PLATINUM TECHNOLOGY INC, S-1, 1997-11-12

PLATINUM TECHNOLOGY INC
S-1, 1997-11-12
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

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PLATINUM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7372 36-350962
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)

1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181, TELEPHONE (630) 620-
5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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MICHAEL C. WYATT, ESQ.
PLATINUM TECHNOLOGY, INC.,
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181,
TELEPHONE (630) 620-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:
D. MARK MCMILLAN, ESQ.
BELL, BOYD & LLOYD
THREE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60602,
TELEPHONE: (312) 372-1121

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.

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

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

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

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

CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share........ 3,039,745(2) $25.094 $76,279,362 $23,115
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(1) Calculated in accordance with Rule 457(c) on the basis of the average of
the high and low sale prices of the Common Stock on November 7, 1997, as
reported on the Nasdaq National Market. The Prospectus included in this
Registration Statement also relates to 1,960,255 shares previously
registered under Registration Statement No. 333-07783, for which a
registration fee of $23,492 was paid.
(2) Such number of shares are also registered hereunder for resale, with the
consent of the Registrant, by persons who receive shares covered by this
Registration Statement and who may wish to sell such shares under
circumstances requiring or making desirable use of the Prospectus
contained herein.

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PURSUANT TO RULE 429 OF THE GENERAL RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, THE PROSPECTUS INCLUDED IN THIS REGISTRATION STATEMENT
ALSO RELATES TO SECURITIES REGISTERED UNDER REGISTRATION STATEMENT NO. 333-
07783, WHICH BECAME EFFECTIVE ON JULY 16, 1996.

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

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SUBJECT TO COMPLETION, NOVEMBER 12, 1997

PROSPECTUS

5,000,000 SHARES
LOGO

COMMON STOCK

The 5,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), covered by this Prospectus may be offered and issued from time to
time by PLATINUM technology, inc. (the "Company") in connection with
acquisitions of other businesses, real or personal properties, or securities
in business combination transactions in accordance with Rule 415(a)(1)(viii)
of Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"), or otherwise under Rule 415. This Prospectus may also be used, with the
Company's prior consent, by persons who have received or will receive shares
of Common Stock in connection with acquisitions and who wish to offer and sell
such shares under circumstances requiring or making desirable its use. See
"Securities Covered by this Prospectus" and see the inside back cover page
hereof for the identity of such persons, if any.

The Common Stock is traded on the Nasdaq National Market under the symbol
"PLAT". On November 10, 1997, the closing sale price of the Common Stock, as
reported in the Wall Street Journal was $26.75 per share. See "Price Range of
Common Stock."

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SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON
STOCK.

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

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The date of this Prospectus is , 1997.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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TABLE OF CONTENTS

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PAGE
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Available Information............................................... 2
Prospectus Summary.................................................. 3
Risk Factors........................................................ 6
Securities Covered by this Prospectus............................... 11
Price Range of Common Stock......................................... 12
Dividend Policy..................................................... 12
Selected Financial Data............................................. 13
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 15
Business............................................................ 27
Management.......................................................... 36
Certain Transactions................................................ 43
Security Ownership of Management and Principal Stockholders......... 44
Description of Capital Stock........................................ 45
Shares Eligible for Future Sale..................................... 48
Experts............................................................. 48
Index to Financial Statements....................................... F-1
</TABLE>

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission.

The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. As used herein, the term "Registration
Statement" means the initial Registration Statement and any and all amendments
thereto. This Prospectus omits certain information contained in said
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of
any contract or other document are not necessarily complete and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, or otherwise, each
such document being qualified by and subject to such reference in all
respects.

DB2 and MVS are trademarks, and IBM is a registered trademark, of
International Business Machines Corporation. This Prospectus also includes
product names and other trade names and trademarks of the Company and its
subsidiaries and of other companies.

2
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context suggests otherwise, references in this
Prospectus to "PLATINUM" or the "Company" mean PLATINUM technology, inc. and
its subsidiaries.

THE COMPANY

The Company develops, markets and supports software products, and provides
related professional services, that help chief information officers ("CIOs")
better manage their software infrastructures. The Company's products and
services increase the performance and interoperability of computing systems and
databases and provide users, primarily in large and data intensive
organizations, with more reliable and productive access to and use of critical
information. The Company's products typically perform fundamental functions and
mission-critical automation, such as maintenance of data integrity, systems
security, systems scheduling, project and process management, and end-user
specific analysis and reporting. The Company currently develops software
products under four business units: database management, systems management,
application lifecycle and data warehouse. (During the first quarter of 1997,
the Company merged its business intelligence and vertical applications
solutions business units into its data warehouse business unit.) 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 software infrastructure solutions by offering a
comprehensive set of "best of breed" point products, product bundles and
integrated product suites. The Company also offers a wide array of professional
services, including consulting, systems integration and educational programs,
often in conjunction with software product sales.

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 software infrastructure problems. These solutions include single
products; product suites, which are sets of closely integrated products from
multiple business units; and product bundles, which are sets of software
applications that are packaged together but do not necessarily have the level
of integration that defines a suite; as well as 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 from the
Company's customers for comprehensive solutions, the Company executed 55
software license and/or service transactions of over $1 million during 1996, as
compared to only two such transactions during 1995. In the first six months of
1997, the Company executed 37 such transactions.

Since the beginning of 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 lines. The Company also is 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 internally developed integration
tool set and method 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, during 1996, the
Company released PLATINUM RiskAdvisor, a data warehouse decision support
application developed specifically for the insurance industry. The Company has
also released its "Necessities" 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.

The Company was incorporated in Delaware on April 16, 1987. Its principal
executive offices are located at 1815 South Meyers Road, Oakbrook Terrace,
Illinois 60181, and its telephone number is (630) 620-5000.

3
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SUMMARY FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
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1992 1993 1994 1995 1996 1996 1997
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STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $156,721 $190,623 $243,607 $ 326,411 $468,065 $196,256 $ 252,061
Operating income (loss). 3,263 (2) 3,062(3) (517)(4) (127,377)(5) (79,404)(6) (41,882)(7) (110,422)(8)
Net income (loss)....... (2,232)(2) 126(3) (1,562)(4) (111,567)(5) (64,922)(6) (29,777)(7) (104,202)(8)
Net income (loss) per
share.................. $ (0.06)(2) $ -- (3) $ (0.04)(4) $ (2.50)(5) $ (1.14)(6) $ (0.53)(7) $ (1.70)(8)
Shares used in computing
per share amounts...... 36,911 39,375 41,294 44,671 56,968 56,483 61,212
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
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BALANCE SHEET DATA:
Cash, cash equivalents
and investments......... $ 61,174 $ 71,148 $126,215 $136,737 $185,673 $128,040
Working capital.......... 40,812 43,672 90,500 127,990 213,660 122,512
Total assets............. 140,487 176,064 273,333 452,267 618,572 556,591
Long-term obligations and
acquisition-related
payables, less current
portion................. 301 3,465 9,080 11,389 118,305 118,911
Total stockholders'
equity.................. 84,083 93,350 160,126 290,213 295,760 196,112
</TABLE>
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(1) The summary financial information presented in this table is derived from
the historical financial statements of the Company and gives retroactive
effect to the acquisitions of Australian Technology Resources Pty Limited
("ATR") as of January 31, 1997 and I&S Informationstechnik and Services
GmbH ("I&S") as of February 28, 1997, each of which has been accounted for
under the pooling-of-interests method 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, 1992 and
1993, and for the six months ended June 30, 1996 and 1997, as well as the
balance sheet data as of December 31, 1992, 1993 and 1994 and June 30,
1997, 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 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 to the Company's acquisition of the outstanding capital 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 to the Company's acquisitions of the outstanding capital stock of
Dimeric Development, Inc. ("Dimeric") and the net assets of Aston Brooke
Corporation ("Aston Brooke") and AutoSystems Corporation ("AutoSystems").
(5) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating to the Company's acquisitions of: (i) the outstanding capital
stock of SQL Software Corporation ("SQL"), RELTECH Group, Inc. ("Reltech"),
Advanced Software Concepts, Inc. ("ASC"), AIB Software Corporation ("AIB"),
Protellicess Software, Inc. ("Protellicess") and BMS Computer, Inc.
("BMS"); (ii) the net assets of ViaTech Development, Inc. ("Viatech"),
BrownStone Solutions, Inc. ("BrownStone") and ProtoSoft, Inc.
("ProtoSoft"); (iii) and certain product technologies. Also reflects a pre-
tax charge for merger costs of $30,819,000 relating to the Company's
acquisitions of Software Interfaces, Inc. ("SII"), Answer Systems, Inc.
("Answer"), Locus, Altai, Inc. ("Altai"), Trinzic and Softool Corporation
("Softool").

4
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(6) Reflects a pre-tax charge for acquired in-process technology of $48,456,000
relating to the Company's acquisitions of the outstanding capital stock of
Advanced Systems Technologies, Inc. ("AST"), Software Alternatives, Inc.
(d/b/a System Software Alternatives) ("Software Alternatives"), Grateful
Data, Inc. (d/b/a TransCentury Data Systems) ("Grateful Data") and VREAM,
Inc. ("VREAM"); substantially all of the assets of the Access Manager
business unit of the High Performance Systems division of International
Computers Limited ("Access Manager"); and certain product technologies.
Also reflects a pre-tax charge for merger costs of $5,782,000 relating
primarily to the Company's acquisitions of Prodea Software Corporation
("Prodea"), Paradigm Systems Corporation ("Paradigm") and Axis Systems
International, Inc. ("Axis").
(7) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to the Company's acquisition of all of the outstanding capital
stock of AST and the purchase of certain product technologies. Also
reflects a pre-tax charge for merger costs of $5,782,000 relating primarily
to the Company's acquisitions of Prodea, Paradigm and Axis.
(8) Reflects a pre-tax charge for acquired in-process technology of $17,164,000
relating to the Company's acquisition of the outstanding capital stock of
GEJAC, Inc. ("GEJAC") and the purchase of certain product technologies.
Also reflects a pre-tax charge for merger costs of $3,706,000 relating to
the Company's acquisitions of ATR and I&S and a pre-tax charge of
$57,319,000 for restructuring charges.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Recent Developments," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and elsewhere in
this Prospectus relate to future events and expectations and as such constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things: the
maturation and success of the Company's software infrastructure systems
strategy; currency exchange rate fluctuations, collection of receivables,
compliance with foreign laws and other risks inherent in conducting
international business; risks associated with conducting a professional
services business; adverse general economic and business conditions, which may
reduce or delay customer purchases of the Company's products and services;
charges and costs related to acquisitions; the ability of the Company to
develop and market existing and acquired products for the software
infrastructure systems market; the ability of the Company to successfully
integrate its acquired products, services and businesses; the ability of the
Company to adjust to changes in technology, customer preferences, enhanced
competition and new competitors in the software infrastructure and professional
services markets; and the ability of the Company to protect its proprietary
software rights from infringement or misappropriation, to maintain or enhance
its relationships with relational database vendors, and to attract and retain
key employees. 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. See "Risk Factors."

