

construct and manage infrastructures in which complex software products can be
used. These services can improve and accelerate customization, implementation
and deployment of the Company's software products. The Company believes that
more rapid and effective implementation of its software products will lead to
increased customer satisfaction and greater follow-on sales. For these
reasons, the Company is beginning to package its professional services as a
standard feature of its product sales.

Consulting Services--The Company is focusing significant effort on
developing and expanding its consulting services group. Primarily developed
through recent acquisitions of consulting services companies, this group
provides consulting services to end-user customers of computer systems,
including those that desire to migrate from information systems that use
proprietary environments to open system environments. Other services provided
include (i) technology selection, strategy and infrastructure, (ii) large
scale systems design, implementation and management, (iii) data warehouse
design and implementation, (iv) systems troubleshooting and (v) rapid
prototyping of open systems to ascertain feasibility. Customers for these
services include original equipment manufacturers, the Company's product
customers, system integrators and business end-users.

Educational Programs--The Company believes that its education services play
an important role in increasing market awareness of its software products
among IT personnel, including application developers, database administrators
and end-users. Offering a comprehensive curriculum that supports leading
technologies, the Company conducts a set of training courses designed to deal
with the critical issue of skills management. These courses cover several key
technology areas of the open enterprise environment and are held at various
training centers in the U.S. and throughout the Company's international
operations. The Company also offers on-site computer-based training courses
and self-led Internet-based training courses that users may complete in their
own offices or homes. The Company believes that this capability has further
strengthened the Company's position in the education market.

The Company continually reviews acquisition candidates that are leading-edge
service providers that could enhance the Company's service offerings. The
Company is also expanding its professional services through internal growth.

SALES AND MARKETING

The Company employs a multi-faceted sales strategy. For software products,
the Company utilizes telemarketers, an inside sales force, an outside sales
force, product seminars, user group participation, direct mail and print
advertising. The Company also utilizes certain indirect sales channels, such
as distributors, VARs and OEM relationships for selected products.

North American Software Sales--The Company's North American direct sales
force is currently organized in territories covering the United States and
Canada. To support the rapid expansion of the Company's product line, the
Company, during 1995 and 1996, accelerated its sales force hiring and training
process. The Company now has approximately 240 individuals in its North
American direct sales force.

Generally, for North American software product licenses, the Company's
telemarketing specialists call prospective customers to identify and qualify
leads. Once a lead has been qualified, the prospective client is turned over
to an inside sales person to arrange a short-term, free product evaluation of
the Company's products, to the extent appropriate. Once a product evaluation
has been arranged, a direct sales person and a technical field support person
call on the prospective customer to assist it with trials, demonstrate product
features and close sales. The evaluation process allows a user to test the
products' overall effectiveness, performance and competitive capabilities
before entering into a license agreement. The Company also licenses certain
software products for which trials are not appropriate through the use of a
telemarketing sales force and shipment of such products under shrink-wrap or
other license. During 1995, the Company invested heavily in call center
technology for the Company's telemarketers and in sales force automation tools
for tracking, forecasting and reporting across the various sales teams.

International Software Sales--The Company generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by the Company in

32
<PAGE>

North America, utilizing an international direct sales force of approximately
145 individuals. As of October 1996, the Company had subsidiaries in
Australia, Austria, Belgium, Brazil, Denmark, Finland, France, Germany, Hong
Kong, Indonesia, Italy, Japan, Korea, Malaysia, the Netherlands, Norway,
Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand and the
United Kingdom. The Company expects that it will establish other foreign
subsidiaries in the future to meet its strategic objectives. In a few
countries, primarily in South America and the Middle East, the Company markets
its products through independent distributors.

Global Accounts--The Company has recently begun to designate large,
geographically disbursed entities as "global accounts." Each of these accounts
is managed, on a worldwide basis, by a single executive who focuses his or her
attention on the diverse needs of the enterprise.

Professional Services--The Company's consulting services and educational
programs are marketed by separate direct sales forces.

User Group Leadership--The Company believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. The Company plays a major role in the activities of
International DB2 Users Group, the International Oracle Users Group, the
International Sybase Users Group and other smaller user groups, and expects to
continue to do so in the future.

CUSTOMERS

The Company's customers primarily consist of Fortune 1000 companies and
similarly sized organizations worldwide that operate in industrial,
healthcare, technology, government, finance, consumer products and other
business sectors. A large majority of the Company's customers have purchased
multiple products from the Company.

No single customer accounted for 10% or more of the Company's revenues in
1993, 1994, 1995 or the nine-month period ended September 30, 1996. The
Company does not believe that the loss of any single customer would have a
material adverse effect on the Company's business.

TECHNICAL SUPPORT AND MAINTENANCE

The Company's in-house technical support group, situated at various
locations throughout the U.S., provides pre-sale, installation and post-sale
support, including toll-free telephone support during regular business hours,
to current users and potential customers evaluating the Company's products.
The technical support group also offers seven-day, 24-hour toll-free telephone
service for an additional fee. The Company believes that effective technical
support during product evaluation substantially contributes to product
acceptance, and that post-sale support has been a substantial factor in
customer satisfaction to date and will continue to be so in the future.

The Company offers a maintenance program for its software products, which
consists of product enhancements, updated products and technical support.
Maintenance is typically provided without additional charge during the
warranty period defined in the license agreements. Under the Company's
standard form license agreement, customers renew maintenance and support on an
annual basis by paying the current maintenance fee. Customers may also commit
for maintenance and product support over extended periods of time. Revenue
from first year and recurring maintenance charges is recognized ratably over
the period the maintenance and support services are to be provided.

COMPETITION

The Company operates in highly competitive markets and expects competition
to increase. The Company has encountered substantially enhanced competition
and many new competitors, including relational database vendors and systems
software companies, and substantially enhanced competition as it has moved
from the relational database tool market to the much larger enterprise
infrastructure software market and as it has entered

33
<PAGE>

the consulting services business. Many of the Company's current and prospective
competitors have significantly greater financial, technical and marketing
resources than the Company. In addition, many prospective customers may have
the internal capability to implement solutions to their problems.

The competitive factors affecting the market for the Company's software
products include the following: product functionality, integration, performance
and reliability; demonstrable economic benefits for users relative to cost;
quality of customer support and user documentation and ease of installation;
vendor reputation, experience and financial stability; and price.

The Company believes that it has competed effectively to date. The Company's
ability to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support. To be
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings. Performance in these areas
will, in turn, depend upon the Company's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. The Company also expects to continue its strategy
of identifying, acquiring and developing enterprise infrastructure products and
technology through the acquisition of specific products and of businesses which
have developed such products and technologies.

In addition, the Company encounters competition from a broader range of firms
in the market for professional services. Many of the Company's current and
prospective competitors have significantly greater financial, technical and
marketing resources than the Company. The competitive factors affecting the
market for the Company's professional services include the following: breadth
and quality of services offered, vendor reputation and the ability to retain
qualified technical personnel.

INTELLECTUAL PROPERTY RIGHTS

The Company has historically relied upon a combination of contractual rights,
trademarks, trade secrets, and copyright laws to establish and protect its
proprietary rights in its products. The Company also holds some patents and
believes that patents may become increasingly important to the software
industry. Consequently, the Company is taking actions to further protect its
proprietary rights through software patents. The Company's license agreements
restrict a customer's use of the Company's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of the Company's software products. The
Company believes that because of the rapid pace of technological change in the
computer software industry, the legal protections for its products are less
significant factors in the Company's success than the knowledge, ability and
experience of the Company's employees, the frequency of product enhancements
and the timeliness and quality of support services provided by the Company. The
Company registers its product names and other trademarks in the United States
and certain foreign countries.

EMPLOYEES

As of October 31, 1996, the Company employed approximately 3,675 persons,
including 1,065 in sales, marketing and related activities, 1,650 in product
development and support, 660 in professional services and 300 in management,
administration and finance. The Company's success is highly dependent on its
ability to attract and retain qualified employees. Competition for employees is
intense in the software industry. None of the Company's employees is
represented by a labor union or is the subject of a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its employee relations are good.

34
<PAGE>

DESCRIPTION OF THE NOTES

Set forth below is a summary of certain provisions of the Notes. The Notes
will be issued pursuant to an indenture (the "Indenture") dated as of November
18, 1996, by and between the Company and American National Bank and Trust
Company of Chicago, as trustee (the "Trustee"), a form of which is filed as an
exhibit to the Registration Statement (as defined herein) of which this
Prospectus is a part. The terms of the Indenture are also governed by certain
provisions contained in the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The following summary of the Notes and the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by, reference to all of the provisions of the Indenture, including
the definitions therein of certain terms which are not otherwise defined in
this Prospectus and those terms made a part of the Indenture by reference to
the Trust Indenture Act as in effect on the date of the Indenture. Capitalized
terms used herein without definition have the meanings ascribed to them in the
Indenture. As used in this section "Description of the Notes," the "Company"
refers to PLATINUM technology, inc., exclusive of its Subsidiaries. Wherever
particular provisions of the Indenture are referred to in this summary, such
provisions are incorporated by reference as a part of the statements made and
such statements are qualified in their entirety by such reference.

GENERAL

The Notes will be unsecured, subordinated, general obligations of the
Company, limited in aggregate principal amount to $100,000,000 ($115,000,000
if the Underwriters' over-allotment option is exercised in full). The Notes
will be subordinated in right of payment to all Senior Indebtedness of the
Company, as described below under "--Subordination." The Notes will be issued
only in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.

The Notes will mature on November 15, 2001. The Notes will bear interest at
the rate per annum stated on the cover page of this Prospectus from the date
of issuance or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semi-annually on the 15th day of May
and November of each year, commencing May 15, 1997, to the persons in whose
names such Notes are registered at the close of business on May 1 or November
1 immediately preceding such Interest Payment Date. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.

The Company shall maintain an office or agency where Notes may be presented
for payment (the "Paying Agent") and registration or conversion (the
"Registrar"). The Company initially designates First Chicago Trust Company of
New York ("First Chicago of New York"), presently located at 14 Wall Street,
New York, New York 10005, to serve as its agent for such purposes.

At the option of the Company, payment of interest may be made by check
mailed to the holders of the Notes (individually, a "Holder" and,
collectively, the "Holders") at the addresses set forth upon the registry
books of the Registrar. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.

CONVERSION RIGHTS

The Holder of any Notes will have the right, at the Holder's option, to
convert any portion of the principal amount thereof that is an integral
multiple of $1,000 into shares of Common Stock, at any time prior to the close
of business on the Stated Maturity of the Notes (unless earlier redeemed or
repurchased) at the Conversion Price set forth on the cover page of this
Prospectus (subject to adjustment as described below). The right to convert a
Note called for redemption or delivered for repurchase will terminate at the
close of business on the Business Day prior to the Redemption Date or
Repurchase Date (as defined herein) for such Note, unless the Company
subsequently fails to pay the applicable Redemption Price or Repurchase Price
(as defined herein), as the case may be.

35
<PAGE>

In the case of any Note that has been converted after any Record Date, but
on or before the next Interest Payment Date, interest the stated due date of
which is on such Interest Payment Date shall be payable on such Interest
Payment Date notwithstanding such conversion, and such interest shall be paid
to the Holder of such Note who is a Holder on such Record Date. Any Note so
converted must be accompanied by payment of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Notes being
surrendered for conversion (unless such Note shall have been called for
redemption, in which case no such payment shall be required). In all cases,
the Holders will receive the interest payment due on November 15, 1999, even
if they surrender Notes for conversion as a result of the Company's exercise
of its right to redeem Notes on or after November 15, 1999. No fractional
shares will be issued upon conversion but, in lieu thereof, an appropriate
amount will be paid in cash by the Company based on the market price of the
Common Stock (as determined in accordance with the Indenture) at the close of
business on the day of conversion.

The Conversion Price will be subject to adjustment upon the occurrence of
certain events, including: (a) any payment of a dividend (or other
distribution) payable in Common Stock on any class of Capital Stock of the
Company, (b) any issuance to all holders of Common Stock of rights, options or
warrants entitling then to subscribe for or purchase Common Stock at less than
the then current market price (as determined in accordance with the Indenture)
of Common Stock; provided, however, that if such options or warrants are only
exercisable upon the occurrence of certain triggering events, then the
Conversion Price will not be adjusted until such triggering events occur, (c)
any subdivision, combination or reclassification of Common Stock, (d) any
distribution to all holders of Common Stock of evidences of indebtedness,
shares of Capital Stock other than Common Stock, cash or other assets
(including securities, but excluding those dividends, rights, options,
warrants and distributions referred to above and excluding dividends and
distributions paid exclusively in cash), (e) any distribution consisting
exclusively of cash (excluding any cash portion of distributions referred to
in (d) above, or cash distributed upon a merger or consolidation to which the
last paragraph of this section "--Conversion Rights" applies) to all holders
of Common Stock in an aggregate amount that, combined together with (i) all
other such all-cash distributions made within the then preceding 12 months in
respect of which no adjustment has been made and (ii) any cash and the fair
market value of other consideration paid or payable in respect of any tender
offer by the Company or any of its Subsidiaries for Common Stock concluded
within the preceding 12 months in respect of which no adjustment has been
made, exceeds 10% of the Company's market capitalization (defined as being the
product of the then current market price of the Common Stock times the number
of shares of Common Stock then outstanding) on the record date of such
distribution, and (f) the completion of a tender or exchange offer made by the
Company of any of its Subsidiaries for Common Stock that involves an aggregate
consideration that, together with (i) any cash and other consideration payable
in a tender or exchange offer by the Company or any of its Subsidiaries for
Common Stock expiring within the 12 months preceding the expiration of such
tender or exchange offer in respect of which no adjustment has been made and
(ii) the aggregate amount of any such all-cash distributions referred to in
(e) above to all holders of Common Stock within the 12 months preceding the
expiration of such tender or exchange offer in respect of which no adjustments
have been made, exceeds 10% of the Company's market capitalization on the
expiration of such tender offer. No adjustment of the Conversion Price will be
required to be made until the cumulative adjustments amount to 1.0% or more of
the Conversion Price as last adjusted.