5
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RISK FACTORS

Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the specific factors set forth below as well as the other
information contained in this Prospectus in evaluating an investment in the
Common Stock.

DEPENDENCE ON SUCCESS OF SOFTWARE INFRASTRUCTURE STRATEGY

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

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 for 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 only a limited history in
developing and marketing products for the expanding software infrastructure
market. Most of the Company's software infrastructure 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 software infrastructure 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 PROPRIETARY TECHNOLOGY

The Company's success is heavily dependent upon its proprietary software
technology. See "--Dependence on Success of Software 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. 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
registers its product names and other trademarks in the United States and
certain foreign countries. 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. 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."

6
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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 open
enterprise environment, including software 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, among others, Oracle Systems
Corp., Sybase, Inc. and Informix Software, Inc. 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.

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 software
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 the acquired
companies and the implementation of the Company's strategy has caused, and may
continue to cause, interruption, or a 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 hired, and may need to continue hiring,
additional salespeople, and the Company must train both existing and new
salespeople in the Company's complete range of product offerings and
successfully motivate them to sell the Company's entire range of point
products, product bundles, integrated product suites and professional
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 services 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 RISKS OF ACQUISITION STRATEGY

The Company expects to continue its strategy of identifying, acquiring and
developing software 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 completing such acquisitions. See "Business--Product
Development."

7
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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 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 affect
on the Company or that any such acquisition will succeed in enhancing the
Company's business. See "--Risks of Completed Acquisitions."

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 Condition
and Results of Operations."

HIGHLY COMPETITIVE MARKETS

The market for the Company's products is highly competitive. The Company
expects to encounter enhanced competition and new competitors as it continues
to penetrate the software infrastructure 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
results Company's of operations. See "Business--Competition."

A variety of external and internal factors could adversely affect the
Company's ability to compete in the software infrastructure 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 currently 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."

8
<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. Because 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 revenues in each quarter result 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 revenues 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 offered by the Company or its competitors, the
cancellation of licenses during the warranty period or nonrenewal of
maintenance agreements, product life cycles, software bugs and other risks
discussed herein. See "--Highly Competitive Markets," and "--Rapid
Technological Change; Dependence on New Products and Markets."

RISKS OF INTERNATIONAL SALES

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. Approximately 32%, 30% and 31% of the Company's
revenues in 1995, 1996 and the first six months of 1997, respectively, were
attributable to international sales. 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 business area for the Company. There can be no assurance that the
consulting services business will be successfully integrated with the
Company's 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 will be subject to the risks associated with a consulting services
business, including dependence on its reputation with existing customers,
volatility of workload and dependence on ability

9
<PAGE>

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, particularly in the field of software development, where cost
overruns are commonplace. See "Business--Professional Services."

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 recent
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 to fluctuate, perhaps substantially. The market price of the
Common Stock also may be affected by the Company's ability to meet analysts'
expectations, and any failure to meet such expectations, could have a material
adverse effect on the market price of the Common Stock. In addition, stock
prices for many technology companies fluctuate widely for reasons which may be
unrelated to operating results. These fluctuations, as well as general
economic, political and market conditions may adversely affect the market
price of the Common Stock in the future. In the past, following periods of
volatility in the market price of a company's securities, class action
securities 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."

ANTITAKEOVER EFFECT OF RIGHTS AGREEMENT, CHARTER AND STATUTORY PROVISIONS

The Company has entered into a rights agreement (the "Right 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. See "Description of Capital Stock."

10
<PAGE>

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."

SECURITIES COVERED BY THIS PROSPECTUS

The shares of Common Stock covered by this Prospectus are available for use
in future acquisitions of other businesses, real or personal properties, or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under
Rule 415. Such acquisitions may be made directly by the Company or indirectly
through a subsidiary, may relate to businesses or securities of businesses
similar or dissimilar to the Company's systems software products, related
consulting services or educational programs, and may be made in connection
with the settlement of litigation or other disputes. The consideration offered
by the Company in such acquisitions, in addition to the shares of Common Stock
offered by this Prospectus, may include cash, debt or other securities (which
may be convertible into shares of Common Stock covered by this Prospectus), or
assumption by the Company of liabilities of the business, properties or
securities being acquired or of their owners, or a combination thereof. It is
contemplated that the terms of acquisitions will be determined by negotiations
between the Company and the owners of the businesses, properties or securities
to be acquired, with the Company taking into account such factors as the
quality of management, the past and potential earning power, growth and
appreciation of the businesses, properties or securities acquired, and other
relevant factors, and it is anticipated that shares of Common Stock issued in
acquisitions will be valued at a price reasonably related to the market value
of the Common Stock either at the time the terms of the acquisition are
tentatively agreed upon or at or about the time or times of delivery of the
shares.

The Company may from time to time, in an effort to maintain an orderly
market in the Common Stock, negotiate agreements with persons receiving Common
Stock covered by this Prospectus that will limit the number of shares that may
be sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements
under Rule 144 or Rule 145(d), and certain persons party to such agreements
may not otherwise be subject to such Securities Act requirements. The Company
anticipates that, in general, such negotiated agreements will be of limited
duration and will permit the recipients of Common Stock issued in connection
with acquisitions to sell up to a specified number of shares per business day
or days.

With the consent of the Company, this Prospectus may also be used by persons
who have received or will receive from the Company Common Stock covered by
this Prospectus and who may wish to sell such stock under circumstances
requiring or making desirable its use. This Prospectus may also be used, with
the Company's consent, by pledgees, donees, or assignees of such persons. The
Company's consent to any such use may be conditioned upon such persons'
agreeing not to offer more than a specified number of shares following
supplements or amendments to this Prospectus, which the Company may agree to
use its best efforts to prepare and file at certain intervals. The Company may
require that any such offering be effected in an organized manner through
securities dealers.

Sales by means of this Prospectus may be made from time to time privately at
prices to be individually negotiated with the purchasers, or publicly through
transactions in the over-the-counter market (which may involve block
transactions), at prices reasonably related to market prices at the time of
sale or at negotiated prices. Broker-dealers participating in such
transactions may act as agent or as principal and, when acting as agent, may
receive commissions from the purchasers as well as from the sellers (if also
acting as agent for the purchasers). The Company may indemnify any broker-
dealer participating in such transactions against certain liabilities,
including liabilities under the Securities Act. Profits, commissions and
discounts on sales by persons who may be deemed to be underwriters within the
meaning of the Securities Act may be deemed underwriting compensation under
the Securities Act.

11
<PAGE>

Stockholders may also offer shares of Common Stock covered by this
Prospectus by means of prospectuses under other registration statements or
pursuant to exemptions from the registration requirements of the Securities
Act, including sales which meet the requirements of Rule 144 or Rule 145(d)
under the Securities Act, and stockholders should seek the advice of their own
counsel with respect to the legal requirements for such sales.

This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of Common Stock for
whom the Company has consented to the use of this Prospectus in connection
with resales of such shares. See the inside back cover pages of this
Prospectus for the identity of any such persons.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the National Market tier of the
Nasdaq Stock Market ("Nasdaq") under the symbol "PLAT". The following table
sets forth, for the quarters indicated, the range of high and low sales prices
of the Common Stock on Nasdaq. On November 10, 1997, the last reported sale
price of the Common Stock on Nasdaq was $26.75 per share. At October 31, 1997,
there were approximately 958 record holders and approximately 24,000
beneficial holders of Common Stock.

<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
-----------------
HIGH LOW
-------- --------
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter........................................ $25.2500 $18.5000
Second Quarter....................................... 20.8750 13.5000
Third Quarter........................................ 26.0000 16.2500
Fourth Quarter....................................... 20.7500 14.5000
Year Ended December 31, 1996:
First Quarter........................................ 18.7500 11.2500
Second Quarter....................................... 18.7500 12.7500
Third Quarter........................................ 15.8750 9.2500
Fourth Quarter....................................... 15.5000 10.6250
Year Ending December 31, 1997:
First Quarter........................................ 17.8750 10.8750
Second Quarter....................................... 14.8125 10.2500
Third Quarter........................................ 25.0000 12.6250
Fourth Quarter (through November 10, 1997)........... 28.8750 20.1250
</TABLE>

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 such dividends in the foreseeable future.

12
<PAGE>

SELECTED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data set forth below has been derived from the
historical financial statements of the Company. The historical financial
statements of the Company as of December 31, 1995 and 1996 and for the years
ended December 31, 1994, 1995 and 1996 have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, whose report thereon appears
elsewhere herein. The selected financial data set forth below as of December
31, 1992, 1993 and 1994 and June 30, 1997, and for the years ended December
31, 1992 and 1993, as well as the six month periods ended June 30, 1996 and
1997, has been derived from the Company's unaudited internal financial
statements and reflects all adjustments which management considers necessary
for a fair and consistent presentation of the results of operations for those
periods. This selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes thereto
contained elsewhere herein.

13
<PAGE>

(6) Reflects a pre-tax charge for acquired in-process technology of
$48,456,000 relating to the Company's acquisitions of the outstanding
capital stock of AST, Software Alternatives, Grateful Data and VREAM;
substantially all of the assets of Access Manager; and certain product
technologies. Also reflects a pre-tax charge for merger costs of
$5,782,000 relating primarily to the Company's acquisitions of Prodea,
Paradigm and Axis.
(7) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to the Company's acquisition of all of the outstanding capital
stock of AST and the purchase of certain product technologies. Also
reflects a pre-tax charge for merger costs of $5,782,000 relating
primarily to the Company's acquisitions of Prodea, Paradigm and Axis.
(8) Reflects a pre-tax charge for acquired in-process technology of
$17,164,000 relating to the Company's acquisition of the outstanding
capital stock of GEJAC and the purchase of certain product technologies.
Also reflects a pre-tax charge for merger costs of $3,706,000 relating to
the Company's acquisitions of ATR and I&S and a pre-tax charge of
$57,319,000 for restructuring charges.

14
<PAGE>

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

GENERAL

The Company develops, markets and supports software products, and provides
related professional services, that help CIOs better manage their software
infrastructures. The Company's products and services increase the performance
and interoperability of computing systems and databases and provide users,
primarily in large and data intensive organizations, with more reliable 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 combinations, including acquisitions of SII, Answer, Locus, Altai,
Trinzic, Softool, Prodea, Paradigm, Axis, ATR and I&S, 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.
Information regarding the Company in this Management's Discussion and Analysis
of Financial Condition and Results of Operations gives retroactive effect to
these acquisitions. See note 2 to the Company's consolidated financial
statements for a more detailed discussion of these acquisitions.

RESULTS OF OPERATIONS

The table below sets forth for the periods indicated (1) each line item from
the statement of operations items expressed as a percentage of revenues and
(2) the percentage change in each line item from the prior period.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL PERIOD-TO-PERIOD PERCENTAGE
REVENUES CHANGE
---------------------------------- -------------------------------
SIX MONTHS SIX MONTHS
YEARS ENDED ENDED ENDED
DECEMBER 31, JUNE 30, 1995 1996 JUNE 30, 1997
------------------ -------------- COMPARED COMPARED COMPARED TO
1994 1995 1996 1996 1997 TO 1994 TO 1995 1996
---- ---- ---- ----- ----- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues:
Software products...... 47% 49% 52% 47% 51% 39% 54% 40%
Maintenance............ 24 23 22 24 24 30 34 26
Professional services.. 29 28 26 29 25 29 33 12
--- --- ---- ----- -----
Total revenues....... 100 100 100 100 100 34 43 28
--- --- ---- ----- -----
Costs and expenses:
Professional services.. 27 28 25 28 23 39 26 8
Product development
and support........... 21 29 33 36 36 83 65 28
Sales and marketing.... 30 35 39 41 40 56 60 24
General and
administrative........ 12 11 9 9 13 17 15 88
Restructuring charges.. -- -- -- -- 23 -- -- --
Merger costs........... -- 9 1 3 2 * (81) (36)
Acquired in-process
technology............ 10 27 10 4 7 260 (45) 145
--- --- ---- ----- -----
Total costs and
expenses............ 100 139 117 121 144 86 21 52
--- --- ---- ----- -----
Operating loss.......... -- (39) (17) (21) (44) * * *
Other income, net....... 1 1 1 1 3 45 27 252
--- --- ---- ----- -----
Income (loss) before
income taxes........... 1 (38) (16) (20) (41) * * *
Income taxes............ (2) (4) 2 (5) -- * * *
--- --- ---- ----- -----
Net loss................ (1)% (34)% (14)% (15)% (41)% *% *% *%
=== === ==== ===== =====
</TABLE>
- --------
*Not meaningful.

REVENUES

The Company's revenues are currently derived from three sources: (1) license
and upgrade fees for licensing the Company's proprietary and other parties'
software products and providing additional processing capacity on already-
licensed products, (2) maintenance fees for maintaining, supporting and
providing updates and enhancements to software products, and (3) revenues from
the professional services business. Total revenues for

15
<PAGE>

fiscal 1996 were $468,065,000, an increase of $141,654,000, or 43%, over 1995
total revenues of $326,411,000. Total revenues in 1995 increased $82,804,000,
or 34%, over 1994 revenues of $243,607,000. Total revenues from all sources for
the first six months of 1997 were $252,061,000, an increase of $55,805,000, or
28%, as compared to $196,256,000 for the same period in 1996.

Revenues from domestic (U.S.) customers represented 74%, 68%, 70% and 69% of
the Company's total revenues in 1994, 1995, 1996 and the first six months of
1997, respectively. Domestic revenues are generated primarily by the Company's
direct sales force (whose members visit customer sites to assist with trials,
to demonstrate product features and to close sales transactions) and inside
sales force (which predominantly supports the direct sales force by developing
sales leads and arranging product evaluations), as well as a telemarketing
organization. Since January 1, 1997, the Company has organized its domestic
direct sales force by regions throughout the United States. The Company
formerly combined the domestic and Canadian sales forces to represent the North
American sales force. The Canadian sales team is now part of the Company's
international sales force.

Revenues from international customers represented 26%, 32%, 30% and 31% of
the Company's total revenues in 1994, 1995, 1996 and the first six months of
1997, respectively. The Company generates the majority of its international
revenues through a network of wholly-owned subsidiaries, utilizing direct and
inside sales forces. Since 1995, the Company has invested significantly in the
global marketplace, resulting in an increased proportion of international
revenues to total revenues as compared to 1994.

Software Products. Software products revenues represented 47%, 49%, 52% and
51% of total revenues in 1994, 1995, 1996 and the first six months of 1997,
respectively. From 1994 to 1995, software products revenues increased 39% from
$113,749,000 to $158,597,000. In 1996, software products revenues increased 54%
over 1995 to $243,938,000 as a result of increases of 64%, 50%, 66% and 38%,
respectively, experienced by the Company's database management, systems
management, application lifecycle and data warehouse business units. For the
first six months of 1997, software products revenues increased 40% to
$128,937,000 from $92,123,000 for the comparable prior-year period as a result
of increases of 18%, 35%, 31% and 105%, respectively, experienced by the
Company's database management, systems management, application lifecycle and
data warehouse business units. The Company believes the growth in software
products revenues over the past two years and the first six months of 1997 has
resulted from the continued marketplace acceptance of the Company's products
across all business units and the Company's aggressive expansion of its sales
and marketing efforts, as well as new product offerings. During 1996 and the
first six months of 1997, the Company expanded its customer base, increased
sales of integrated product suites and executed larger sales transactions. The
Company's database management, systems management, application lifecycle and
data warehouse business units represented 47%, 24%, 12% and 17%, respectively,
of total software products revenues in 1994; 38%, 29%, 11% and 22%,
respectively, of total software products revenues in 1995; and 40%, 29%, 11%
and 20%, respectively, of total software products revenues in 1996.

Maintenance. Maintenance revenues in 1996 increased 34% over 1995 to
$102,364,000, and 1995 maintenance revenues of $76,498,000 represented an
increase of 30% over 1994 maintenance revenues of $58,837,000. Maintenance
revenues for the first six months of 1997 increased 26% to $60,084,000 from
$47,664,000 for the comparable prior-year period. Maintenance revenues are
derived from recurring fees charged to perpetual license customers and the
implicit first-year maintenance fees bundled in certain software product sales.
The Company provides maintenance customers with technical support and product
enhancements. Maintenance revenues are deferred and recognized ratably over the
term of the agreement. The increases during 1995 and 1996 and the first six
months of 1997 were primarily attributable to the expansion of the Company's
installed customer base, from which maintenance fees are derived. Maintenance
fees implicit in certain new software product sales also contributed to the
increase. Management believes that maintenance revenues should continue to
increase as the installed base of the Company's software products increases and
matures.

Professional Services. Professional services revenues are associated with the
Company's consulting services business and educational programs. In 1996,
professional services revenues increased 33% over 1995 to $121,763,000. From
1994 to 1995, professional services revenues increased 29% from $71,021,000 to
$91,316,000. Professional services revenues for the first six months of 1997
increased 12% to $63,040,000 from

16
<PAGE>

$56,469,000 for the same period in 1996. The increases in professional
services revenues during 1995 and 1996 were primarily due to the addition of
established consulting practices through various acquisitions during these
years, as well as the growth experienced within these acquired businesses. The
growth in professional services revenues during the first six months of 1997,
as compared to the same period in 1996, was primarily attributable to an
increase in billable consultants as well as a higher ratio of billable hours
to total hours worked. Additionally, the revenues generated by the Company's
new professional services specialty practices, established near the end of
1996, also contributed to the increase in professional services revenues
during the first six months of 1997. The Company expects its professional
services business to continue to grow as it focuses on offering consulting,
systems integration and educational programs as part of, and in conjunction
with, its comprehensive software infrastructure management solutions.

COSTS AND EXPENSES

Total expenses for 1996 were $547,469,000, an increase of 21% over 1995
expenses of $453,788,000, which increased 86% over 1994 expenses of
$244,124,000. Total expenses for the first six months of 1997 were
$362,483,000, an increase of $124,345,000, or 52%, as compared to $238,138,000
for the comparable prior-year period. Total expenses for 1996, excluding
merger costs and acquired in-process technology charges, were $493,231,000, an
increase of $158,755,000, or 47%, compared to $334,476,000 for 1995. Total
expenses for 1995, excluding merger costs and acquired in-process technology
charges, increased 52% as compared to 1994 total expenses, excluding acquired
in-process technology charges, of $219,530,000. Total expenses for the six
months ended June 30, 1997, excluding restructuring charges, merger costs and
acquired in-process technology costs were $284,294,000, an increase of 26% as
compared to $225,351,000 for the six months ended June 30, 1996. During 1995
and 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 expansion of the inside and outside sales
forces; hiring of product developers and support technicians plus key
management personnel; training all personnel in software infrastructure
systems issues and new products; providing additional financial and technical
support to the international subsidiaries established in recent years;
translating product materials into numerous foreign languages; and augmenting
internal support systems. Management believes that such investments have been
necessary to fully exploit the market opportunity for the newly acquired
products and to adequately manage the significantly larger enterprise. During
the first six months of 1997, the Company executed a restructuring plan and
incurred additional costs related to the integration of recently acquired
companies. These factors contributed significantly to the increase in total
expenses during the first six months of 1997. See "General and Administrative"
and "Restructuring Charges" below.