The Company reserves the right to make such reductions in the Conversion
Price in addition to those required in the foregoing provisions as it
considers to be advisable. In the event the Company elects to make such a
reduction in the conversion price, the Company will comply with the
requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any other securities laws and regulations
thereunder if and to the extent that such laws and regulations are applicable
in connection with the reduction of the Conversion Price.

In the event that the Company distributes rights or warrants (other than
those referred to in (b) in the second paragraph above) pro rata to holders of
Common Stock, so long as any such rights or warrants have not expired or been
redeemed by the Company, the Holder of any Note surrendered for conversion
will be entitled to receive upon such conversion, in addition to the shares of
Common Stock issuable upon such conversion (the "Conversion Shares"), a number
of rights or warrants to be determined as follows: (i) if such conversion
occurs

36
<PAGE>

on or prior to the date for the distribution to the holders of rights or
warrants of separate certificates evidencing such rights or warrants (the
"Distribution Date"), the same number of rights or warrants to which a holder
of a number of shares of Common Stock equal to the number of Conversion Shares
is entitled to at the time of such conversion in accordance with the terms and
provisions of an applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of Common Stock into which
such Note was convertible immediately prior to such Distribution Date would
have been entitled on such Distribution Date in accordance with the terms and
provisions of and applicable to the rights or warrants. The Conversion Price
of the Notes will not be subject to adjustment on account of any declaration,
distribution or exercise of such rights or warrants.

In case of any reclassification, consolidation or merger of the Company with
or into another person or any merger of another person with or into the
Company (with certain exceptions), or in case of any sale, transfer or
conveyance of all or substantially all of the assets of the Company (computed
on a consolidated basis), each Note then outstanding will, without the consent
of any Holder of Notes, become convertible only into the kind and amount of
securities, cash and other property receivable upon such reclassification,
consolidation, merger, sale, transfer or conveyance by a holder of the number
of shares of Common Stock into which such Note was convertible immediately
prior thereto, after giving effect to any adjustment event, assuming such
holder of Common Stock failed to exercise any rights of election and received
per share the kind and amount received per share by a plurality of non-
electing shares.

SUBORDINATION

The Notes will be general, unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. As of October 31, 1996, the Company had
approximately $20,228,000 of Senior Indebtedness outstanding. The Notes are
structurally subordinated in right of payment to all liabilities (including
trade payables) of the Company's Subsidiaries. The Company's Subsidiaries had
approximately $23,810,000 million of trade payables and accrued liabilities
outstanding at October 31, 1996. The Indenture will not restrict the
incurrence of Senior Indebtedness or other indebtedness by the Company or its
Subsidiaries.

The Indenture will provide that no payment may be made by the Company on
account of the principal of, premium, if any, and interest on the Notes, or to
acquire any of the Notes (including repurchases of Notes at the option of the
Holder) for cash or property (other than Junior Securities), or on account of
the redemption provisions of the Notes, (i) upon the maturity of any Senior
Indebtedness of the Company by lapse of time, acceleration (unless waived) or
otherwise, unless and until all principal of, premium, if any, and interest on
such Senior Indebtedness are first paid in full (or such payment is duly
provided for), or (ii) in the event of default in the payment of any principal
of, premium, if any, or interest on any Senior Indebtedness of the Company
when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise (a "Payment Default"), unless and
until such Payment Default has been cured or waived or otherwise has ceased to
exist.

Upon (i) the happening of an event of default (other than a Payment Default)
that permits the holders of Senior Indebtedness or their representative
immediately to accelerate its maturity and (ii) written notice of such event
of default given to the Company and the Trustee by the holders of an aggregate
of at least $5,000,000 principal amount outstanding of such Senior
Indebtedness or their representative (a "Payment Notice"), then, unless and
until such event of default has been cured or waived or otherwise has ceased
to exist, no payment (by setoff or otherwise) may be made by or on behalf of
the Company on account of the principal of, premium, if any, or interest on
the Notes, or to acquire or repurchase any of the Notes for cash or property,
or on account of the redemption provisions of the Notes, in any such case
other than payments made with Junior Securities of the Company.
Notwithstanding the foregoing, unless (i) the Senior Indebtedness in respect
of which such event of default exists has been declared due and payable in its
entirety within 179 days after the Payment Notice is

37
<PAGE>

delivered as set forth above (the "Payment Blockage Period"), and (ii) such
declaration has not been rescinded or waived, at the end of the Payment
Blockage Period, the Company shall be required to pay all sums not paid to the
Holders of the Notes during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Notes.
Any number of Payment Notices may be given; provided, however, that (i) not
more than one Payment Notice shall be given within a period of any 360
consecutive days, and (ii) no default that existed upon the date of such
Payment Notice or the commencement of such Payment Blockage Period (whether or
not such event of default is on the same issue of Senior Indebtedness) shall
be made the basis for the commencement of any other Payment Blockage Period.

In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of Senior
Indebtedness of the Company, and shall be paid or delivered by the Trustee or
such Holders, as the case may be, to the holders of the Senior Indebtedness of
the Company remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the
Company may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the Company held or
represented by each, for application to the payment of all Senior Indebtedness
of the Company remaining unpaid, to the extent necessary to pay or to provide
for the payment of all such Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.

Upon any distribution of assets of the Company upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any marshaling
of assets or liabilities, (i) the holders of all Senior Indebtedness of the
Company will first be entitled to receive payment in full (or have such
payment duly provided for) before the Holders are entitled to receive any
payment on account of the principal of, premium, if any, interest on, with
respect to, the Notes (other than Junior Securities) and (ii) any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities (other than Junior Securities) to which the
Holders or the Trustee on behalf of the Holders would be entitled (by setoff
or otherwise), except for the subordination provisions contained in the
Indenture, will be paid by the liquidating trustee or agent or other person
making such a payment or distribution directly to the holders of Senior
Indebtedness of the Company or their representative to the extent necessary to
make payment in full of all such Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.

No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights of the Trustee or any Holder, subject to the two preceding previous
paragraphs, to pursue any other rights or remedies with respect to the Notes.

The Company conducts certain of its operations through its Subsidiaries.
Accordingly, the Company's ability to meet its cash obligations is dependent
upon the ability of its Subsidiaries to make cash distributions to the
Company. The ability of its Subsidiaries to make distributions to the Company
is and will continue to be restricted by, among other limitations, applicable
provisions of the laws of national and state governments and contractual
provisions. The Indenture will not limit the ability of the Company's
Subsidiaries to incur such restrictions in the future. The right of the
Company to participate in the assets of any Subsidiary (and thus the ability
of Holders of the Notes to benefit indirectly from such assets) is generally
subject to the prior claims of creditors, including trade creditors, of that
Subsidiary except to the extent that the Company is recognized as a creditor
of such Subsidiary, in which case the Company's claims would still be subject
to any security interest of other creditors of such Subsidiary. The Notes,
therefore, will be structurally subordinated to creditors, including trade
creditors, of Subsidiaries of the Company with respect to the assets of the
Subsidiaries against which such creditors have a claim.

38
<PAGE>

As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshaling of assets or liabilities of the
Company and its Subsidiaries, Holders of the Notes may receive ratably less
than other creditors. See "Risk Factors--Subordination; Company Structure;
Subsidiary Cash Flow."

REDEMPTION AT THE COMPANY'S OPTION

The Notes will not be subject to redemption prior to November 15, 1999.
Thereafter, the Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after November 15, 1999 upon not less than
30 nor more than 60 days' notice to each Holder of the Notes, at the following
redemption prices (expressed as percentages of the principal amount) if
redeemed during the 12-month period commencing November 15 of the years
indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1999.......................... 102.70%
2000 and thereafter........... 101.35%
</TABLE>

in each case (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest, if any, to the
Redemption Date.

In the case of a partial redemption, the Trustee shall promptly redeem the
Notes or portions thereof which are to be redeemed on a pro rata basis or in
such other manner it deems appropriate and fair and in such manner as complies
with any applicable depositary, legal and stock exchange requirements. The
Notes may be redeemed in part in integral multiples of $1,000 only.

The Notes will not have the benefit of any sinking fund.

Notice of any redemption will be sent, by first-class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption, to the
Trustee and each Holder of Notes to be redeemed to such Holder's last address
as then shown upon the registry books of the Registrar. The notice of
redemption must state the Redemption Date, the Redemption Price, the amount of
accrued interest to be paid and that the Notes called for redemption may not
be converted after the fifth Business Day prior to the Redemption Date. Any
notice that relates to a Note to be redeemed in part only must state the
portion of the principal amount to be redeemed and must state that on and
after the Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be issued. On
and after the Redemption Date, interest will cease to accrue on the Notes or
portions thereof called for redemption, unless the Company defaults in its
obligations with respect thereto.

REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL

The Indenture will provide that in the event that a Change of Control (as
defined herein) has occurred, each Holder of Notes will have the right, at
such Holder's option, pursuant to an irrevocable and unconditional offer by
the Company (the "Repurchase Offer"), to require the Company to repurchase all
or any part of such Holder's Notes (provided, that the principal amount of
such Notes must be $1,000 or an integral multiple thereof) on the date
determined by the Company (the "Repurchase Date") that is no later than 45
Business Days after the occurrence of such Change of Control at a cash price
(the "Repurchase Price") equal to 100% of the principal amount thereof,
together with accrued and unpaid interest to the Repurchase Date. The
Repurchase Offer shall be made within 30 Business Days following a Change of
Control event and remain open for 15 Business Days following its commencement
(the "Repurchase Offer Period"). Upon expiration of the Repurchase Offer
Period, the Company shall purchase all Notes tendered in response to the
Repurchase Offer. If required by applicable law, the Repurchase Date and the
Repurchase Offer Period may be extended as so required; however, if so
extended, it shall nevertheless constitute an Event of Default if the
Repurchase Date does not occur within 45 Business Days of the Change of
Control.

39
<PAGE>

The Indenture will provide that a "Change of Control" occurs upon the
occurrence of any of the following events: (i) upon any merger or
consolidation of the Company with or into any person or any sale, transfer or
other conveyance, whether direct or indirect, of all or substantially all of
the assets of the Company, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group" other than the Company is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the voting
power in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee or surviving entity,
(ii) when any "person" or "group" is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the voting power in the aggregate
normally entitled to vote in the election of directors of the Company, (iii)
when, during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office, or (iv) the pro rata distribution by the Company to its
stockholders of substantially all of its assets.

For purposes of this definition, (i) the terms "person" and "group" shall
have the meaning used for purposes of Rules 13d-3 and 13d-5 under the Exchange
Act as in effect on the Issue Date, whether or not applicable; and (ii) the
terms "beneficial owner" shall have the meaning used in Rules 13d-3 and 13d-5
under the Exchange Act as in effect on the Issue Date, whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time or upon the occurrence of certain events.

On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the Repurchase Price
(together with accrued and unpaid interest) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted, together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to the Holders of Notes so
accepted payment in an amount equal to the Repurchase Price (together with
accrued and unpaid interest), and the Trustee will promptly authenticate and
mail or deliver to such Holders a new Note or Notes equal in principal amount
to any unredeemed portion of the Notes surrendered. Any Notes not so accepted
will be promptly mailed or delivered by the Company to the Holder thereof. The
Company will publicly announce the results of the Repurchase Offer on or as
soon as practicable after the Repurchase Date.

The phrase "all or substantially all" of the assets of the Company is likely
to be interpreted by reference to applicable state law at the relevant time,
and will be dependent on the facts and circumstances existing at such time. As
a result, there may be some degree of uncertainty in ascertaining whether a
sale or transfer of "all or substantially all" of the assets of the Company
has occurred.

The Change of Control repurchase feature of the Notes may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management. The Change of Control purchase feature resulted from
negotiations between the Company and the Underwriters.

The provisions of the Indenture relating to a Change of Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that
may adversely affect Holders, if such transaction does not constitute a Change
of Control, as set forth above. Further, the right to require the Company to
repurchase Notes as a result of the occurrence of a Change of Control could
create an event of default under Senior Indebtedness as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provisions
of the Notes. In addition, the Company may not have sufficient financial
resources available to fulfill its obligation to repurchase the Notes upon a
Change of Control or to repurchase other debt securities of the Company or its
Subsidiaries providing similar rights to the Holders thereof.

40
<PAGE>

To the extent applicable, the Company will comply with Section 14 of the
Exchange Act and the provisions of Regulation 14E and any other tender offer
rules under the Exchange Act and any other securities laws, rules and
regulations that may then be applicable to any offer by the Company to
purchase the Notes at the option of Holders upon a Change of Control.