Professional Services. Costs of professional services increased to
$116,133,000 in 1996, from $92,374,000 in 1995 and $66,242,000 in 1994. For
the first six months of 1997, costs of professional services increased 8% to
$59,030,000 from $54,907,000 for the comparable prior-year period. Costs of
professional services represented 93%, 101%, 95%, 97% and 94% of professional
services revenues in 1994, 1995, 1996, the first six months of 1996 and the
first six months of 1997, respectively. The increases in these expenses during
1995, 1996 and the first six months of 1997 were related to salaries and other
direct employment expenses as a result of the Company's continued hiring to
support this business, the increased use of external consultants and the
addition of established consulting practices through various acquisitions.
Greater commission and bonus expenses associated with higher professional
services revenues also contributed to the increases. As part of the overall
restructuring plan, the Company realigned the professional services business
during the first six months of 1997 through the consolidation of redundant
functions. The Company anticipates that professional services expenses will
continue to decrease as a percentage of professional services revenues as the
savings from the recent restructuring plan are realized.

Product Development and Support. Product development and support expenses
increased to $155,277,000 in 1996, from $94,027,000 in 1995 and $51,404,000 in
1994. For the first six months of 1997, product development and support
expenses increased to $91,385,000 from $71,639,000 for the comparable prior-
year

17
<PAGE>

period. Product development and support expenses represented 21%, 29%, 33%,
36% and 36% of total revenues in 1994, 1995, 1996, the first six months of
1996 and the first six months of 1997, respectively. The increases in these
expenses in 1995, 1996 and the first six months of 1997 were primarily
attributable to higher employee-related expenses, increased allocated charges
for office space and overhead, and increased hardware and software costs
related to the product development and integration efforts. In addition, the
Company's product integration focus, growing customer base and international
expansion efforts resulted in higher travel expenses and increased product
documentation costs during 1995, 1996 and the first six months of 1997. Higher
bonus and royalty expenses associated with increased software product revenues
during these periods also contributed to the increases in product development
and support expenses.

The Company has devoted substantial resources to the development and
integration of its products and technologies to provide complete, customized
management solutions for software infrastructure problems. The Company has
also been enabling its products and suites for application with intranets, the
Internet and the Web. During the first six months of 1997, the Company began
consolidating certain product development and support efforts to coincide with
its product integration focus. As a result of these consolidation efforts, the
Company expects to reduce development and support expenses as a percentage of
total revenues.

In 1994, 1995, 1996 and the first six months of 1997, the Company
capitalized, $5,987,000, $13,591,000, $27,246,000 and $18,592,000,
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
expenses plus capitalized internal software development costs, net of related
amortization expense, were $57,391,000 in 1994, $107,618,000 in 1995,
$182,523,000 in 1996 and $109,977,000 in the first six months of 1997, which
amounted to 33%, 46%, 53% and 58%, respectively, of software product and
maintenance revenues during those periods.

Sales and Marketing. Sales and marketing expenses increased to $182,597,000
in 1996, from $113,978,000 in 1995 and $72,850,000 in 1994. For the first six
months of 1997, sales and marketing expenses increased to $100,137,000 from
$80,887,000 for the comparable prior-year period. Sales and marketing expenses
represented 30%, 35%, 39%, 41% and 40% of total revenues in 1994, 1995, 1996,
the first six months of 1996 and the first six months of 1997, respectively.
The continuous increase in these expenses as a percentage of total revenues
from 1994 to 1996 was primarily attributable to costs associated with the
significant expansion of the domestic and international outside and inside
sales forces and the telemarketing organization. The Company also incurred
higher commission expenses associated with the increase in software products
revenues during 1995 and 1996. Also contributing to the increases in sales and
marketing expenses were greater marketing costs associated with the Company's
expanded product line. The increase in sales and marketing expenses during the
first six months of 1997 was primarily attributable to the expansion of the
global outside sales force and higher commission expenses relating to the
increase in software products revenues. During the second quarter of 1997, the
Company realigned its inside sales force to be more compatible with its
strategy of providing complete software infrastructure solutions and to
correspond with the restructuring plan. This realignment resulted in an
approximate 45% reduction in the inside sales force. The Company also
consolidated certain remote sales facilities. Consequently, the Company
expects that sales and marketing expenses will decrease as a percentage of
total revenues in future periods.

General and Administrative. General and administrative expenses increased to
$39,224,000 in 1996, from $34,097,000 in 1995 and $29,034,000 in 1994. For the
first six months of 1997, general and administrative expenses increased to
$33,742,000 from $17,918,000 for the comparable prior-year period. General and
administrative expenses represented 12%, 11%, 9%, 9% and 13% of total revenues
in 1994, 1995, 1996, the first six months of 1996 and the first six months of
1997, respectively. The increase in these expenses from 1994 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 excess of cost over net assets

18
<PAGE>

acquired related to the Company's acquisitions accounted for as purchases and
increased professional fees. During 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
revenues.

The significant increase in general and administrative expenses for the
first six months of 1997, as compared to the same period in 1996, was
primarily attributable to total charges of $13,513,000 recorded during the
second quarter of 1997 for write-offs of certain assets, as well as severance
and other employee-related expenses, related to the integration procedures
discussed below. In conjunction with the restructuring plan executed during
the second quarter of 1997, the Company also performed additional integration
procedures related to past acquisition activity. The Company evaluated the
fair value of assets recorded through prior acquisitions and identified
certain trade receivables, prepaid expenses and intangible assets which had no
future value. The respective balances of these assets were written-off during
the second quarter of 1997. Additionally, the Company expensed severance and
other employee benefits, including guaranteed bonuses, for certain employees
of acquired companies who were terminated as a result of the integration
efforts, but not specifically as part of the restructuring plan. The Company
expects total general and administrative expenses as a percentage of total
revenues to decrease in future periods as a result of the restructuring plan.

Restructuring Charges. During the second quarter of 1997, the Company
executed a restructuring plan to consolidate its sales, marketing, business
development and product development operations to achieve cost efficiencies
through the elimination of redundant functions. These redundancies resulted
primarily from businesses acquired over the last three years. The Company also
realigned its business units and inside sales force to redirect focus on its
strongest product lines and better integrate the efforts of certain product
development teams. As part of the plan, the Company reduced its worldwide work
force by approximately 10%, eliminating approximately 400 positions primarily
in the areas of product development and support, marketing and inside sales,
and to a lesser extent, professional services and administration.

The Company recorded a one-time charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: $23,834,000 for facility-related costs,
including a reserve for estimated lease obligations associated with the
closing of office facilities; $3,708,000 for write-offs of excess equipment,
furniture and fixtures; $16,859,000 for write-offs of capitalized software
costs and other intangible assets related to the redirection of product
development efforts as well as penalties for the cancellation of
distributorship agreements; and $12,918,000 for severance and other employee-
related costs of the terminated staff. Of the $57,319,000 restructuring
charge, the Company paid out approximately $7,905,000 and wrote-off
$19,687,000 of non-cash charges during the second quarter of 1997.
Consequently, the Company had $29,727,000 of accrued restructuring costs
recorded as of June 30, 1997. The Company anticipates that approximately
$13,000,000 of the restructuring accrual will be paid out during the second
half of 1997, and approximately $8,000,000 will be paid out during 1998. The
Company estimates that substantially all of the cash disbursements related to
the restructuring plan will be completed by the end of the year 2001, with
such disbursements having declining significance after 1998.

The Company currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in subsequent years as a result of the
restructuring and, because the Company does not anticipate an impact on
revenues from the restructuring, a corresponding increase in net income.
However, there can be no assurance as to the ultimate effects of the
restructuring plan on the Company's operating results.

Merger Costs. Merger costs were $5,782,000 and $30,819,000 in 1996 and 1995,
respectively. The Company incurred no merger costs in 1994. For the first six
months of 1997, merger costs were $3,706,000 as compared to $5,782,000 for the
comparable prior-year period. 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

19
<PAGE>

merger costs 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.

Acquired In-Process Technology. Acquired in-process technology charges were
$48,456,000, $88,493,000 and $24,594,000 in 1996, 1995 and 1994, respectively.
For the first six months of 1997, acquired in-process technology charges were
$17,164,000 as compared to $7,005,000 for the comparable prior-year period.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies. These acquisitions were accounted for
under the purchase method, and portions of the purchase prices were allocated
to acquired in-process technology. The 1996 acquisition volume decreased from
the level of activity in 1995. See notes 2 and 15 of the notes to the
Company's consolidated financial statements for a more detailed discussion of
the acquisitions completed during 1994, 1995, 1996 and the first six months of
1997.

Prior to completing these acquisitions, the Company conducted reviews in
order to determine the fair market value of the organizations and technologies
to be acquired. These reviews consisted of an evaluation of existing products,
research and development in process (projects that had not reached
technological feasibility and had no alternative future use), customers,
financial position and other matters. The acquired in-process research and
development represent unique and emerging technologies, the application of
which is limited to the Company's software 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. The Company plans to continue to
pursue merger and acquisition opportunities, because it believes that
acquisitions are an essential part of the Company's strategy to compete
effectively in its rapidly evolving marketplace.

OTHER INCOME

Other income was $5,237,000 in 1996 as compared to $4,130,000 in 1995 and
$2,848,000 in 1994. For the first six months of 1997, other income was
$7,512,000 as compared to $2,135,000 for the comparable prior-year period. The
increase in other income in 1995 over 1994 was primarily attributable to
interest earned on higher cash and investment balances maintained during 1995
as compared to 1994. The increase in other income during 1996 as compared to
1995 was primarily attributable to realized gains on the sale of investment
securities classified as available-for-sale and unrealized holding gains on
trading securities. The increase in other income during the six months ended
June 30, 1997, as compared to the same prior-year period, was primarily
attributable to realized gains on the sale of investment securities and
unrealized holding gains that resulted from the reclassification of certain
available-for-sale securities into the trading classification. Because
unrealized holding gains and losses for trading securities are reflected in
pre-tax earnings, fluctuations in the market value of these securities are
continuously recorded as additions to or deductions from other income until
the securities are sold. The increases in other income in 1996 and the first
six months of 1997, as compared to the prior-year periods, were partially
offset by interest expense on the Company's convertible subordinated notes
issued in November 1996 (see "Liquidity and Capital Resources").

INCOME TAXES

The Company recognized an income tax benefit of $9,245,000 in 1996 and
$11,680,000 in 1995 and income tax expense of $3,893,000 in 1994. The Company
recognized income tax expense of $1,292,000 for the six months ended June 30,
1997 and an income tax benefit of $9,970,000 for the comparable prior-year
period. During the second quarter of 1997, the Company recorded income tax
expense of $5,070,000 in order to reduce its deferred tax asset balance as of
June 30, 1997. The Company reduced its deferred tax asset balance so that it
would reflect an asset amount that will, more likely than not, be realized
based on the lower estimated 1997 taxable income resulting from the
restructuring plan.

20
<PAGE>

The Company has available approximately $234,891,000 of net operating loss
carryforwards and $10,682,000 of tax credit carryforwards for Federal income
tax purposes, expiring through the year 2011. Some of the Company's tax
carryforwards are subject to limitations as to the amounts which may be used
in any particular future year.

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 $126,215,000 as of
December 31, 1994, $136,737,000 as of December 31, 1995, $185,673,000 as of
December 31, 1996 and $128,040,000 as of June 30, 1997. See "Cash Flows"
below.

The Company had trade and installment accounts receivable, net of
allowances, of $132,058,000, $200,399,000 and $175,035,000 as of December 31,
1995 and 1996 and June 30, 1997, 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.

In recent years, the Company's sources of liquidity have primarily been
funds from capital markets, including bank facilities, and sales of
installment receivables. 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 primarily
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 receivables to
third parties. Installment receivables represent amounts collectible on long-
term financing arrangements and include fees for product licenses, upgrades
and maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three or five years, with
interest payable on the license and upgrade portions only. Over the past 18
months, the Company has executed an increasingly greater number and higher
dollar value of sales transactions having long-term financing arrangements,
primarily attributable to sales of product bundles and integrated product
suites. Consequently, the Company's volume of installment receivable sales has
increased significantly over the past 18 months.

The Company receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of interest payable by the
Company. The finance company collects customer remittances over the term of
the agreement. Proceeds from the sale of receivables were $2,903,000,
$129,328,000 and $93,800,000, respectively, for the years ended December 31,
1995 and 1996 and for the six months ended June 30, 1997. The Company did not
sell installment receivables prior to 1995. A portion of the receivables were
sold with recourse provisions. As of June 30, 1997, the Company's maximum
exposure under recourse provisions was approximately $20,500,000. The Company
has assessed the exposure related to these recourse provisions and determined
the potential liability to be minimal. The Company anticipates that the volume
of installment receivable sales will continue to increase in the second half
of 1997, corresponding to expected increases in revenues.

21
<PAGE>

The Company's installment receivables are recorded net of unamortized
discounts and deferred maintenance fees. When these receivables are sold, the
Company reduces the gross installment receivable balance. Additionally, the
Company reclassifies the deferred maintenance, which was previously reflected
as a reduction of the related installment receivable balance, to an
obligation. The deferred maintenance is recognized into income ratably over
the term of the maintenance agreement.

The Company had long-term acquisition-related payables of $9,756,000,
$2,502,000 and $2,502,000 and other long-term obligations of $1,633,000,
$115,803,000 and $116,409,000 as of December 31, 1995 and 1996 and June 30,
1997, respectively. The significant increase in long-term obligations from
December 31, 1995 to December 31, 1996 was attributable to the $115,000,000 of
convertible subordinated notes (the "Notes") issued by the Company in November
1996. The Notes bear interest at 6.75% annually and mature on November 15,
2001. The holders of the Notes have the option to convert them into shares of
Common Stock, at any time prior to maturity, at a conversion price of $13.95
per share. The Company received proceeds, net of issuance costs, of
$110,783,000 from the offering of these Notes.

The Company currently has an unsecured bank line of credit of $25,000,000,
under which borrowings generally bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate. As of November 7, 1997,
the Company had $10,000,000 of short-term borrowings outstanding under this
line of credit. The Company currently has aggregate letters of credit
outstanding for approximately $10,372,000, with expiration dates ranging from
November 1997 through September 1998. These letters of credit reduce the
available line of credit balance. The Company is in the process of increasing
its line of credit.

CASH FLOWS

Cash provided from operating activities was $31,142,000 in 1994. Cash used
in operating activities was $25,227,000 in 1995, $133,228,000 in 1996,
$56,959,000 in the first six months of 1996 and $103,307,000 in the first six
months of 1997. Cash provided by operating activities in 1994 was attributable
to the net effect of the following factors: a net loss of $1,562,000, after
the effects of depreciation and amortization of $13,640,000 and acquired in-
process technology of $24,594,000; an increase in trade and installment
receivables of $25,137,000, partially offset by an increase in deferred
revenue of $9,494,000, which were both due to high year-end sales volume; a
net increase in working capital accounts of $2,163,000; and a decrease in
other non-current assets of $6,429,000.

The utilization of cash from operating activities in 1995 was primarily due
to a significant increase in trade and installment receivables (before sales
to third parties) of $56,748,000, partially offset by an increase in deferred
revenue of $20,325,000. This increase in receivables was attributable to the
high concentration of sales near the end of 1995, plus a slowdown in
collections due to the transition process associated with the numerous
acquisitions consummated in the second half of 1995. In 1995, the Company
incurred a net loss of $111,567,000, after a deferred tax benefit of
$11,680,000, which was substantially offset by non-cash charges of $24,140,000
for depreciation and amortization as well as $88,493,000 for acquired in-
process technology. A net increase of $6,369,000 in working capital accounts
and a decrease of $16,073,000 in other non-current assets resulted in sources
of cash from operations during 1995.

During 1996, the Company incurred a net loss of $64,922,000 after the
deferred tax benefit of $9,245,000. This net loss was offset by non-cash
charges, including depreciation and amortization of $38,824,000 and acquired
in-process technology of $48,456,000. A high concentration of sales in the
fourth quarter of 1996 was largely responsible for an increase in trade and
installment receivables, before sales to third parties, of $196,547,000. This
increase in receivables was partially offset by an increase in deferred
revenue of $59,196,000 and proceeds from the sale of installment receivables
of $129,328,000 (see the discussion of financing activities below). Deferred
revenue increased primarily because of the high sales volume near the end of
1996, the emergence of multi-year maintenance contracts, as well as heightened
activity of installment receivable sales.

22
<PAGE>

See note 6 of the notes to the Company's consolidated financial statements for
a more detailed discussion of installment receivables.

Cash used in operating activities in the first six months of 1996 was
attributable to the net effect of the following cash outflows: a net loss of
$29,777,000, including a deferred tax benefit of $9,970,000, substantially
offset by non-cash charges of $16,183,000 for depreciation and amortization
and $7,005,000 for acquired in-process technology; an increase in trade and
installment receivables, before sales to third parties, of $49,993,000,
partially offset by an increase in deferred revenue of $9,334,000; and a net
decrease in accounts payable and other accrued liabilities of $3,294,000.
These cash outflows were partially offset by cash inflows from a net decrease
in other working capital accounts of $2,002,000 and a net decrease in other
non-current assets of $2,069,000. Cash used in operating activities in the
first six months of 1997 consisted of the following net cash outflows: a net
loss of $104,202,000, partially offset by non-cash charges for depreciation
and amortization of $27,067,000, write-offs of assets in conjunction with the
restructuring plan of $19,687,000 and acquired in-process technology of
$13,664,000 (net of $3,500,000 of cash payments related to acquired in-process
technology); an increase in trade and installment receivables, before sales to
third parties, of $67,928,000, partially offset by an increase in deferred
revenue of $8,886,000, which were both due to high quarter-end sales volume; a
net increase in other working capital accounts of $11,668,000; and a net
increase in other non-current assets of $6,702,000. These cash outflows were
partially offset by a cash inflow related to a net increase in accounts
payable and other accrued liabilities, the most significant being accrued
restructuring charges, of $23,386,000.

Cash used in investing activities was $52,524,000 in 1994, $138,956,000 in
1995, $81,151,000 in 1996, $40,278,000 in the first six months of 1996 and
$61,734,000 in the first six months of 1997. Beginning in 1994, the Company
executed an aggressive acquisition program in order to assemble the core
competencies to create complete software infrastructure solutions. This
acquisition plan resulted in the investment of substantial resources during
1994, 1995, 1996 and the first six months of both 1996 and 1997, including
cash payments of $22,756,000, $103,085,000, $17,853,000, $8,792,000 and
$8,998,000, respectively. See notes 2 and 15 of the notes to the Company's
consolidated financial statements for a more detailed discussion of the
acquisitions consummated in these periods. The Company also invested resources
for property and equipment of $14,250,000, $39,435,000, $35,542,000,
$17,648,000 and $11,464,000 in 1994, 1995, 1996, the first six months of 1996
and the first six months of 1997, respectively. The substantial increase in
capital expenditures in 1995 and 1996 as compared to 1994 related to the
building of the infrastructure to support the significantly larger combined
company that is the result of these acquisitions. The decrease in payments for
property and equipment during the first six months of 1997, as compared to the
same period in 1996, was primarily attributable to the restructuring plan and
overall cost containment efforts. In 1994, 1995, 1996, the first six months of
1996 and the first six months of 1997, the Company invested $10,898,000,
$20,742,000, $41,279,000, $18,213,000 and $30,667,000, respectively, for
purchased and developed software costs. During 1996 and the first six months
of 1997, the Company invested heavily in the development and integration of
its products, including the acquisition of new product technologies. The
Company expects to continue to actively invest in internally developed point
products, product bundles and integrated product suites, as well as strategic
business and technology acquisitions. Proceeds from the sales and maturities
of investment securities, net of purchases, were $24,788,000, $17,272,000 and
$6,531,000 during 1995, 1996 and the first six months of 1996, respectively.
Cash expended during 1994 and the first six months of 1997 for purchases of
investment securities, net of sales and maturities, was $6,169,000 and
$7,920,000, respectively.