LIMITATION OF MERGER, SALE OR CONSOLIDATION

The Indenture will provide that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey
or transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another person or group of affiliated persons, unless (i) either (a) in the
case of a merger or consolidation, the Company is the surviving entity or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia
and expressly assumes by supplemental indenture all of the obligations of the
Company in connection with the Notes and the Indenture; (ii) no Default or
Event of Default shall exist or shall occur immediately before or after giving
effect on a pro forma basis to such transaction; (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and, if a
supplemental indenture is required, such supplemental indenture comply with
the Indenture and that all conditions precedent relating to such transactions
have been satisfied; and (iv) the resulting, surviving or transferee entity,
unless it is a Subsidiary (as defined in the Indenture), immediately
thereafter has a consolidated net worth not less than that of the Company
immediately prior thereto.

Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged
or to which such transfer is made (the "Successor Corporation") shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if such successor
corporation had been named therein as the Company, and the Company will be
released from its obligations under the Indenture and the Notes, except as to
any obligations that arise from or as a result of such transaction; provided,
however, that if the Successor Corporation is a Subsidiary, the consolidated
net worth of which is less than that of the Company immediately prior to such
merger, consolidation, sale, lease, conveyance or transfer, the Company shall
not be released from such obligations but shall remain jointly and severally
liable therefor with the Successor Corporation.

REPORTS

Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder, within 30 days after it is or would have been
required to file such with the Securities and Exchange Commission (the
"Commission"), annual and quarterly consolidated financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission if the Company was subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the Company's
certified independent public accountants as such would be required in such
reports to the Commission and, in each case, together with a management's
discussion and analysis of results of operations and financial condition as
such would be so required.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Notes as and when due and
payable and the continuance of any such failure for 30 days, (ii) the failure
by the Company to pay all or any part of the principal of, or premium, if any,
on the Notes when and as the same become due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
pursuant to any Repurchase Offer or otherwise, (iii) the failure of the
Company to perform any conversion of any Notes required under the Indenture
and the continuance of any such failure for 30 days, (iv) the failure by the
Company to observe or perform any other covenant or agreement contained in the
Notes or the Indenture and, subject to certain exceptions, the continuance of
such failure for a period of 60 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Notes outstanding, (v) certain
events of bankruptcy, insolvency or reorganization in respect of the Company
or any of its Significant Subsidiaries, (vi) a default in the payment of

41
<PAGE>

principal at maturity, or an acceleration for any other reason of the maturity
of any Indebtedness of the Company or any of its Subsidiaries with an
aggregate principal amount in excess of $5,000,000, and (vii) final
unsatisfied judgments not covered by insurance aggregating in excess of
$5,000,000, at any one time rendered against the Company or any of its
Subsidiaries and not stayed, bonded or discharged within 30 days. The
Indenture will provide that if a Default occurs and is continuing, the Trustee
must, within 90 days after the occurrence of such Default, give to the Holders
notice of such Default.

The Indenture will provide that if an Event of Default occurs and is
continuing (other than an Event of Default specified in clause (v) above),
then in every such case, unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the Holders of 25% in
aggregate principal amount of the Notes then outstanding, by notice in writing
to the Company (and to the Trustee if given by Holders) (an "Acceleration
Notice"), may declare all principal and accrued interest thereon to be due and
payable immediately. If an Event of Default specified in clause (v) above
occurs, all principal and accrued interest thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of the Trustee or the Holders. The Holders of not less than a majority in
aggregate principal amount of Notes generally are authorized to rescind such
acceleration if all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on, the Notes that have become
due solely by such acceleration, have been cured or waived.

Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any Default, except a
default in the payment of principal of, premium, if any, or interest on any
Note not yet cured, or a default with respect to any covenant or provision
that cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee.

AMENDMENTS AND SUPPLEMENTS

The Indenture will contain provisions permitting the Company and the Trustee
to enter into a supplemental indenture for certain limited purposes without
the consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Company and the Trustee are permitted to amend or supplement the Indenture
or any supplemental indenture or modify the rights of the holders; provided,
further, that no such modification may, without the consent of each Holder
affected thereby: (i) change the Stated Maturity of any Note or reduce the
principal amount thereof or the rate (or extend the time for payment) of
interest therein or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment or the conversion of any Note on
or after the due date thereof (including, in the case of redemption, on or
after the Redemption Date), or reduce the Repurchase Price, or alter the
change of control provisions or redemption provisions in a manner adverse to
the Holders; (ii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture; (iii)
adversely affect the right of such Holder to convert Notes; or (iv) modify any
of the waiver provisions, except to increase any required percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby.

NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES

The Indenture will provide that no stockholder, employee, officer or
director, as such, past, present or future of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Notes by reason of his or its status as
such stockholder, employee, officer or director.

42
<PAGE>

TRANSFER AND EXCHANGE

A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Company may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Notes selected for redemption. Also, the Company is
not required to transfer or exchange any Notes for a period of 15 days before
a selection of Notes to be redeemed.

The registered Holder of a Note may be treated as the owner of it for all
purposes.

BOOK-ENTRY, DELIVERY AND FORM

Except as set forth below, the Notes will initially be issued in the form of
one or more registered Notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes
(the "Closing Date") with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary.

The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). The Depositary is owned by a number of
its Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the Depositary system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to the Depositary
and its Participants are on file with the Commission.

The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with an interest
in the Global Notes and (ii) ownership of the Notes evidenced by the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depositary (with respect to the
interests of Participants), the Participants and the Indirect Participants.
The laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent.

So long as the Depositary or its nominee is the registered owner of a Global
Note, the Depositary or such nominee, as the case may be, will be considered
the sole owner or Holder of the Notes represented by such Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of certificated Notes, and will not be considered
the owners or Holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. As a result, the ability of a person having a beneficial
interest in Notes represented by a Global Note to pledge such interest to
persons or entities that do not participate in the Depositary's system, or to
otherwise take actions with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest. The Company
understands that under existing industry practices, if the Company requests
any action of Holders or an owner of a beneficial interest in such Global Note
desires to

43
<PAGE>

give any notice or take any action a Holder is entitled to give or take under
the Indenture, the Depositary would authorize the Participants to give such
notice or take such action, and Participants would authorize beneficial owners
owning through such Participants to give such notice or take such action or
would otherwise act upon the instructions of beneficial owners owning through
them.

Payments with respect to the principal of, premium, if any, or interest on,
any Note represented by a Global Note registered in the name of the Depositary
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depositary or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the Persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company
nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes (including principal,
premium, if any or interest), or to immediately credit the accounts of the
relevant Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Note as shown on the records of the Depositary. Payments by the Participants
and the Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants.

CERTIFICATED NOTES

If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a Depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in definitive form under the Indenture, then, upon surrender by the Depositary
of the Global Notes, certificated Notes will be issued to each person that the
Depositary identifies as the beneficial owner of the Notes represented by
Global Notes. In addition, subject to certain conditions, any person having a
beneficial interest in a Global Note may, upon request to the Trustee, exchange
such beneficial interest for Notes in the form of certificated Notes. Upon any
such issuance, the Trustee is required to register such certificated Notes in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.

Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).

The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.

SAME-DAY FUNDS SETTLEMENT AND PAYMENT

The Indenture will require that payments in respect to the Notes represented
by the Global Notes (including principal, premium, if any, and interest) be
made by wire transfer of immediately available funds to the accounts specified
by the Depositary. With respect to Notes represented by Certificated Notes, the
Company will make all payments of principal, premium, if any, and interest, by
mailing a check to each such Holder's registered address. The Notes will trade
in the Depositary's Same-Day Funds Settlement System until maturity, or until
the Notes are issued in certificated form, and secondary market trading
activity in the Notes will therefore be required by the Depositary to settle in
immediately available funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
Notes.

44
<PAGE>

CERTAIN DEFINITIONS

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.

"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.

"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such Person, (i) in respect
of borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except such as would constitute trade payables to trade creditors in the
ordinary course of business, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or
a reimbursement obligation of such Person with respect to any letter of
credit; (b) all net obligations of such Person under Interest Swap and Hedging
Obligations; (c) all liabilities of others of the kind described in the
preceding clauses (a) or (b) that such Person has guaranteed or that is
otherwise its legal liability and all obligations to purchase, redeem or
acquire any Capital Stock; and (d) any and all deferrals, renewals,
extensions, refinancings and refundings (whether direct or indirect) of any
liability of the kind described in any of the preceding clauses (a), (b) or
(c), or this clause (d), whether or not between or among the same parties.

"Issue Date" means the date of first issuance of the Notes under the
Indenture.

"Junior Securities" of any Person means any Qualified Capital Stock and any
Indebtedness of such Person that is subordinated in right of payment to the
Notes and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Notes.

"Senior Indebtedness" means any Indebtedness of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior in right of payment to the Notes or to
other Indebtedness which is pari passu with, or subordinated to, the Notes;
provided that in no event shall Senior Indebtedness include (a) Indebtedness
of the Company owed or owing to any Subsidiary of the Company or any officer,
director or employee of the Company or any Subsidiary of the Company, (b)
Indebtedness to trade creditors or (c) any liability for taxes owed or owing
by the Company.

"Stated Maturity" when used with respect to any Note means November 15,
2001.

"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-
X promulgated by the Commission as in effect as of the date of the Indenture.

"Subsidiary," with respect to any Person, means (i) a corporation a majority
of whose Capital Stock with voting power normally entitled to vote in the
election of directors is at the time, directly or indirectly, owned by such
Person, by such Person and one or more Subsidiaries of such Person or by one
or more Subsidiaries of such Person, (ii) a partnership in which such Person
or a Subsidiary of such Person is, at the time, a general partner and owns
alone or together with one or more Subsidiaries of such Person a majority of
the partnership interests, or (iii) any other Person (other than a corporation
or partnership) in which such Person, one or more Subsidiaries of such Person,
or such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, has at least a majority
ownership interest.

45
<PAGE>

RELATIONSHIP WITH TRUSTEE

The Company has an unsecured line of credit of $25,000,000 with the Trustee
pursuant to a Loan and Security Agreement dated as of December 31, 1995 (the
"Loan Agreement"). As of November 15, 1996, the Company had no outstanding
borrowings under this line of credit. The Trustee also issues letters of
credit to the Company pursuant to the Loan Agreement. As of November 15, 1996,
there were outstanding an aggregate of approximately $1,178,000 in unsecured
standby letters of credit issued by the Trustee to the Company. The Company
maintains its principal checking account at the Trustee, which also serves as
the Company's primary depositary. The Trustee also provides miscellaneous
other banking and related services to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

46
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 180,000,000 shares
of Common Stock, $.001 par value per share, and 10,000,000 shares of Class II
Preferred Stock, $.01 par value per share (the "Preferred Stock"). As of
October 31, 1996, 55,966,105 shares of Common Stock were issued and
outstanding and none of the Preferred Stock was outstanding. The following
description is a summary and is qualified in its entirety by reference to the
provisions of the Company's Restated Certificate of Incorporation, as amended
(the "Certificate"), and its Bylaws (the "Bylaws"), which are hereby
incorporated herein by reference as exhibits to the Registration Statement of
which this Prospectus forms a part.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of a
majority of the shares of Common Stock represented at a meeting can elect all
of the directors to be elected at that meeting. Holders of Common Stock are
not permitted to act by written consent. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. See "Dividend Policy."
In the event of a liquidation, dissolution, or winding up of the Company,
holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no preemptive
rights and have no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are, and any shares
of Common Stock which are issued upon conversion of the Notes when so issued
will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences, and
relative, participating, optional, or other special rights, and
qualifications, limitations, and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series. Because the
Board of Directors has the power to establish the preferences and rights of
the shares of any such series of Preferred Stock, it may afford holders of any
Preferred Stock preferences, powers, and rights (including voting rights)
senior to the rights of holders of Common Stock, which could adversely affect
the rights of holders of Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company. Other than as
described below, the Company has no present plan to issue any shares of
Preferred Stock.

PREFERRED STOCK PURCHASE RIGHTS

The registered holders of Common Stock have the right (a "Right") to
purchase from the Company, for each share of Common Stock owned, one-hundredth
of a share of Class II Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Preferred Rights Shares"), of the Company at a
price of $125.00 per one-hundredth of a Preferred Rights Share (the "Rights
Purchase Price"), subject to adjustment. Each one-hundredth of a Preferred
Rights Share is entitled to one vote, a dividend equal to the dividend per
share paid on the Common Stock, and a liquidation payment equal to the
liquidation payment per share paid on the Common Stock. The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and Harris Trust and Savings Bank, as Rights
Agent (the "Rights Agent").

The Rights are not exercisable until the earlier of (i) the close of
business on the tenth business day after the first public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 15% or more of the outstanding shares of Common Stock (an
"Acquiring Person"), or (ii) the close of business on the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would result in the beneficial
ownership by such person or group of 15% or more of the outstanding shares of
Common Stock (the earlier of such dates being called the "Distribution Date").
Until the Distribution Date, the Rights will be evidenced by the certificates
for the Common Stock, will be transferable only by the transfer of the shares
of

47
<PAGE>

Common Stock associated with such Rights and any transfer of the shares of
Common Stock (including a transfer to the Company) will constitute a transfer
of the Rights. As described below, after a person or group becomes an
Acquiring Person, the Rights may not be redeemed or amended. The Rights will
expire on January 5, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are redeemed earlier by the
Company, in each case, as described below. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company
as a result of the ownership of the Right, including, without limitation, the
right to vote or to receive dividends.

Until the Distribution Date (or earlier redemption or expiration of the
Rights), certificates for the Common Stock issued upon the transfer or new
issuance of shares of Common Stock will contain a legend incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for shares of Common Stock will also constitute the transfer of
Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
the holders of record of shares of Common Stock as of the close of business on
the Distribution Date and such separate Rights Certificates alone will
evidence the Rights.

At any time after the Distribution Date, each holder of a Right (other than
those described in the next sentence) will thereafter have the right to
receive, upon exercise and in lieu of Preferred Rights Shares, shares of
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the Rights Purchase Price.
All Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be void.

At any time after the first date of public announcement by the Company or an
Acquiring Person that an Acquiring Person has become such (a "Shares
Acquisition Date"), if (i) the Company is the surviving corporation in a
merger with any other company or entity, (ii) the Company is acquired in a
merger or other business combination transaction, or (iii) 50% or more of the
Company's consolidated assets or earning power are sold, each holder of a
Right (other than those whose Rights have become void) will thereafter have
the right to receive, upon the exercise thereof at the then current Rights
Purchase Price and in lieu of Preferred Rights Shares, that number of shares
of common stock of the surviving or acquiring company which at the time of
such transaction will have a market value of two times the exercise price of
such Right.

At any time after a person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding
shares of Common Stock, the Board of Directors may cause the Company to
exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, without any additional payment, for
shares of Common Stock at an exchange ratio equal to one share of Common Stock
(or a share of a class or series of the Company's preferred shares having
equivalent rights, preferences and privileges) per Right, subject to
adjustment.

With certain exceptions, no adjustment in the Rights Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Rights Purchase Price. No fractional Rights Preferred Shares will be
issued (other than fractions which are integral multiples of one-hundredth of
a Rights Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Rights Preferred Shares on the
last trading day prior to the date of exercise.

At any time prior to the Shares Acquisition Date, the Board of Directors may
cause the Company to redeem all, but not less than all, of the Rights at a
price of $.01 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.

Any provisions of the Rights may be amended by the Board of Directors of the
Company prior to the Shares Acquisition Date. After the Shares Acquisition
Date, the provisions of the Rights Agreement may be amended by the Board of
Directors of the Company in order to cure any ambiguity or to make changes
which do not adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person).

A copy of the Rights Agreement is incorporated by reference as an exhibit to
the Registration Statement of which this Prospectus forms a part. A copy of
the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.

48
<PAGE>

The Rights have certain anti-takeover effects. The Rights should not
interfere with any merger or business combination approved by the Board of
Directors of the Company because the Rights may be redeemed by the Company at
the Redemption Price prior to the time that a person or group has acquired
beneficial ownership of 15% or more of the outstanding shares of Common Stock.
However, by causing substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Company's Board of Directors,
the Rights may interfere with certain acquisitions, including acquisitions
that may offer a premium over market price to some or all of the Company's
stockholders. The Board of Directors has stated that the Rights are not
intended to prevent an acquisition of the Company on terms that are favorable
and fair to all stockholders.

CERTAIN CERTIFICATE AND BYLAWS PROVISIONS

The Company's Certificate and Bylaws contain a number of provisions relating
to corporate governance and to the rights of stockholders. Certain of these
provisions relate to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include: (i) the classification of the Board
of Directors into three classes, each class serving for staggered three year
terms; (ii) restrictions on the removal of directors; (iii) a requirement that
special meetings of stockholders may be called only by the Board of Directors
and that stockholder action may be taken only at stockholder meetings and not
by written consent; (iv) the authority of the Board to issue series of
Preferred Stock with such voting rights and other powers as the Board of
Directors may determine; (v) a requirement that the affirmative vote of
greater than 80% of the voting power of shares entitled to vote generally for
the election of directors is required to amend provisions of the Certificate
relating to (a) the classification of the Board, (b) removal of directors, and
(c) the inability of stockholders to call special meetings and to take action
by written consent; (vi) a requirement that the Bylaws may only be amended
(other than by the Board of Directors) by the vote of the holders of 66 2/3%
of the shares entitled to vote generally for the election of directors; and
(vii) notice requirements in the Bylaws relating to nominations to the Board
of Directors and to the raising of business matters at stockholder meetings.

DELAWARE GENERAL CORPORATION LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Pursuant to Section 203, with certain
exceptions, a Delaware corporation may not engage in any of a broad range of
business combinations, such as mergers, consolidations, and sales of assets,
with an "interested stockholder" for a period of three years from the date
that such person became an interested stockholder unless (i) the transaction
that results in the person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before
the person becomes an interested stockholder, (ii) upon consummation of the
transaction which results in the stockholder becoming an interested
stockholder, the interested stockholder owns 85% or more of the voting stock
of the corporation outstanding at the time the transaction commenced (other
than certain excluded shares), or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by holders of at least two-thirds of the
corporation's outstanding voting stock, excluding shares owned by the
interested stockholder, at a meeting of stockholders. Under Section 203, an
"interested stockholder" is defined as any person, other than the corporation
and any direct or indirect majority-owned subsidiaries of the corporation,
that is (i) the owner of 15% or more of the outstanding voting stock of the
corporation or (ii) an affiliate or associate of the corporation and the owner
of 15% or more of the outstanding voting stock of the corporation at any
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.

Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year. The provisions of Section
203 may encourage persons interested in acquiring the Company to negotiate in
advance with the Company's Board of Directors because the stockholder approval
requirement would be avoided if directors then in office approve either the
business combination or the transaction which results in the person becoming
an interested stockholder. Such provisions also may have the effect of
preventing changes in management of the Company. It is possible that such
provisions could make it more difficult to accomplish transactions that
stockholders may otherwise deem to be in their best interests.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.

49
<PAGE>

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general discussion of certain United States Federal
income tax considerations relevant to holders of the Notes. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations. This discussion does not purport to deal
with all aspects of federal income taxation that may be relevant to a
particular investor's decision to purchase the Notes, and it is not intended
to be wholly applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, tax-exempt organizations
and non-United States persons, may be subject to special rules. In addition,
this discussion is limited to persons that purchase the Notes in this offering
and hold the Notes as a "capital asset" within the meaning of Section 1221 of
the Code.

PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.

CONVERSION OF NOTES INTO COMMON STOCK

In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. However, cash paid in
lieu of a fractional share of Common Stock will result in taxable gain (or
loss), which will be capital gain (or loss) to the extent that the amount of
such cash exceeds (or is exceeded by) the portion of the adjusted basis of the
Notes allocable to such fractional share. The adjusted basis of shares of
Common Stock received on conversion will equal the adjusted basis of the Notes
converted, reduced by the portion of adjusted basis allocated to any
fractional share of Common Stock exchanged for cash. The holding period of an
investor in the Common Stock received on conversion will include the period
during which the converted Notes were held.

The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of the Notes--Conversion Rights." Section 305
of the Code and the Treasury Regulations issued thereunder may treat the
holders of the Notes as having received a constructive distribution, resulting
in ordinary income to the extent of the Company's current earnings and profits
if and to the extent that certain adjustments in the conversion price that may
occur in limited circumstances (particularly an adjustment to reflect a
taxable dividend to holders of Common Stock) increase the proportionate
interest of a holder of Notes in the fully diluted Common Stock, whether or
not such holder ever exercises its conversion privilege. Moreover, if there is
not a full adjustment to the conversion price of the Notes to reflect a stock
dividend or other event increasing the proportionate interest of the holders
of outstanding Common Stock in the assets or earnings and profits of the
Company, then such increase in the proportionate interest of the holders of
the Common Stock generally will be treated as a distribution to such holders,
taxable as ordinary income to the extent of the Company's earnings and
profits.

MARKET DISCOUNT

Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of sections 1276 through 1278 of the Code. Under the market
discount rules, if a Holder of a Note purchases it at market discount (i.e.,
at a price below its stated redemption price at maturity) in excess of a
statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized
or the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount
on a Note may be taxable to an investor to the extent of appreciation at the
time of certain otherwise non-taxable transactions (e.g., gifts). Under
Treasury Regulations to be prescribed, any accrued market discount not
previously taken into income prior to a conversion of a Note, however, could
carry over to the Common Stock received on conversion and be treated as
ordinary income upon a subsequent disposition of such Common Stock to the
extent of any gain recognized on

50
<PAGE>

such disposition. In addition, absent an election to include market discount
in income as it accrues, a holder of a market discount debt instrument may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry
such debt instrument until the holder disposes of the debt instrument in a
taxable transaction.

SALE, EXCHANGE OR OTHER DISPOSITION OF NOTES OR COMMON STOCK

Each Holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement or other disposition of those
Notes measured by the difference (if any) between (i) the amount of cash and
the fair market value of any property received (except to the extent that such
cash or other property is attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary
income) and (ii) the Holder's adjusted tax basis in those Notes (including any
market discount previously included in income by the Holder). Each holder of
Common Stock into which the Notes are converted, in general, will recognize
gain or loss upon the sale, exchange or other disposition of the Common Stock
measured under rules similar to those described in the preceding sentence for
the Notes. Any such gain or loss recognized on the sale, exchange, repurchase,
retirement or other disposition of a Note or share of Common Stock should be
capital gain or loss (except as discussed under "--Market Discount" above),
and would be long-term capital gain or loss if the Note or the Common Stock
had been held for more than one year at the time of the sale or exchange. An
investor's initial basis in a Note will be the cash price paid therefor.

BACKUP WITHHOLDING

A holder of Notes or Common Stock may be subject to "backup withholding" at
a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes. These backup withholding rules apply if the
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to backup withholding. A holder who does not
provide the Company with its correct TIN also may be subject to penalties
imposed by the IRS. Any amount withheld from a payment to a holder under the
backup withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS. Backup
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemption from backup withholding is properly
established.

The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.

CERTAIN UNITED STATES TAX CONSEQUENCES TO A NON-UNITED STATES HOLDER

General. The following is a general discussion of certain United States
Federal income and estate tax consequences of the acquisition, ownership and
disposition of Notes by a "Non-United States Holder" and does not deal with
tax consequences arising under the laws of any foreign, state or local
jurisdiction. As used herein, a "Non-United States Holder" is a person or
entity that, for United States Federal income tax purposes, is not a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized under the laws of the United States or a political
subdivision thereof, or an estate or trust, the income of which is subject to
United States Federal income taxation regardless of its source. The tax
treatment of the Holders of the Notes may vary depending upon their particular
situations. Certain Holders (including insurance companies, tax exempt
organizations, financial institutions and broker-dealers) may be subject to
special rules not discussed below. Prospective investors who are Non-United
States Holders are urged to consult their tax advisors regarding the United
States Federal tax consequences of acquiring, holding and disposing of Notes,
as well as any tax consequences that may arise under the laws of any foreign,
state, local or other taxing jurisdiction.

51
<PAGE>

Interest on Notes. Interest paid by the Company to a Non-United States
Holder will not be subject to United States Federal income or withholding tax
if such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-United States Holder and (i) the
Non-United States Holder does not actually or constructively own 10% or more
of the total voting power of all voting stock of the Company and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code and (ii) the beneficial owner of the
Notes certifies, under penalties of perjury, that the beneficial owner is not
a United States person and provides the beneficial owner's name and address.

Gain on Disposition of Notes or Common Stock. A Non-United States Holder
generally will not be subject to United States Federal income tax on any gain
recognized on a sale, redemption or other disposition of a Note or on a sale
or other disposition of a share of Common Stock unless (i) the gain is
effectively connected with the conduct of a trade or business within the
United States of the Non-United States Holder and, if a tax treaty applies,
attributable to a permanent establishment maintained by the Non-United States
Holder, or (ii) the Non-United States Holder is an individual who holds the
Note or the share of Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition and
certain other requirements are met. If an individual Non-United States Holder
falls under clause (i) above, he or she will be taxed on his or her net gain
derived from the sale under regular United States Federal income tax rates. If
the individual Non-United States Holder falls under clause (ii) above, he or
she will be subject to a flat 30% tax on the gain derived from the sale which
may be offset by United States capital losses (notwithstanding the fact that
he or she is not considered a resident of the United States). If a Non-United
States Holder that is a foreign corporation falls under clause (i) above, it
will be taxed on its gain under regular graduated United States Federal income
tax rates and, in addition, will under certain circumstances be subject to the
branch profits tax.

Dividends on Common Stock. Dividends paid on shares of Common Stock, except
as described below, will be subject to withholding of United States Federal
income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business of the Non-United States Holder within
the United States. If the dividend is effectively connected with the conduct
of a trade or business of the Non-United States Holder within the United
States, the dividend would be subject to United States Federal income tax on a
net income basis at applicable graduated individual or corporate rates and
would be exempt from the 30% withholding tax described above. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.

Under current United States Treasury Regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above, and, under the
current interpretation of United States Treasury Regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United
States Treasury Regulations, not currently in effect, however, a Non-United
States Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification and other
requirements. Certain certification and disclosure requirements must be
complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.

A Non-United States Holder of Common Stock that is eligible for a reduced
rate of United States withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for refund with the United States IRS.

Federal Estate Taxes. If interest on the Notes is exempt from withholding of
United States Federal income tax under the rules described above, the Notes
will not be included in the estate of a deceased non-resident alien individual
holder for United States Federal estate tax purposes. Common Stock owned, or
treated as owned, by a non-resident alien individual (as specifically
determined for United States Federal estate tax purposes) at the time of death
will be included in such holder's gross estate for United States Federal
estate tax purposes, unless an applicable estate tax treaty provides
otherwise.