Cash flows from financing activities were $70,201,000 in 1994, $202,085,000
in 1995, $239,493,000 in 1996, $38,759,000 in the first six months of 1996 and
$97,199,000 in the first six months of 1997. The Company executed a public
offering of Common Stock in December 1994, which provided cash of $66,051,000,
net of issuance costs. In October 1995, the Company completed another public
offering of Common Stock, which provided $194,420,000 in proceeds, net of
issuance costs. Sales of installment receivables became a significant source
of liquidity for the Company during 1996, providing funds of $129,328,000 in
fiscal 1996, $41,718,000 in the first six months of 1996 and $93,800,000 in
the first six months of 1997. The Company also completed

23
<PAGE>

the offering of the Notes in November 1996 and received aggregate proceeds,
net of issuance costs, of $110,783,000. The proceeds from the Notes offering
and the sale of installment receivables were used, and will continue to be
used, primarily for the operating and investing activities discussed above.

RECENT DEVELOPMENTS

On October 16, 1997, the Company announced its results of operations for the
third quarter ended September 30, 1997. Total revenues for the third quarter
of 1997 were $160,201,000, an increase of $39,887,000, or 33%, as compared to
$120,314,000 for the same period in 1996. Total revenues for the nine months
ended September 30, 1997 were $412,262,000, an increase of $95,692,000, or
30%, as compared to $316,570,000 for the comparable prior-year period.
Software products revenues for the third quarter of 1997 were $92,487,000, an
increase of $32,535,000, or 54%, as compared to $59,952,000 for the third
quarter of 1996. Software products revenues for the nine months ended
September 30, 1997 were $221,424,000, an increase of $69,349,000, or 46%, as
compared to $152,075,000 for the same period in 1996. The growth in software
products revenues during the third quarter and first nine months of 1997 was
primarily attributable to the continued marketplace acceptance of the
Company's point products, product bundles and integrated product suites,
resulting in increasingly larger sales transactions.

Total expenses for the third quarter of 1997 were $149,648,000, representing
an increase of $22,997,000, or 18%, over total expenses for the third quarter
of 1996, excluding acquired in-process technology costs, of $126,651,000.
Total expenses for the nine months ended September 30, 1997, excluding
restructuring charges, merger costs and acquired in-process technology costs,
were $433,942,000, an increase of $81,940,000, or 23%, as compared to
$352,002,000 for the nine months ended September 30, 1996. The increase in
expenses for the third quarter and first nine months of 1997 was due primarily
to greater variable expenses related to higher revenue results, as well as
increased costs, including training and system support expenses, associated
with integrating recently acquired companies and managing the larger combined
company.

Net income for the third quarter of 1997 was $10,160,000, as compared to a
net loss of $7,485,000, including acquired in-process technology costs, for
the third quarter of 1996. The Company reported a net loss for the first nine
months of 1997 of $94,042,000, including restructuring charges, merger costs
and acquired in-process technology costs. This compares to a net loss of
$37,262,000 for the same period in 1996.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." Implementation of SFAS No. 128 is required for
periods ending after December 15, 1997. The standard establishes new methods
for computing and presenting earnings per share ("EPS") and replaces the
presentation of primary and fully-diluted EPS with basic and diluted EPS. The
new methods under this standard are not expected to have a significant impact
on the Company's EPS amounts.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company is required to adopt SFAS. No.
130 for periods beginning after December 15, 1997. This statement establishes
standards for reporting comprehensive income and its components in a full set
of general purpose financial statements. The standard requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The standard is not
expected to have a material impact on the Company's current presentation of
income.

In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company is required to adopt the disclosures of SFAS No. 131 in the
December 31, 1998 annual financial statements. This statement establishes
standards for the way companies are to report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company is currently
evaluating the impact of this standard on its financial statements.

24
<PAGE>

QUARTERLY COMPARISONS

The following tables set forth an unaudited summary of 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, 32% of the Company's total revenues in both
1995 and 1996 were generated in the fourth quarter. Further, revenues for the
first quarter of both 1996 and 1997 were lower than the respective prior years'
fourth quarter revenues. 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 revenues 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 product revenues in each quarter result 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,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues,
as previously
reported....... $63,060 $71,796 $71,787 $98,033 $82,471 $100,485 $113,430 $142,804
Adjustments(1).. 4,826 4,989 5,531 6,389 6,588 6,712 6,884 8,691
Total revenues.. 67,886 76,785 77,318 104,422 89,059 107,197 120,314 151,495
Operating loss,
as previously
reported....... (17,318)(2) (3,604)(3) (38,134)(4) (69,106)(5) (32,374)(6) (10,072) (10,636)(7) (29,411)(8)
Adjustments(1).. (255) (94) 202 932 293 271 209 2,316
Operating loss.. (17,573)(2) (3,698)(3) (37,932)(4) (68,174)(5) (32,081)(6) (9,801) (10,427)(7) (27,095)(8)
Net loss, as
previously
reported....... (14,006)(2) (2,311)(3) (28,744)(4) (66,872)(5) (24,504)(6) (5,791) (7,693)(7) (29,974)(8)
Adjustments(1).. (360) (196) 94 828 283 235 208 2,314
Net loss........ (14,366)(2) (2,507)(3) (28,650)(4) (66,044)(5) (24,221)(6) (5,556) (7,485)(7) (27,660)(8)
Net loss per
share, as
previously
reported....... $ (0.34)(2) $ (0.06)(3) $ (0.69)(4) $ (1.31)(5) $ (0.45)(6) $ (0.10) $ (0.14)(7) $ (0.53)(8)
Net loss per
share.......... (0.34)(2) (0.06)(3) (0.67)(4) (1.26)(5) (0.43)(6) (0.10) (0.13)(7) (0.48)(8)
Shares used in
computing net
loss per share,
as previously
reported....... 40,738 41,283 41,460 51,032 54,915 55,214 55,678 56,419
Shares used in
computing net
loss per share. 42,142 42,687 42,864 52,436 56,341 56,625 57,070 57,823
</TABLE>

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------
MAR. 31, JUNE 30,
1997 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Total revenues,
as previously
reported.......
Adjustments(1)..
Total revenues.. $115,623 $136,438
Operating loss,
as previously
reported.......
Adjustments(1)..
Operating loss.. (33,086)(9) (77,336)(10)
Net loss, as
previously
reported.......
Adjustments(1)..
Net loss........ (25,269)(9) (78,933)(10)
Net loss per
share, as
previously
reported.......
Net loss per
share.......... $ (0.41)(9) $ (1.28)(10)
Shares used in
computing net
loss per share,
as previously
reported.......
Shares used in
computing net
loss per share. 60,947 61,477
</TABLE>
- -------
(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 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
$18,799,000 relating primarily to the Company's acquisitions of the
outstanding capital stock of SQL and Reltech, and the net assets of
Viatech and BrownStone.
(3) 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 the
Company's acquisition of SII.

<PAGE>

(4) Reflects a pre-tax charge for acquired in-process technology of
$5,300,000 relating to the acquisition of the outstanding capital stock
of ASC. Also reflects a pre-tax charge for merger costs of $22,612,000
relating to the Company's acquisitions of Answer, Locus, Altai and
Trinzic.
(5) Reflects a pre-tax charge for acquired in-process technology of
$63,040,000 relating primarily to the acquisitions of the outstanding
capital stock of AIB, Protellicess and BMS, and the net assets of
ProtoSoft. Also reflects a pre-tax charge for merger costs of $6,055,000
relating to the Company's acquisition of Softool.
(6) Reflects a pre-tax charge for acquired in-process technology of
$7,005,000 relating to the Company's acquisition of the outstanding
capital stock of AST and the purchase of certain product technologies.
Also reflects a pre-tax charge for merger costs of $5,782,000 relating
primarily to the Company's acquisitions of Prodea, Paradigm and Axis.
(7) Reflects a pre-tax charge for acquired in-process technology of
$4,090,000 relating to the Company's acquisition of the outstanding
capital stock of Software Alternatives and Grateful Data.
(8) Reflects a pre-tax charge for acquired in-process technology of
$37,361,000 relating to the Company's acquisition of the outstanding
capital stock of VREAM and substantially all of the assets of Access
Manager.
(9) Reflects a pre-tax charge for acquired in-process technology of
$10,417,000 relating to the Company's acquisition of the outstanding
capital stock of GEJAC and the purchase of certain product technologies.
Also reflects a pre-tax charge for merger costs of $3,706,000 relating to
the Company's acquisitions of ATR and I&S.
(10) Reflects a pre-tax charge for acquired in-process technology of
$6,747,000 relating to the Company's acquisition of certain product
technologies. Also reflects a pre-tax charge of $57,319,000 for
restructuring charges.

26
<PAGE>

BUSINESS

OVERVIEW

The Company develops, markets and supports software products, and provides
related professional services, that help CIOs better manage their software
infrastructures. The Company's products and services increase the performance
and interoperability of computing systems and databases and provide users,
primarily in large and data intensive organizations, with more reliable and
productive access to and use of critical information. The Company's products
typically perform fundamental functions and mission-critical automation, such
as maintenance of data integrity, systems security, systems scheduling,
project and process management, and end-user specific analysis and reporting.
The Company currently develops software products under four business units:
database management, systems management, application lifecycle and data
warehouse. (During the first quarter of 1997, the Company merged its business
intelligence and recently established vertical applications solutions business
units into its data warehouse business unit.) Addressing businesses'
increasing demand for simplified vendor relationships and complete solutions
to IT problems, the Company's goal is to become the leading provider of
software infrastructure solutions by offering a comprehensive set of "best of
breed" point products, product bundles and integrated product suites. The
Company also offers a wide array of professional services, including
consulting, systems integration and educational programs, often in conjunction
with software product sales.

To achieve its goal, the Company identified key technologies and skill sets
to better manage corporate software infrastructure. Through a combination of
an aggressive acquisition program and vigorous internal product development
efforts, the Company has assembled the competencies to create complete
infrastructure management solutions. Since mid-1994, the Company has acquired
38 businesses and 25 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 software infrastructure
problems. These solutions include single products; product suites, which are
sets of closely integrated products from multiple business units; and product
bundles, which are sets of software applications that are packaged together
but do not necessarily have the level of integration that defines a suite; as
well as 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 from the Company's customers for
comprehensive solutions, the Company executed 55 software license and/or
service transactions of over $1 million during 1996, as compared to only two
such transactions during 1995. In the first six months of 1997, the Company
executed 37 such transactions.