52
<PAGE>

Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-United States Holder the amount of
interest and dividends paid to such Holder and the amount of any tax withheld.
These information reporting requirements apply regardless of whether
withholding is required. Copies of the information returns reporting such
interest and dividends and withholding may also be made available to the tax
authorities in the country in which the Non-United States Holder resides under
the provisions of an applicable income tax treaty.

In the case of payments of interest to Non-United States Holders, temporary
Treasury Regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or
an exemption has otherwise been established; provided that neither the Company
nor its payment agent has actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not in fact
satisfied. Under temporary Treasury Regulations, these information reporting
and backup withholding requirements will apply, however, to the gross proceeds
paid to a Non-United States Holder on the disposition of the Notes by or
through a United States office of a United States or foreign broker, unless
the Holder certifies to the broker under penalties of perjury as to its name,
address and status as a foreign person or the holder otherwise establishes an
exemption. Information reporting requirements, but not backup withholding,
will also apply to a payment of the proceeds of a disposition of the Notes by
or through a foreign office of a United States broker or foreign brokers with
certain types of relationships to the United States. Neither information
reporting nor backup withholding generally will apply to a payment of the
proceeds of a disposition of the Notes by or through a foreign office of a
foreign broker not subject to the preceding sentence.

United States backup withholding tax generally will not apply to (i) the
payment of dividends paid on Common Stock to a Non-United States Holder at an
address outside the United States or (ii) the payment of the proceeds of the
sale of Common Stock to or through the foreign office of a broker. In the case
of the payment of proceeds from such a sale of Common Stock through a foreign
office of a broker that is a United States person or a foreign person with
certain relationships to the United States, however, information reporting
(but not backup withholding) is required with respect to the payment unless
the broker has documentary evidence in its files that the owner is a Non-
United States Holder and certain other requirements are met or the holder
otherwise establishes an exemption. The payment of the proceeds of a sale of
shares of Common Stock to or through a United States office of a broker is
subject to information reporting and possible backup withholding unless the
owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the IRS.

These information and backup withholding rules are under review by the
United States Treasury and their application to the Notes could be changed by
future regulations. On April 15, 1996, the IRS issued proposed Treasury
Regulations concerning the withholding of tax and reporting for certain
amounts paid to non-resident individuals and foreign corporations. The
proposed regulations would, among other changes, eliminate the presumption
under current regulations with respect to dividends paid to addresses outside
the United States. See "--Dividends on Common Stock." The proposed Treasury
Regulations, if adopted in their present form, would be effective for payments
made after December 31, 1997. Prospective Note purchasers should consult their
tax advisors concerning the potential adoption of such Treasury Regulations
and the potential effect on the Notes and the Common Stock.

53
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Hambrecht & Quist
LLC and Robertson, Stephens & Company LLC (collectively, the "Underwriters")
have severally agreed to purchase from the Company and the Company has agreed
to sell to each of the Underwriters, the respective principal amounts of Notes
set forth opposite their names below, at the public offering price set forth
on the cover page of this Prospectus, less the underwriting discounts and
commissions.

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............... $ 60,000,000
Hambrecht & Quist LLC............................................. 30,000,000
Robertson, Stephens & Company LLC................................. 10,000,000
------------
Total............................................................ $100,000,000
============
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent including
the delivery of certain legal opinions by their counsel. The Company has
agreed in the Underwriting Agreement to indemnify the Underwriters and their
controlling persons against certain liabilities in connection with the offer
and sale of the Notes, including liabilities under the Securities Act, and to
contribute to payments that the Underwriters may be required to make in
respect thereof. The nature of the Underwriters' obligations is such that the
Underwriters are committed to purchase all of the Notes if any of the Notes
are purchased by them.

The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such offering
price less a concession not to exceed 1.95% of the principal amount of the
Notes. The Underwriters may reallow discounts not in excess of 0.25% of the
principal amount of the Notes to certain other dealers. After the initial
public offering of the Notes, the offering price and other selling terms may
be changed by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days, to purchase an additional
$15,000,000 aggregate principal amount of Notes, on the same terms and
conditions as are set forth on the cover page hereof. The Underwriters may
exercise such option to purchase additional Notes solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
Notes offered hereby. To the extent that the Underwriters exercise such
option, the Underwriters will be committed, subject to certain conditions, to
purchase the principal amounts of Notes proportionate to such Underwriter's
initial commitments as indicated in the preceding table.

The Notes have been approved for listing on The Nasdaq SmallCap Market.
Nevertheless, the Notes are new issues of securities, have no established
trading market and may not be widely distributed. The Company has been advised
by the Underwriters that, following the completion of this Offering, the
Underwriters presently intend to make a market in the Notes as permitted by
applicable laws and regulations. The Underwriters, however, are under no
obligation to do so and may discontinue any market-making activities at any
time at the sole discretion of the Underwriters. No assurance can be given as
to the liquidity of any trading market for the Notes.

The Company and the executive officers and directors of the Company, who
collectively were the beneficial owners of an aggregate of 5,360,905 shares of
Common Stock as of October 31, 1996, have agreed with the Underwriters,
subject to certain exceptions, not to, directly or indirectly, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of,
without the prior written consent of DLJ, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, Common Stock, or enter into any
agreement to do any of the foregoing, for a period of 90 days after the date
of this Prospectus.

54
<PAGE>

In connection with the Offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock
on the Nasdaq National Market immediately prior to the commencement of sales,
in accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of, among other things, displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and purchases limited
by such prices and effected in response to order flow. Net purchases by a
passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during
a specified prior period, and all passive market making activity must be
discontinued when such limit is reached. Passive market making may stabilize
the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.

55
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents have been filed by the Company with the Commission
under the Exchange Act and are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K, and amendments thereto, for
the fiscal year ended December 31, 1995;

2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;

3. The Company's Current Reports on Form 8-K, and amendments thereto,
dated March 31, 1995 (acquisition of Reltech Group, Inc.), November 17,
1995 (acquisition of ProtoSoft, Inc.) and February 8, 1996 (acquisition of
Prodea Software Corporation); and

4. The Company's Report on Form 10-C dated March 18, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained in any subsequently filed document which 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 Prospectus.

The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other
than exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone request for such copies should be directed to the Company's
principal office: PLATINUM technology, inc., 1815 South Meyers Road, Oakbrook
Terrace, Illinois 60181, Attention: Secretary (telephone: (630) 620-5000).

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at the Commission's Public
Reference Room, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and at the Commission's Regional Offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates.
Copies of reports, proxy and information statements and other information
regarding registrants that file electronically are available on the
Commission's Web site at http://www.sec.gov. The Company's Common Stock is
listed on the Nasdaq National Market, and the Company has applied for listing
of the Notes on The Nasdaq SmallCap Market, and such reports, proxy statements
and other information can also be inspected at the offices of The Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to
the Notes offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and, in each

56
<PAGE>

instance, reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and copies thereof may be obtained from such office,
upon payment of the fees prescribed by the Commission. The Registration
Statement, including the exhibits and schedules thereto, is also available on
the Commission's Web site at http://www.sec.gov.

LEGAL MATTERS

Certain legal matters relating to the issuance and sale of the Notes and the
validity of the Common Stock issuable upon conversion of the Notes will be
passed upon for the Company by Katten Muchin & Zavis, Chicago, Illinois.
Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.

EXPERTS

The consolidated financial statements of the Company as of December 31, 1995
and 1994 and for each of the years in the three years ended December 31, 1995,
appearing in this Prospectus and the Registration Statement relating to this
Prospectus have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and which is based in part on the
reports of Deloitte & Touche LLP, Coopers & Lybrand L.L.P., Arthur Andersen
LLP, and Ernst & Young LLP, independent auditors. Such consolidated financial
statements are included herein in reliance on such reports given on the
authority of such firms as experts in auditing and accounting.

The consolidated financial statements of ProtoSoft, Inc. as of December 31,
1994 and 1993 and for the year ended December 31, 1994, the ten months ended
December 31, 1993, and the year ended February 28, 1993, incorporated by
reference herein and elsewhere in the Registration Statement from the
Company's Current Report on Form 8-K dated November 17, 1995, as amended, have
been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance on such report, given on the
authority of such firm as experts in auditing and accounting.

The consolidated financial statements of Prodea Software Corporation as of
December 31, 1995, 1994 and 1993 and for each of the three years in the period
ended December 31, 1995, incorporated by reference herein and elsewhere in the
Registration Statement from the Company's Current Report on Form 8-K dated
February 8, 1996, as amended, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance on such
report, given on the authority of such firm as experts in auditing and
accounting.

The financial statements of Reltech Group, Inc. as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994,
incorporated by reference herein and elsewhere in the Registration Statement
from the Company's Current Report on Form 8-K dated March 31, 1995, as
amended, have been so included in reliance upon the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.

With respect to the Company's unaudited interim financial information for
the periods ended September 30, 1995 and 1996, included herein, the
independent certified public accountants have reported that they applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report included in the Company's
Form 10-Q for the quarter ended September 30, 1996, as incorporated by
reference herein, states that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.

57
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
PLATINUM technology, inc.
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and September 30,
1996 (unaudited)...................................................... F-2
Consolidated Statements of Operations for the nine months ended
September 30, 1995 (unaudited) and 1996 (unaudited)................... F-3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 (unaudited) and 1996 (unaudited)................... F-4
Notes to Consolidated Financial Statements (unaudited)................. F-5
Report of KPMG Peat Marwick LLP........................................ F-6
Consolidated Balance Sheets as of December 31, 1994 and 1995........... F-7
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995................................................... F-8
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995...................................... F-9
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995................................................... F-10
Notes to Consolidated Financial Statements for the three years ended
December 31, 1993, 1994 and 1995...................................... F-11
through
F-24
</TABLE>

F-1
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
ASSETS 1995 1996
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................. $111,847 $ 50,542
Short-term investment securities.......... 7,802 2,000
Trade accounts receivable, net of
allowances of $2,695 and $2,245.......... 115,876 118,630
Installment accounts receivable........... 6,058 8,355
Accrued interest and other current
expenses................................. 10,545 9,346
Refundable income taxes................... 355 308
-------- --------
Total current assets.................... 252,483 189,181
Non-current investment securities........... 13,126 3,966
Property and equipment...................... 51,004 66,526
Purchased and developed software............ 52,268 70,335
Excess of cost over net assets acquired, net
of accumulated amortization of $5,100 and
$9,189..................................... 35,494 34,825
Other assets................................ 33,813 49,751
-------- --------
Total assets............................ $438,188 $414,584
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Acquisition-related payables.............. $ 12,518 $ 7,412
Income taxes payable...................... 1,068 --
Accounts payable.......................... 16,001 11,991
Accrued commissions and bonuses........... 8,598 8,922
Accrued royalties......................... 1,637 2,458
Other accrued liabilities................. 27,700 19,759
Current maturities of long-term
obligations.............................. 1,313 3,436
Deferred maintenance...................... 56,969 53,145
-------- --------
Total current liabilities............... 125,804 107,123
Acquisition-related payables................ 9,756 8,026
Deferred maintenance........................ 3,795 27,763
Deferred rent............................... 8,795 7,730
Long-term obligations, net of current
maturities................................. 1,586 931
-------- --------
Total liabilities....................... 149,736 151,573
Stockholders' equity:
Class II preferred stock, $.01 par value;
authorized 10,000, none issued and
outstanding.............................. -- --
Common stock, $.001 par value; authorized
180,000, issued and outstanding 53,194
and 55,954............................... 53 56
Paid-in capital........................... 433,103 446,265
Notes receivable.......................... (515) (315)
Accumulated deficit....................... (144,662) (182,605)
Foreign currency translation adjustment... 473 (390)
-------- --------
Total stockholders' equity.............. 288,452 263,011
-------- --------
Total liabilities and stockholders'
equity............................... $438,188 $414,584
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
<S> <C> <C>
Revenues:
Software products........................................ $101,578 $152,074
Maintenance.............................................. 54,872 74,694
Professional services.................................... 50,193 69,618
-------- --------
Total revenues......................................... 206,643 296,386
Costs and expenses:
Professional services.................................... 47,213 59,012
Product development and support.......................... 62,952 117,480
Sales and marketing...................................... 82,275 130,063
General and administrative............................... 23,042 26,036
Merger costs............................................. 24,764 5,782
Acquired in-process technology........................... 25,453 11,095
-------- --------
Total costs and expenses............................... 265,699 349,468
-------- --------
Operating loss............................................. (59,056) (53,082)
Other income............................................... 2,991 2,566
-------- --------
Loss before income taxes................................... (56,065) (50,516)
Income taxes............................................... (11,004) (12,528)
-------- --------
Net loss................................................... $(45,061) $(37,988)
======== ========
Net loss per share......................................... $ (1.09) $ (0.69)
======== ========
Shares used in computing per share amounts................. 41,212 55,271
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(45,061) $(37,988)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 14,408 25,799
Acquired in-process technology.......................... 25,453 11,095
Changes in assets and liabilities, net of acquisitions:
Trade and installment receivables..................... (11,147) (85,127)
Deferred income taxes................................. (7,160) (16,908)
Accrued interest and other current assets............. (5,570) 1,415
Accounts payable...................................... 3,952 (4,272)
Accrued liabilities................................... 8,303 (9,096)
Deferred maintenance.................................. 5,000 19,272
Income taxes payable.................................. (79) (1,106)
Other................................................. (823) (2,333)
-------- --------
Net cash used in operating activities..................... (12,724) (99,249)
-------- --------
Cash flows from investing activities:
Purchases of investment securities...................... (17,484) (17,765)
Sales of investment securities.......................... 47,503 18,779
Maturities of investment securities..................... 7,527 13,948
Purchases of property and equipment..................... (22,233) (25,546)
Capitalized software development costs.................. (13,844) (27,269)
Payments for acquisitions............................... (43,203) (12,819)
Other assets............................................ (13,586) (2,156)
-------- --------
Net cash used in investing activities..................... (55,320) (52,828)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options................. 4,336 3,392
Proceeds from the sale of receivables................... -- 85,776
Borrowings under line of credit......................... 12,500 --
Long-term borrowings, net............................... 1,475 1,604
-------- --------
Net cash provided by financing activities................. 18,311 90,772
-------- --------
Adjustment to conform fiscal years of pooled businesses... (1,139) --
-------- --------
Net decrease in cash and cash equivalents................. (50,872) (61,305)
Cash and cash equivalents at beginning of period.......... 78,458 111,847
-------- --------
Cash and cash equivalents at end of period................ $ 27,586 $50,542
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented. All such
adjustments are of a normal recurring nature. Because the Company's
acquisitions of Prodea Software Corporation (Prodea), Paradigm Systems
Corporation (Paradigm), and Axis Systems International, Inc. (Axis) during the
first quarter of 1996 are being treated as poolings of interests for
accounting purposes, all consolidated financial statements for the periods
prior to the acquisitions have been restated to include the assets,
liabilities and operating results of these companies. All intercompany
accounts and transactions have been eliminated.

These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the year ended December 31, 1995, included elsewhere herein.

2. ACQUISITIONS

On July 3, 1996, the Company purchased all of the outstanding shares of
Software Alternatives, Inc. (d/b/a System Software Alternatives), a leading
provider of production scheduling software, for approximately $1,900,000. The
acquisition was accounted for under the purchase method, and a significant
portion of the purchase price was charged to acquired in-process technology in
the third quarter of 1996.

On July 29, 1996, the Company acquired all of the outstanding shares of
Grateful Data, Inc. (d/b/a Transcentury Data Systems), a Year 2000 solution
provider, for $100,000 in cash plus 333,333 shares of the Company's common
stock, which had a market value (based upon the trading price on the Nasdaq
National Market) of approximately $4,000,000 at the time of the acquisition.
This acquisition was accounted for under the purchase method, and a
significant portion of the purchase price was charged to acquired in-process
technology in the third quarter of 1996.

For the acquisitions accounted for as purchases, the pro forma operating
results (as if the companies had been combined at the beginning of the period)
are not material to the accompanying consolidated financial statements.

F-5
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
PLATINUM technology, inc.:

We have audited the accompanying consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Trinzic Corporation, Altai, Inc., Answer Systems,
Inc., Locus Computing Corporation, and Softool Corporation, wholly-owned
subsidiaries, which statements reflect total assets constituting 20 percent in
1994, and total revenues constituting 55 percent and 36 percent in 1993 and
1994, respectively, of the related consolidated totals. Those statements were
audited by other auditors whose reports have been furnished to us and our
opinion, in so far as it relates to the amounts for Trinzic Corporation,
Altai, Inc., Answer Systems, Inc., Locus Computing Corporation, and Softool
Corporation, is based solely on the reports of the other auditors.

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 and the reports of the
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of PLATINUM technology, inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Chicago, Illinois
March 29, 1996

F-6
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF DECEMBER
31,
------------------
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 78,458 $111,847
Short-term investment securities.............................. 15,279 7,802
Trade accounts receivable, net of allowances of $1,522 and
$2,695....................................................... 68,700 115,876
Installment accounts receivable............................... 1,251 6,058
Accrued interest and other current assets..................... 6,543 10,545
Refundable income taxes....................................... 3,000 355
-------- --------
Total current assets........................................ 173,231 252,483
Non-current investment securities............................... 30,826 13,126
Property and equipment.......................................... 21,732 51,004
Purchased and developed software................................ 22,872 52,268
Excess of cost over net assets acquired, net of accumulated
amortization of $1,678 and $5,100.............................. 10,651 35,494
Other assets.................................................... 3,448 33,813
-------- --------
Total assets................................................ $262,760 $438,188
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Acquisition-related payables.................................. $ 10,963 $ 12,518
Income taxes payable.......................................... 1,427 1,068
Accounts payable.............................................. 9,826 16,001
Accrued commissions and bonuses............................... 7,002 8,598
Accrued royalties............................................. 761 1,637
Other accrued liabilities..................................... 13,548 27,700
Current maturities of long-term obligations................... 475 1,313
Deferred revenue.............................................. 39,578 56,969
-------- --------
Total current liabilities................................... 83,580 125,804
Acquisition-related payables.................................... 8,450 9,756
Deferred income taxes........................................... 2,933 --
Deferred revenue................................................ 1,475 3,795
Deferred rent................................................... 6,860 8,795
Long-term obligations, net of current maturities................ 625 1,586
-------- --------
Total liabilities........................................... 103,923 149,736
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized 10,000,
none issued and outstanding.................................. -- --
Common stock, $.001 par value; authorized 120,000, issued and
outstanding 38,266 and 53,194................................ 38 53
Paid-in capital............................................... 190,441 433,103
Notes receivable.............................................. (333) (515)
Accumulated deficit........................................... (31,523) (144,662)
Foreign currency translation adjustment....................... 214 473
-------- --------
Total stockholders' equity.................................. 158,837 288,452
-------- --------
Total liabilities and stockholders' equity................ $262,760 $438,188
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994 1995
<S> <C> <C> <C>
Revenues:
Software products............................... $88,063 $113,749 $ 158,597
Maintenance..................................... 46,856 58,837 76,498
Professional services........................... 40,461 52,853 69,581
------- -------- ---------
Total revenues................................ 175,380 225,439 304,676
Costs and expenses:
Professional services........................... 31,855 42,858 60,341
Product development and support................. 43,467 51,781 94,027
Sales and marketing............................. 59,802 75,885 117,906
General and administrative...................... 23,526 32,544 41,252
Restructuring costs............................. 4,659 -- --
Merger costs.................................... -- -- 30,819
Acquired in-process technology.................. 8,735 24,594 88,493
------- -------- ---------
Total costs and expenses...................... 172,044 227,662 432,838
------- -------- ---------
Operating income (loss)........................... 3,336 (2,223) (128,162)
Other income...................................... 2,057 3,052 4,281
------- -------- ---------
Income (loss) before income taxes................. 5,393 829 (123,881)
Income taxes...................................... 4,768 3,473 (11,948)
------- -------- ---------
Net income (loss)................................. $ 625 $ (2,644) $(111,933)
======= ======== =========
Net income (loss) per share....................... $ 0.02 $ (0.07) $ (2.59)
======= ======== =========
Shares used in computing per share amounts........ 37,971 39,890 43,267
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Balance at beginning of
year.................. 32,705 $ 33 33,552 $ 33 38,266 $ 38
Exercise of stock
options............... 426 -- 1,186 1 803 1
Issuance of common
stock................. 439 -- 3,629 4 14,125 14
Repurchase of common
stock................. (18) -- (100) -- -- --
Adjustment to conform
fiscal years of pooled
businesses............ -- -- (1) -- -- --
------ -------- ------ -------- ------ ---------
Balance at end of year. 33,552 33 38,266 38 53,194 53
------ -------- ------ -------- ------ ---------
Paid in capital:
Balance at beginning of
year.................. 112,818 121,729 190,441
Exercise of stock
options............... 1,362 5,083 4,754
Income tax benefit
related to stock
options............... 3,705 108 --
Issuance of common
stock................. 3,844 64,923 237,907
Repurchase of common
stock................. -- (1,400) --
Adjustment to conform
fiscal years of pooled
businesses............ -- (2) 1
-------- -------- ---------
Balance at end of year. 121,729 190,441 433,103
-------- -------- ---------
Notes receivable:
Balance at beginning of
year.................. (209) (247) (333)
Exercise of stock
options............... (38) (7) --
Issuance of notes
receivable............ -- (79) (200)
Repayment of note
receivable............ -- -- 18
-------- -------- ---------
Balance at end of year. (247) (333) (515)
-------- -------- ---------
Accumulated deficit:
Balance at beginning of
year.................. (28,874) (28,255) (31,523)
Net income (loss)...... 625 (2,644) (111,933)
Stock dividend on
common stock.......... (2) -- --
Repurchase of stock
options............... (4) -- --
Other.................. -- 1 18
Adjustment to conform
fiscal years of pooled
businesses............ -- (625) (1,224)
-------- -------- ---------
Balance at end of year. (28,255) (31,523) (144,662)
-------- -------- ---------
Foreign currency
translation adjustment:
Balance at beginning of
year.................. (197) (316) 214
Translation adjustment. (119) 507 259
Adjustment to conform
fiscal years of pooled
businesses............ -- 23 --
-------- -------- ---------
Balance at end of year. (316) 214 473
-------- -------- ---------
Total stockholders'
equity................ $ 92,944 $158,837 $ 288,452
======== ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 625 $ (2,644) $(111,933)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 8,466 12,218 20,984
Acquired in-process technology................ 8,735 24,594 88,493
Write-off of capitalized software and goodwill
in connection with product stabilization and
mergers...................................... 1,509 -- 942
Noncash compensation.......................... -- 186 78
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable......................... (11,581) (18,718) (52,522)
Deferred income taxes....................... (1,201) 1,335 (12,986)
Refundable income taxes..................... (211) (2,234) 2,615
Accrued interest and other current assets... (235) (1,641) (3,313)
Accounts payable............................ 868 3,285 5,656
Deferred revenue............................ 7,127 9,492 18,342
Other....................................... 6,221 6,458 16,074
-------- -------- ---------
Net cash provided by (used in) operating
activities..................................... 20,323 32,331 (27,570)
-------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities............ (17,815) (24,389) (60,763)
Sales of investment securities................ -- -- 75,187
Maturities of investment securities........... 15,271 18,910 10,753
Purchases of property and equipment........... (7,714) (13,492) (38,780)
Capitalized software development costs........ (8,507) (10,898) (18,925)
Payments for acquisitions..................... (1,380) (22,756) (103,085)
Other assets.................................. (1,217) 1,549 (482)
-------- -------- ---------
Net cash used in investing activities........... (21,362) (51,076) (136,095)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
issuance costs............................... 4,477 65,909 194,420
Repurchase of common stock.................... (4) (1,400) (2)
Proceeds from exercise of stock options....... 690 3,826 4,144
Income tax benefit from stock option
exercises.................................... 3,705 108 --
Short-term borrowings......................... 1,220 1,675 8,205
Payments on borrowings........................ (2,035) (1,675) (7,296)
Other......................................... 92 (937) (214)
-------- -------- ---------
Net cash provided by financing activities....... 8,145 67,506 199,257
-------- -------- ---------
Adjustment to conform fiscal years of pooled
businesses..................................... -- 276 (2,203)
-------- -------- ---------
Net increase in cash and cash equivalents....... 7,106 49,037 33,389
Cash and cash equivalents at beginning of year.. 22,315 29,421 78,458
-------- -------- ---------
Cash and cash equivalents at end of year........ $ 29,421 $ 78,458 $ 111,847
======== ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

PLATINUM technology, inc. and its subsidiaries (collectively, the Company or
PLATINUM) develop, market and support software products, and offer related
consulting services and educational programs, for administering the prevailing
complex, heterogeneous computing environment in today's data intensive
organizations. PLATINUM offers software solutions in five primary categories:
systems management, data warehousing, business intelligence, application
lifecycle, and database management. The Company markets and supports it
products and services principally through its own sales organization, as well
as a network of independent organizations (the affiliates).

Use of Estimates

In preparing the consolidated financial statements, the Company's management
makes estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of PLATINUM
technology, inc. and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

Revenue Recognition

Revenue from software product sales of perpetual and fixed-term license
agreements is recognized upon product delivery and customer acceptance.
Software product sales under extended payment terms are discounted to present
value using implicit interest rates. Revenue from maintenance fees implicit in
software product sales or separately priced maintenance agreements is
recognized on a straight-line basis over the maintenance period.

Professional services revenues are derived from the Company's consulting
services business and educational programs. These revenues are comprised of
both time and material contracts and fixed-price contracts. Time and material
contracts revenue is recognized as services are performed. Fixed-price
contracts revenue is recognized based on the percentage-of-completion method.

Cash Equivalents and Investment Securities

Cash equivalents are comprised of certain highly liquid investments with
original maturities of less than three months. Investment securities generally
consist of U.S. Treasury notes and municipal bonds with original maturities
generally ranging from two to five years. The Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," on January 1, 1994. Under
SFAS No. 115, the Company classifies its investment securities as available-
for-sale.

Available-for-sale securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component
of stockholders' equity. Interest income is recognized when earned. At
December 31, 1995, the amortized cost of these investments closely
approximated fair market value and accordingly, unrealized gains and losses
were not material.

F-11
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, generally five
to eight years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset.

Purchased and Developed Software

Software development costs are accounted for in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." Costs associated with the planning and designing phase of
software development, including coding and testing activities necessary to
establish technological feasibility, are classified as product development and
expensed as incurred. Once technological feasibility has been determined,
additional costs incurred in development, including coding, testing, and
documentation writing, are capitalized.