Since the beginning of 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 lines. The Company also is enabling its products and suites
for application with intranets, the Internet and the Web. The cornerstone of
the Company's integration efforts is POEMS, an internally developed
integration tool set and method 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, during 1996, the Company released PLATINUM RiskAdvisor, a data
warehouse decision support application developed specifically for the
insurance industry. The Company has also released its "Necessities" 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.

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 systems

27
<PAGE>

environments. These modern computing environments frequently service multiple
end-users spread across numerous locations. These environments are
heterogeneous and consist of various computing applications, 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 media, 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 computing environments can provide greater functionality than
host-based systems in addition to price-performance advantages, organizations
have found that administration tools and utilities of traditional mainframe
systems are unable to address the complex requirements of these environments.
As a result, a market need has arisen for comprehensive, user-friendly, high-
performance and cost-effective infrastructure solutions that offer the
functionality traditionally associated with mainframe solutions, but are
designed for open systems environments. The Company believes that, due to the
complexities of these new computing environments, CIOs 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.

PRODUCTS

The Company provides software tools and technologies that help organizations
efficiently operate and manage their complex software infrastructure and
related environments, 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.

The Company now offers over 140 robust and adaptable point products through
four business units:

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 application 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, auditing of
internal structures, as well as a DB2 page editor.

. 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.

28
<PAGE>

. 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.

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 enterprise-wide applications
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 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 which 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 scalable, 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.

. AutoSecure--a tool that provides mainframe-caliber security for UNIX
hosts, which 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.

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
strategies 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.

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

29
<PAGE>

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. The Company also offers an integrated
tool set that enables organizations to better leverage their corporate data
investments. These products allow end-users to derive value and insight from
corporate information by facilitating the access, analysis, reporting and
delivery of enterprise data. 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. The
Company also provides decision support warehouses to suit the needs of
specific industries. These prepackaged solutions contain a data warehouse
structure designed for optimal query performance, combined with a decision
support system that provides users with timely access to value-added
information. Applications are available now for the insurance industry as well
as sales and marketing support functions. Principal data warehouse products
include the following:

. 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.

. 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.

. 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.

. 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.

In the past, businesses licensed products on a stand-alone basis to address
each of their 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' software 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 software infrastructure problems that
are shared by businesses from various industries, as well as product suites
that target software infrastructure problems that are unique to specific
industries. The following provides a brief description of some of the
Company's recent product suite offerings:

. TransCentury--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.

30
<PAGE>

. 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.

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 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. See "Technical Support and
Maintenance."

PRODUCT DEVELOPMENT

The Company is pursuing its strategy by continuing its emphasis on
internally developing new software products and product enhancements,
acquiring products, technologies and businesses complementary to the Company's
existing product lines 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 1994, 1995, 1996 and the six-month period ended June 30, 1997,
product development and support expenses of the Company were $51,404,000,
$94,027,000, $155,277,000 and $91,385,000, respectively. As of October 31,
1997, the Company employed approximately 1,580 persons in product development
and support.

Internal Development. The Company will continue to rely 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 35 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
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 products. In addition
to providing the Company with new products and technologies, these
acquisitions have provided the Company with

31
<PAGE>

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 CIOs' software infrastructures, the Company has implemented its PLATINUM
Partner Program whereby the Company has established strategic and technology
relationships 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 CIOs, the Company
offers a range of professional services, including consulting services and
educational programs. These services help businesses 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. As of October 31, 1997, the Company employed
approximately 1,200 persons in professional services.

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 systems 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 software infrastructure management 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.

32
<PAGE>

Domestic (U.S.) Software Sales. Since January 1, 1997, the Company has
organized its domestic direct sales force by regions throughout the United
States. The Company formerly combined the domestic and Canadian sales forces
to represent the North American sales force. The Canadian sales team is now
part of the Company's international sales force. To support the rapid
expansion of its product lines, the Company, during 1995 and 1996, accelerated
its sales force hiring and training process. The Company currently has
approximately 320 domestic direct sales representatives.

Generally, for domestic 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 the inside sales force, which predominantly supports the direct sales force
by developing sales leads and arranging product evaluations. Established sales
leads are then typically forwarded to the direct sales force, which visits
customer sites to assist with trials, demonstrates product features and closes
sales transactions. For certain sales to smaller customers, as well as the
licensing of standard shrink-wrap products, the inside sales force may handle
the full sales cycle for completing such transactions.

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 domestically.
As of October 31, 1997, the Company had approximately 200 international (non-
U.S.) direct sales representatives and had subsidiaries in Australia, Austria,
Belgium, Brazil, Canada, China, 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 now designates certain large, geographically
dispersed 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.

TECHNICAL SUPPORT AND MAINTENANCE

The Company's in-house technical support group, situated at various sites
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, and will continue to be, a
substantial factor in customer satisfaction.

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 license agreement, customers renew maintenance 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. Maintenance
revenue implicit in new product sales and recurring maintenance charges are
recognized ratably over the period the maintenance and support services are to
be provided.

33
<PAGE>

COMPETITION

The Company operates in highly competitive markets and expects competition
to increase. The Company has encountered substantially enhanced competition as
it has moved from the relational database tool market to the much larger
software infrastructure products market and as it has entered the consulting
services business. The Company has also experienced many new competitors,
including 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. 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 and acquiring software infrastructure products and
technologies and 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 in the professional services business 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 trade marks in the United
States and certain foreign countries.

EMPLOYEES

As of October 31, 1997, the Company employed approximately 4,160 persons,
including 1,100 in sales, marketing and related activities, 1,580 in product
development and support, 1,200 in professional services, and 280 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>

PROPERTIES

The Company's principal administrative, marketing, training, and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where the Company leases approximately 366,000 square feet under leases
terminating in December 2002, with plans to lease additional space in the near
future. The Company has recently leased an additional approximately 164,000
square feet of administrative, marketing, sales and product development space
in Lisle, Illinois, near the Company's headquarters, under leases terminating
in January and October 2003. In addition, the Company leases space for
approximately 75 sales offices and product development laboratories throughout
the United States, ranging in size from approximately 1,000 to 45,000 square
feet. In conjunction with the restructuring plan executed during the second
quarter of 1997, the Company closed certain sales offices and product
development laboratories in the United States and certain foreign countries.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Restructuring Charges" for further discussion.

LEGAL PROCEEDINGS

Computer Associates' International, Inc., and L'Agence pour la Protection
des Programmes v. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny,
Paris, France). Altai, a wholly-owned subsidiary of the Company, is involved
in a suit in France which concerns copyright infringement claims identical to
those on which Altai previously prevailed against Computer Associates
International, Inc. ("CAI") in the U.S. The French appellate court granted
Altai's request that the U.S. appellate court's copyright ruling should bind
the Commercial Court of Bobigny as a matter of law. In January 1995, the
French appellate court issued a decision rejecting CAI's claim of copyright
infringement. CAI's subsequent appeal in the French appellate court is still
pending as well as motions from Altai that the U.S. court decisions are
binding with respect to the French case.

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

35
<PAGE>

MANAGEMENT

DIRECTORS AND OFFICERS

The directors and executive officers of the Company, their ages at October
31, 1997, and their positions with the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Andrew J. Filipowski................. 47 President, Chief Executive Officer and
Chairman of the Board of Directors
Paul L. Humenansky................... 40 Executive Vice President--Product
Development, Chief Operations Officer
and Director
Michael P. Cullinane................. 47 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Thomas A. Slowey..................... 36 Executive Vice President--Sales
Paul A. Tatro........................ 41 Executive Vice President--
International Operations
James E. Cowie(1)(2)................. 42 Director
Steven D. Devick(1)(2)............... 45 Director
Arthur P. Frigo(1)(2)................ 56 Director
Gian Fulgoni(1)...................... 49 Director
</TABLE>
- --------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.

The Board of Directors consists of three classes, which serve staggered
three-year terms. Class I, the terms of whose members expire in 1999, is
comprised of Messrs. Cullinane and Humenansky. Class II, the terms of whose
members expire in 1998, is comprised of Messrs. Frigo and Fulgoni. Class III,
the terms of whose members expire in 2000, is comprised of Messrs. Filipowski,
Cowie and Devick. Directors hold office until their successors are elected and
qualified. The Board of Directors elects officers annually and such officers,
subject to the terms of certain employment agreements, serve at the discretion
of the Board. Messrs. Filipowski, Cullinane and Humenansky each have
employment agreements with the Company. See "--Executive Compensation--
Employment Agreements." There are no family relationships among any of the
directors or officers of the Company.

Mr. Filipowski, a founder of the Company, has been President, Chief
Executive Officer and Chairman of the Board of Directors since the Company's
formation in April 1987. Mr. Filipowski is also a director of Platinum
Entertainment, Inc. ("Platinum Entertainment"), a publicly-traded, integrated
music recording and publishing company, and intouch group, inc.

Mr. Humenansky, a founder of the Company, was appointed Chief Operations
Officer of the Company effective January 1993. Mr. Humenansky also serves as
Executive Vice President--Product Development, a position he has held since
the Company's formation in April 1987. Mr. Humenansky is also a director of
Platinum Entertainment.

Mr. Cullinane joined the Company in March 1988 as Senior Vice President and
Chief Financial Officer, becoming Executive Vice President in March 1995. He
has also served as the Company's Treasurer since April 1989 and served as
Secretary from April 1989 until October 1995. Mr. Cullinane is also a director
of Platinum Entertainment.

Mr. Slowey has served as Executive Vice President--Sales since joining the
Company in March 1988.

Mr. Tatro joined the Company in October 1987 as Director of Education and
was appointed Senior Vice President--Field Support and Affiliates in January
1990, a position he held until March 1995, when he was elected Executive Vice
President--International Operations.

36
<PAGE>

Mr. Cowie has been a General Partner of Frontenac Company, a Chicago-based
venture capital firm, since February 1989 and has been a director of the
Company since 1989. Mr. Cowie is also a director of US Servis, Inc.