Amortization of purchased and developed software is provided on a product-
by-product basis over the estimated economic life of the software, generally
four to five years, using the straight-line method. This method results in
greater amortization than the method based on the ratio of current year gross
product revenue to current and anticipated future gross product revenue.
Amortization commences when a product is available for general release to
customers. Unamortized capitalized costs determined to be in excess of the net
realizable value of a product are expensed at the date of such determination.

Excess of Cost Over Net Assets Acquired

Excess of cost over net assets acquired is amortized on a straight-line
basis over the expected period to be benefited, generally seven to ten years.
Adjustments to the carrying value of excess over net assets acquired are made
if the sum of expected future net cash flows from the business acquired is
less than book value.

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109 "Accounting
for Income Taxes." Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period of enactment.

Fair Value of Financial Instruments

The fair values of financial instruments were not materially different from
their carrying values.

Earnings Per Share

Net income per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of unexercised stock options
using the treasury stock method. Net loss per share is based on the weighted
average number of shares outstanding and does not include the effect of
unexercised stock options.

F-12
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Foreign Currency Translation

The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars using
current exchange rates as of the balance sheet date. Revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments arising from differences in exchange rates are included as a
separate component of stockholders' equity.

Supplemental Cash Flow Disclosure

Net income tax refunds received by the Company amounted to $(46,000),
$(72,000), and $(933,000) in 1993, 1994 and 1995, respectively. Cash paid for
income taxes in 1993, 1994 and 1995 was $707,000 and $3,914,000, and $615,000,
respectively. Cash paid for interest in 1993, 1994, and 1995 was $403,000,
$272,000 and $784,000, respectively.

Reclassifications

Certain prior year balance sheet items have been reclassified to conform to
the 1995 presentation. In addition, certain prior years' costs and expenses
have been reclassified to conform to the 1995 presentation.

2. ACQUISITIONS

On June 15, 1995, the Company acquired all of the outstanding capital stock
of Software Interfaces, Inc. (SII), a leading provider of data access,
reporting, and data conversion utilities for relational and non-relational
database management systems. The Company issued 1,085,450 shares of its common
stock for all the outstanding shares of SII common stock. In addition, the
Company assumed stock options which converted into options to purchase 14,377
shares of common stock.

On August 9, 1995, the Company acquired all of the outstanding capital stock
and warrants of Answer Systems, Inc. (Answer), a pioneer in client/server help
desk solutions, in exchange for 1,567,946 shares of common stock. In addition,
the Company assumed stock options which converted into options to purchase
42,176 shares of common stock.

On August 16, 1995, the Company acquired all of the outstanding capital
stock of Locus Computing Corporation (Locus), a leading provider of consulting
services for information technology users and suppliers, in exchange for
1,452,445 shares of common stock. In addition, the Company assumed stock
options which converted into options to purchase 231,095 shares of common
stock.

On August 23, 1995, the Company acquired all of the outstanding capital
stock of Altai, Inc. (Altai), a vendor of integrated automated operations
software for open computing, in exchange for 1,098,295 shares of common stock.
In addition, the Company assumed stock options which converted into options to
purchase 52,696 shares of common stock.

On August 25, 1995, the Company acquired all of the outstanding capital
stock of Trinzic Corporation (Trinzic), a major provider of data warehousing
and open systems tools and services, in exchange for 6,654,484 shares of
common stock. In addition, the Company assumed stock options which converted
into options to purchase 620,948 shares of common stock.

On November 17, 1995, the Company acquired all of the outstanding capital
stock of Softool Corporation (Softool), a leading provider of software change
and configuration management technology, in exchange for 1,452,708 shares of
common stock.

F-13
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea Software Corporation (Prodea), a leading provider of data
warehousing and business intelligence tools, in exchange for 2,126,913 shares
of common stock.

On March 26, 1996, the Company acquired all of the outstanding capital stock
of Paradigm Systems Corporation (Paradigm), a leading provider of professional
services, in exchange for 762,503 shares of common stock. In addition, the
Company assumed stock options which converted into options to purchase 55,228
shares of common stock.

On March 29, 1996, the Company acquired all of the outstanding capital stock
of Axis Systems International, Inc. (Axis), a leading provider of professional
services, in exchange for 319,926 shares of common stock. In addition, the
Company assumed stock options which converted into options to purchase 59,986
shares of common stock.

Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all periods
presented. Merger costs relating to the acquisitions consummated in 1995
amounted to $30,819,000, of which $7,341,000 were included in other accrued
liabilities at December 31, 1995. These costs included investment banking and
other professional fees, write downs of certain assets, employee severance
payments, costs of closing excess of facilities, and various other expenses.

The following information reconciles total revenues and net income (loss) of
PLATINUM technology, inc. as previously reported with the amounts presented in
the accompanying consolidated statements of operations for the three years
ended December 31, 1993, 1994 and 1995 (in thousands):

<TABLE>
<CAPTION>
1993 1994 1995
--------------------------------------------------
NET NET NET
INCOME INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM (1)........ $ 62,165 $ 3,002 $ 95,749 $(3,200) $275,921 $(112,474)
SII................. 3,397 59 3,716 303 -- --
Answer.............. 6,414 700 7,122 314 -- --
Locus............... 24,248 (2,647) 29,148 1,817 -- --
Altai............... 13,485 566 14,556 732 -- --
Trinzic............. 44,248 3,154 45,428 895 -- --
Softool............. 6,807 1,111 6,778 (696) -- --
Prodea.............. 4,446 (139) 2,868 (3,657) 5,804 159
Paradigm............ 4,659 27 13,224 93 15,218 1
Axis................ 5,511 147 6,850 305 7,733 381
Adjustments......... -- (5,355) -- 450 -- --
-------- ------- -------- ------- -------- ---------
Total........... $175,380 $ 625 $225,439 $(2,644) $304,676 $(111,933)
======== ======= ======== ======= ======== =========
</TABLE>
- ---------------------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the poolings of interests transactions. All
merger costs and acquired in-process technology charges are reflected in
PLATINUM.

F-14
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following information sets forth the 1995 results of the acquired
companies during the periods preceding their acquisition. The 1995 results
presented for SII, Answer, Locus, Altai, and Trinzic are for the six months
ended June 30, 1995. The 1995 Softool results are for the nine months ended
September 30, 1995. The 1995 Prodea, Paradigm and Axis results are for the
year ended December 31, 1995.

<TABLE>
<CAPTION>
NET INCOME
REVENUES (LOSS)
(IN THOUSANDS)
<S> <C> <C>
SII................................................... $ 1,318 $ (453)
Answer................................................ 4,840 346
Locus................................................. 15,469 231
Altai................................................. 10,306 913
Trinzic............................................... 22,585 (1,283)
Softool............................................... 5,868 (509)
Prodea................................................ 5,804 159
Paradigm.............................................. 15,218 1
Axis.................................................. 7,733 381
</TABLE>

The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of Trinzic's operating results for the quarter ended
March 31, 1995, which are also included in the year ended December 31, 1994
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of Trinzic included more than once were
$12,553,000 and $215,000, respectively.

The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of certain operating results included more than once,
due to the differences in reporting periods of Altai and Locus relative to
that of PLATINUM. The revenues and net income of Altai include more than once
were $2,514,000 and $441,000, respectively. The revenues and net income of
Locus included more than once were $3,197,000 and $568,000, respectively.

The consolidated statement of operations for the year ended December 31,
1994 reflects the impact of certain operating results also included in the
year ended December 31, 1993 statement of operations due to the differences in
reporting periods of certain companies relative to that of PLATINUM. The
following summarizes each company, the period included more than once, and
revenues and net income included in the statements of operations for both the
years ended December 31, 1994 and 1993:

<TABLE>
<CAPTION>
SIX MONTHS ENDED REVENUES NET INCOME
(IN THOUSANDS)
<S> <C> <C> <C>
Altai................................ July 31, 1994 $ 7,143 $267
Answer............................... June 30, 1994 3,126 257
SII.................................. June 30, 1994 1,517 101
------- ----
Total................................ $11,786 $625
======= ====
</TABLE>

The Company has also made a number of acquisitions that have been accounted
for under the purchase method. Accordingly, purchase prices have been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values and amounts allocated
to acquired in-process technology have been expensed at the time of
acquisition. Excess of cost over net assets acquired is amortized on a
straight-line basis over the expected period to be benefited, generally seven
to ten years. The accompanying consolidated statements of operations reflect
the results of operations of the acquired companies since the dates the
acquisitions were completed.

To determine the fair market value of the acquired in-process technology,
the Company considered the three traditional approaches of value: the cost
approach, the market approach, and the income approach. The Company

F-15
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
relied primarily on the income approach, whereupon fair market value is a
function of the future revenues expected to be generated by an asset, net of
all allocable expenses and a charge for the use of any contributory assets,
and discounted to present value based on the specific level of risk in
achieving the forecasted asset earnings. The income approach focuses on the
income producing capability of the acquired assets and best represents the
present value of the future economic benefits expected to be derived from
these assets.

Technological feasibility for the acquired in-process technologies had not
been reached based on design and development activities in place requiring
further refinement and testing. The development activities required to
complete the acquired in-process technologies include additional coding,
cross-platform porting and validation, quality assurance procedures, and
customer beta test.

The acquired technologies represent unique and emerging technologies, the
application of which is limited to the Company's open enterprise systems
software strategy. Accordingly, these acquired technologies have no
alternative future use.

Effective December 1993, the Company acquired all of the outstanding shares
of Datura Corporation, a developer of database management tools, for
approximately $6,000,000. Effective August 1994, the Company acquired all of
the outstanding shares of Dimeric Development, Inc., a developer of database
tools, for approximately $7,600,000. Effective September 1994, the Company
acquired the net assets of Aston Brooke Corporation, a developer of
performance management tools, for approximately $6,500,000.

Effective December 1994, the Company acquired the net assets of AutoSystems
Corporation for approximately $10,000,000. The Company may be required to make
additional payments of up to $8,000,000 over a period of six years, contingent
upon the results of AutoSystems' operations over the course of that period.
These additional payments will be charged to compensation expense in the
periods in which they are earned.

During 1994, the Company also acquired certain software technologies with an
aggregate purchase price of approximately $1,900,000.

The Company also terminated its agreements with three of its former European
affiliates and established wholly-owned subsidiaries for these operations
during 1994. Prior to their termination, these affiliates were independent
organizations that contracted with the Company to support and promote the
Company's software products and educational services. The aggregate amount
paid in these transactions was approximately $10,000,000.

Effective March 1995, the Company acquired the stock of SQL Software
Corporation, a provider of Windows-based development tools for managing
multiple relational databases, the assets of Viatech Development, Inc., a
provider of electronic distribution tools, and the assets of BrownStone
Solutions Inc., a vendor of repository technology. The aggregate purchase
price for these acquisitions was approximately $13,600,000. Also effective
March 1995, the Company acquired all of the capital stock of Reltech Group,
Inc., a vendor of repository technology, for approximately $17,300,000 (50% in
cash and 50% in common stock of the Company).

Effective July 1995, the Company purchased all the outstanding shares of
Advanced Software Concepts, Inc. (ASC), a leading provider of distributed
storage network management solutions for heterogeneous environments. The
aggregate purchase price was approximately $7,000,000. The Company may be
required to make additional payments of up to $3,000,000 contingent upon the
results of ASC's operations. These additional payments will be charged to
compensation expense in the periods in which they are earned.

Effective November 1995, the Company purchased substantially all of the
assets of ProtoSoft, Inc., a pioneer in portable, object-oriented analysis and
design software for building enterprise-wide applications and

F-16
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the developer of Paradigm Plus, for approximately $41,000,000, (75% in cash
and 25% in common stock of the company).

Effective December 1995, the Company purchased all of the outstanding shares
of AIB Software Corporation, a leader in multi-platform application
development and testing tools, for approximately $11,200,000 (80% in common
stock and 20% in cash); Protellicess Software, Inc., a leader in enterprise
project and process management software, in exchange for approximately
$15,000,000 of common stock; and BMS Computer, Inc., a leader in integrated
chargeback systems that provide job accounting, chargeback, cost analysis, and
resource reporting for heterogeneous environments, for an aggregate purchase
price of approximately $6,900,000.

During 1995, the Company also acquired certain software technologies with an
aggregate purchase price of approximately $10,227,000.

Internationally, during 1995, the Company acquired Echo-Soft Technologies
Sarl, a software sales and consulting firm located in France, Krystal Software
SA, an international affiliate of the Company in France, and Sequel UK Ltd.,
an international affiliate of the Company in the United Kingdom. The Company
also terminated its agreements with four other international affiliates and
established wholly-owned subsidiaries for these operations. The aggregate
price for these transactions was approximately $11,563,000.

The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at
the beginning of each period. This summary is provided for information
purposes only. It does not necessarily reflect the actual results that would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future.

<TABLE>
<CAPTION>
1994 1995
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues............................................. $239,831 $ 326,686
Net loss............................................. (4,453) (110,356)
Net loss per share................................... (0.11) (2.55)
</TABLE>

The aggregate payments for acquisition-related payables in connection with
the acquisitions described above for each of the next five years subsequent to
December 31, 1995 are estimated to be as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $12,518
1997....................................................... 6,921
1998....................................................... 1,990
1999....................................................... 820
2000 and thereafter........................................ 25
-------
$22,274
=======
</TABLE>

3. INVESTMENT SECURITIES

The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1995
were as follows:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
Current......................... $ 7,802 $ 6 $(20) $ 7,788
Due after one year.............. 13,126 86 (22) 13,190
------- --- ---- -------
$20,928 $92 $(42) $20,978
======= === ==== =======
</TABLE>

F-17
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The scheduled maturities for investment securities at December 31, 1995 were
as follows:

<TABLE>
<CAPTION>
LESS THAN MORE THAN
1 YEAR 1-5 YEARS 5 YEARS TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government bonds.............. $2,015 $ -- $ 116 $ 2,131
State and municipal bonds.......... 5,276 1,490 5,620 12,386
Other.............................. 511 1,100 4,800 6,411
------ ------ ------- -------
$7,802 $2,590 $10,536 $20,928
====== ====== ======= =======
</TABLE>

Under the specific identification method, the gross realized gains and
losses on the sale of investment securities available-for-sale were
approximately $467,000 and $(135,000), respectively, for the year ended
December 31, 1995.

The Company had historically reported its investment securities as held-to-
maturity. On July 1, 1995, the Company changed its classification of
investments from held-to-maturity to available-for-sale. The Company
determined that in order to pursue its acquisition strategy, certain of its
investments would be sold to meet cash requirements, and, as a result, sold
certain of its investments prior to their maturity. The impact of the change
in classification was not material to the consolidated financial statements as
the amortized cost approximated the fair value.

4. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures.................................... $ 9,537 $19,861
Computers and software.................................... 26,494 37,497
Transportation............................................ 73 8,034
Leasehold improvements.................................... 6,272 13,899
------- -------
42,376 79,291
Less accumulated depreciation and amortization............ 20,644 28,287
------- -------
$21,732 $51,004
======= =======
</TABLE>

5. PURCHASED AND DEVELOPED SOFTWARE

Purchased and developed software consists of the following:

<TABLE>
<CAPTION>
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Purchased software........................................ $ 5,002 $24,809
Software development costs................................ 32,574 51,499
------- -------
37,576 76,308
Less accumulated amortization............................. 14,704 24,040
------- -------
$22,872 $52,268
======= =======
</TABLE>

During the years ended December 31, 1993, 1994, and 1995 $8,507,000,
$10,898,000, and $19,867,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense

F-18
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
applicable to internally developed capitalized software of $3,717,000,
$4,911,000, and $6,276,000, during 1993, 1994, and 1995, respectively. The
Company recognized amortization expense applicable to purchased software of
$577,000, $859,000, and $3,081,000, during 1993, 1994, and 1995, respectively.
During 1995, the Company wrote-off $942,000 of capitalized software costs
related to certain Trinzic product technologies.

The increase in purchased software costs in 1995, as compared to 1994, is
primarily attributable to the Company's acquisitions and purchases of certain
product technologies.

6. INSTALLMENT ACCOUNTS RECEIVABLE

Installment accounts receivable consist of the following:

<TABLE>
<CAPTION>
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Current installment receivables......................... $ 2,110 $ 8,682
Allowance for uncollectible amounts..................... (17) (103)
Unamortized discount and maintenance fees............... (842) (2,521)
------- -------
$ 1,251 $ 6,058
======= =======
Non-current installment receivables..................... $11,350 $ 1,777
Allowance for uncollectible amounts..................... (101) (11)
Unamortized discount and maintenance fees............... (6,644) (1,239)
------- -------
$ 4,605 $ 527
======= =======
</TABLE>

Non-current installment receivables are classified in other assets in the
consolidated balance sheets.

7. EMPLOYEE BENEFIT PLANS

The Company has various defined contribution retirement plans (401(k) and
profit sharing) for qualified employees. Employer contributions made under the
plans totaled $107,000, $241,000, and $406,000, in 1993, 1994, and 1995,
respectively.

8. LINES OF CREDIT

At December 31, 1995, the Company had $33,300,000 in secured and unsecured
bank lines of credit under which borrowings bear interest ranging from the
bank's prime rate to the bank's prime rate plus 2 1/2%. Certain of these lines
of credit are subject to limitations based on levels of accounts receivable,
and certain other financial ratios. At December 31, 1995, total borrowings
under these lines of credit were approximately $1,407,000.

F-19
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. STOCK OPTIONS

The Company has several stock option plans, including the plans assumed in
certain acquisitions described in note 2. Stock option transactions for the
three-year period ended December 31, 1995, for all plans, are summarized
below.

<TABLE>
<CAPTION>
SHARES PRICE
<S> <C> <C>
Outstanding on December 31, 1992............... 5,648,935 $0.0025-57.30
Granted........................................ 1,294,576 1.3825-33.73
Exercised...................................... (393,674) 0.0025-11.26
Canceled....................................... (138,532) 0.25-57.30
----------
Outstanding on December 31, 1993............... 6,411,305 0.0025-57.30
Granted........................................ 2,273,991 0.07-22.13
Exercised...................................... (1,084,377) 0.0025-20.50
Canceled....................................... (325,615) 0.07-57.30
----------
Outstanding on December 31, 1994............... 7,275,304 0.0025-57.30
Granted........................................ 1,960,711 0.07-23.75
Exercised...................................... (746,617) 0.0025-20.50
Canceled....................................... (1,116,118) 0.07-33.72
----------
Outstanding on December 31, 1995............... 7,373,280 $0.0025-57.30
Exercisable on December 31, 1995............... 3,789,621 $0.0025-57.30
</TABLE>

10. INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1993, 1994,
and 1995 consists of the following:

<TABLE>
<CAPTION>
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $ 4,371 $1,084 $ 315
State........................................ 1,592 190 133
Foreign...................................... 630 836 472
Deferred:
Federal...................................... (1,424) 428 (7,991)
State........................................ (401) 935 (4,877)
------- ------ ---------
$4,768 $3,473 $(11,948)
======= ====== =========
</TABLE>

F-20
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory tax.................................. $1,888 $ 290 $(43,358)
State income tax, net of federal tax benefit... 94 568 (4,836)
Research and experimentation credits........... (542) (1) (1,213)
Foreign tax credit............................. (510) (60) (239)
Foreign taxes.................................. 1,964 1,423 240
Foreign sales corporation...................... (565) (401) (294)
Municipal interest............................. (289) (431) (554)
Utilization of net operating losses............ (229) (302) --
Stock acquisitions............................. 2,205 2,626 11,450
Change in valuation allowance.................. 1,111 (2,293) 22,856
Change in tax accounting method................ -- 1,596 176
Nondeductible merger costs..................... -- -- 4,625
Other.......................................... (359) 458 (801)
------ ------- --------
Effective tax.................................. $4,768 $ 3,473 $(11,948)
====== ======= ========
</TABLE>

The tax effects of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities at December 31, 1995 and 1994 are as
follows:

<TABLE>
<CAPTION>
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue.................................... $ 6,956 $ 5,804
Allowance for doubtful accounts..................... 372 964
Net operating loss carryforwards.................... 15,325 53,685
Foreign net operating losses........................ -- 3,006
General business, AMT, and state tax credits........ 5,770 6,365
Foreign tax credits................................. 1,333 1,270
Accrued expenses and reserves....................... 1,260 856
Rent abatement...................................... 17 2,143
Purchased research and development.................. 1,169 --
Other............................................... 561 1,153
-------- --------
Total gross deferred tax assets................... 32,763 75,246
Less valuation allowance.............................. (24,472) (47,328)
-------- --------
Net deferred tax assets........................... 8,291 27,918
Deferred tax liabilities:
Capitalized software, net........................... 7,297 12,566
Installment sales................................... 654 1,175
Acquired technology................................. -- 2,952
Other............................................... 979 766
-------- --------
Total gross deferred liabilities.................. 8,930 17,459
-------- --------
Net deferred tax asset (liability).................... $ (639) $ 10,459
======== ========
</TABLE>

The net change in the total valuation allowance during 1993, 1994, and 1995
was an increase of $1,111,000, a decrease of $2,293,000, and an increase of
$22,856,000, respectively. The Company has reduced the deferred

F-21
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
tax assets by a valuation allowance to reflect the estimated amount of
deferred tax assets which will more likely than not be realized. The net
deferred tax asset at December 31, 1995, reflects management's estimate of the
amount which will be realized as a result of future profitability.

The exercise of certain stock options results in state and Federal income
tax benefits to the Company. The benefit is equal to the difference between
the market price at the date of exercise and the option price at the
applicable tax rate. The current tax benefit does not flow through the
statement of operations, but is credited directly to paid-in capital. As a
result of stock option exercises during 1993, 1994, and 1995, $3,705,000,
$108,000, and $-0-, respectively, were credited to paid-in capital.

At December 31, 1995, the Company has approximately $133,000,000 of net
operating loss carryforwards and $7,470,000 of tax credit carryforwards, which
are available to reduce future Federal income taxes, if any, through the year
2010. The Company's ability to utilize the net operating loss carryforwards
and available tax credits may be limited due to the changes in ownership as a
result of business combinations.

11. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space, computer and telecommunications equipment
under long-term lease agreements expiring through the year 2003. Total future
minimum lease payments under noncancelable leases are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 23,555
1997....................................................... 23,046
1998....................................................... 20,823
1999....................................................... 16,228
2000 and thereafter........................................ 37,518
--------
$121,170
========
</TABLE>

Total rent expense under all operating leases amounted to $9,992,000,
$11,875,000, and $14,869,000 in 1993, 1994, and 1995, respectively.

Receivables Sold with Recourse

At December 31, 1995, certain accounts receivable sold with recourse were
outstanding. The Company's maximum exposure under the recourse provisions was
approximately $5,177,000. A portion of these receivables are secured by
security interests in the related software. The fair market value of the
recourse obligation at December 31, 1995 was not determinable.

Litigation

The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of business and have not been fully adjudicated.
Management currently believes the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.

F-22
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. OTHER INCOME (EXPENSE)

Other income (expense) for the years ended December 31, 1993, 1994 and 1995
is comprised of the following:

<TABLE>
<CAPTION>
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income................................... $2,501 $2,843 $4,956
Interest expense.................................. (435) (275) (745)
Foreign exchange gain (loss)...................... (85) 282 66
Other............................................. 76 202 4
------ ------ ------
$2,057 $3,052 $4,281
====== ====== ======
</TABLE>

13. RESTRUCTURING COSTS

In 1993, total restructuring costs of $4,659,000 were incurred by Trinzic
and Locus. In connection with the stabilization of its KBMS software product,
Trinzic recorded restructuring costs of $2,844,000, consisting of $1,509,000
for the write-off of capitalized software developments costs and $1,335,000
for the discontinuation of the data center used for development activities and
for employee severance payments. Trinzic did not complete development of new
releases or release updates of this product beyond the existing version level
and has not renewed current maintenance arrangements beyond the remaining
contract terms. Locus recorded a $1,815,000 charge to income for the
repositioning of its operations. This resulted from Locus' decision to
significantly reduce its presence in Europe and to reduce its work force in
the United States to become more competitive. The charge was primarily
composed of amounts needed for reductions in work force and a loss on
subleasing the unused portion of its corporate facility.

14. SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one industry segment. The Company markets and
services its products in the United States and in foreign countries through
its direct sales organization and affiliates (which are non-controlled product
representatives).

The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the final sale is made rather than where the transaction
originates.

<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE OTHER TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1993:
Revenues.......................... $ 149,714 $22,643 $ 3,023 $ 175,380
Operating income (loss)........... (3,760) 6,526 570 3,336
Identifiable assets............... 161,552 7,078 1,252 169,882
1994:
Revenues.......................... $ 186,075 $32,622 $ 6,742 $ 225,439
Operating income (loss)........... (12,656) 9,679 754 (2,223)
Identifiable assets............... 240,606 19,863 2,291 262,760
1995:
Revenues.......................... $ 233,056 $55,663 $15,957 $ 304,676
Operating income (loss)........... (141,930) 9,684 4,084 (128,162)
Identifiable assets............... 377,112 53,828 7,248 438,188
</TABLE>

F-23
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

The revenue and operating income amounts above exclude the effect of
intercompany royalties. The North America operating losses in 1993, 1994, and
1995, include all merger costs, restructuring costs and acquired in-process
technology charges.

No single customer accounted for 10% or more of revenues in 1993, 1994, or
1995.

15. SUBSEQUENT EVENTS

On January 17, 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc., a developer of performance
management tools, in exchange for approximately $6,000,000 (344,640 shares) of
the Company's common stock. This acquisition will be accounted for under the
purchase method and a significant portion of the purchase price will be
charged to acquired in-process technology in the first quarter of 1996.

F-24
<PAGE>

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IM-
PLICATION THAT THE INFORMATION CONTAINED HEREIN IS CURRENT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 14
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 25
Description of the Notes.................................................. 35
Description of Capital Stock.............................................. 47
Certain Federal Income Tax Considerations................................. 50
Underwriting.............................................................. 54
Incorporation of Certain Documents by Reference........................... 56
Available Information..................................................... 56
Legal Matters............................................................. 57
Experts................................................................... 57
Index to Financial Statements............................................. F-1
</TABLE>

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

$100,000,000

LOGO

6 3/4% CONVERTIBLE
SUBORDINATED NOTES
DUE 2001

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

PROSPECTUS

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

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

HAMBRECHT & QUIST

ROBERTSON, STEPHENS & COMPANY

NOVEMBER 18, 1996

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