Mr. Devick is currently the President, Chief Executive Officer and Chairman
of the Board of Directors of Platinum Entertainment, which he co-founded in
1992. He is also the Chief Executive Officer of a number of other entities,
including DDE, Inc. (f/k/a Devick Enterprises, Inc.), and Platinum
Development, a real estate development firm, positions he has held for at
least the preceding five years. Mr. Devick has been a director of the Company
since 1989.

Mr. Frigo is the owner and Chairman of M.B. Walton, a consumer products
company and has been a director of the Company since 1997. He also serves on
the Board of Directors of Modagratics, The Levy Organization, Maxrad,
Precision Extrusions, LaRabida Children's Hospital and the Landmark
Preservation Council of Illinois.

Mr. Fulgoni is Chief Executive Officer and a director of Information
Resources, Inc. ("IRI"), which provides a variety of information services
(primarily to consumer packaged goods companies) and computer decision support
services. He was elected Chief Executive Officer of IRI in 1991. From 1991 to
April 1995, Mr. Fulgoni served as Chairman of IRI, from 1989 to 1991 as Vice
Chairman, and from 1981 to 1989 as President. Mr. Fulgoni has been a director
of the Company since 1991.

DIRECTOR COMPENSATION

All non-employee directors of the Company are paid an annual fee of $2,500
and an attendance fee of $1,000 for each Board meeting attended and $500 for
each Committee meeting attended if such Committee meeting is not held in
conjunction with a meeting of the full Board. In addition, each non-employee
director participates in the Amended and Restated PLATINUM technology, inc.
1993 Directors' Stock Option Plan (the "Directors' Plan"), pursuant to which
each non-employee director is granted, on the date of each annual meeting of
stockholders after which such director continues to serve on the Board of
Directors, an option to purchase 10,000 shares of Common Stock at the fair
market value of the Common Stock on such date. See "--Stock Option Plans." The
Company provides no retirement benefits to non-employee directors. Directors
who are also employees of the Company receive no additional compensation from
the Company for services rendered in their capacity as directors.

37
<PAGE>

EXECUTIVE COMPENSATION

The following table provides information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal
years ended December 31, 1996, 1995, and 1994 of those persons who were at
December 31, 1996 (i) the chief executive officer or (ii) the four other most
highly compensated (based upon combined salary and bonus) executive officers
of the Company (collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS(1)
------------ ------------
SECURITIES
SALARY BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS/SARS (#) COMPENSATION ($)
--------------------------- ---- ------ ----- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Andrew J. Filipowski, 1996 $702,000 $ -- 500,000(2) $113,165(3)
President, Chief Executive 1995 520,000 -- 400,000 54,736
Officer, and Chairman of the Board 1994 435,000 983,245 400,000 47,091
Paul L. Humenansky, 1996 $462,000 $ -- 300,000(2) $ 8,558(3)
Executive Vice President-- 1995 330,000 -- 250,000 5,128
Product Development and 1994 275,000 541,679 250,000 6,300
Chief Operations Officer
Michael P. Cullinane, 1996 $445,000 $ -- 250,000(2) $ 11,540(3)
Executive Vice President, 1995 330,000 -- 150,000 6,624
Chief Financial Officer and 1994 275,000 455,024 150,000 6,300
Treasurer
Thomas A. Slowey, 1996 $273,000 $ -- 100,000(2) $ 2,369(3)
Executive Vice President-- 1995 210,000 -- 75,000 1,500
Sales 1994 175,000 465,637 75,000 1,500
Paul A. Tatro, 1996 $273,000 $ -- 100,000(2) $ 2,561(3)
Executive Vice President-- 1995 210,000 -- 75,000 1,500
International Operations 1994 175,000 324,750 75,000 1,500
</TABLE>
- --------
(1) None of the Named Officers had any restricted stock holdings as of
December 31, 1996.
(2) Reflects options to purchase shares of Common Stock granted to the Named
Officers in October 1996, which were subject to shareholder approval at
the Annual Meeting on May 20, 1997 ("Annual Meeting") of the amendment to
the Platinum technology, inc. Employee Incentive Compensation Plan (the
"Incentive Plan"). The Incentive Plan was approved by the shareholders at
the Annual Meeting, however, these options are not reflected in the
Company's financial statements or the notes thereto.
(3) For each of the Named Officers, includes $1,500 in Company matching
contributions pursuant to the PLATINUM technology, inc., 401(k) Savings
Plan. The remainder of the amount shown for each of the Named Officers
represents the full dollar value of premiums paid by the Company with
respect to whole life and term life insurance.

38
<PAGE>

The following table provides information on grants of stock options during
fiscal 1996 to the Named Officers. No stock appreciation rights were granted
to the Named Officers during fiscal 1996.

OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
------------------------- ----------------------
PERCENT OF TOTAL EXERCISE
NUMBER OF SECURITIES OPTIONS GRANTED OR BASE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(2) FISCAL YEAR(3) ($/SH) DATE 5% ($) 10% ($)
- ---- -------------------- ---------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... 500,000 12.9% $13.625 10/10/2006 $4,284,345 $10,857,371
Paul L. Humenansky...... 300,000 7.7 13.625 10/10/2006 2,570,607 6,514,422
Michael P. Cullinane.... 250,000 6.5 13.625 10/10/2006 2,142,172 5,428,685
Thomas A. Slowey........ 100,000 2.6 13.625 10/10/2006 856,869 2,171,474
Paul A. Tatro........... 100,000 2.6 13.625 10/10/2006 856,869 2,171,474
</TABLE>

- --------
(1) Potential realizable value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains are dependent on the future performance of the Common Stock and the
option holder's continued employment throughout the vesting period. The
amounts reflected in the table may not necessarily be achieved.
(2) Reflects options to purchase shares of Common Stock granted to the Named
Officers in October 1996, which were subject to shareholder approval at
the Annual Meeting. The Incentive Plan was approved by the shareholders at
the Annual Meeting, however, these options are not reflected in the
Company's financial statements or the notes thereto. All are non-qualified
stock options. Subject to certain restrictions, those options become
exercisable in four equal annual installments, beginning on October 10,
1997, the first anniversary of the date of grant.
(3) The percentages shown do not reflect options granted in 1996 by companies
acquired by the Company.

The following table provides information on the Named Officers' unexercised
options at December 31, 1996. None of the Named Officers exercised any options
in 1996. Included are options granted under the 1989 Stock Option Plan, the
Chief Executive Officer Stock Option Plan, the 1991 Stock Option Plan, the
1994 Stock Incentive Plan and the Amended Incentive Plan.

AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END 1996 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR END IN-THE-MONEY OPTIONS AT
1996 (#)(1) YEAR END 1996 ($)(2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew J. Filipowski........ 1,691,875 1,065,625 $8,296,563 $229,688
Paul L. Humenansky.......... 503,750 656,250 581,875 153,125
Michael P. Cullinane........ 539,625 459,375 2,611,250 76,563
Thomas A. Slowey............ 244,750 206,250 1,034,023 43,750
Paul A. Tatro............... 179,166 206,250 382,327 43,750
</TABLE>
- --------
(1) Includes options to purchase shares of Common Stock granted to the Named
Officers in October 1996, which were subject to shareholder approval at
the Annual Meeting. The Incentive Plan was approved by the shareholders at
the Annual Meeting, however, these options are not reflected in the
Company's financial statements or the notes thereto.

(2) The value per option is calculated by subtracting the exercise price from
the closing price of the Common Stock on the Nasdaq National Market on
December 31, 1996, which was $13.625.

39
<PAGE>

Employment Agreements

Effective March 1, 1991, the Company entered into employment agreements with
Messrs. Filipowski, Cullinane and Humenansky. Mr. Filipowski's employment
agreement provides for an initial base salary of $252,000 (which has been
increased annually) plus bonus compensation. Mr. Cullinane's employment
agreement provides for an initial base salary of $160,000 (which has been
increased annually) plus bonus compensation. Mr. Humenansky's employment
agreement provides for an initial base salary of $160,000 (which has been
increased annually) plus bonus compensation. The agreements provide that all
bonus arrangements for Messrs. Filipowski, Cullinane and Humenansky are
established by the Compensation Committee of the Board of Directors. All of
the employment agreements also provide for continuation of salary, bonuses and
fringe benefits for 18 months following the executive's termination of
employment with the Company for any reason other than "Good Cause" as defined
in such agreements, or for five years if the termination occurs within a
certain time period before or after a "Change in Control" of the Company.
Under such agreements, a "Change in Control" of the Company includes (a)
certain reorganizations, consolidations or mergers of the Company, (b) certain
transfers of all or substantially all of the assets of the Company, (c) the
approval by the Company's stockholders of a plan of liquidation or
dissolution, (d) a change in the Company's Board of Directors such that a
majority of the members of the Board are not "continuing" directors, or (e) a
person's becoming the holder of at least 51% of the combined voting power of
the Company's outstanding voting securities.

Compensation Committee Interlocks and Insider Participation

Messrs. Casey G. Cowell (a former director of the Company), Cowie and Devick
were the members of the Company's Compensation Committee during 1996. Messrs.
Filipowski and Devick are executive officers of Platinum Venture Partners,
Inc. ("PVP") and Mr. Filipowski is the sole director of, and makes
compensation decisions for, PVP. Mr. Devick is an executive officer of
Platinum Entertainment, and Messrs. Filipowski, Humenansky and Cullinane, all
of whom are executive officers of the Company, are directors of Platinum
Entertainment. Messrs. Filipowski and Cullinane are also members of the
compensation committee of Platinum Entertainment.

In January 1996, the Company purchased from VREAM, Inc. ("VREAM") 400,000
shares of VREAM's Series A Preferred Stock for an aggregate purchase price of
$50,000. In December 1996, the Company acquired all of the outstanding capital
stock of VREAM (exclusive of the shares purchased by the Company in January
1996) in exchange for 760,383 shares of Common Stock, which had a market
value, based upon the closing price of the Common Stock on the Nasdaq National
Market, of approximately $10,300,000 on the date of the acquisition.

Platinum Venture Partners I, L.P. ("Venture I") and Platinum Venture
Partners II, L.P. ("Venture II") had equity interests in VREAM of
approximately 17% and 22.67%, respectively, at the time of the acquisition. A
portion of the equity interests in Venture I and Venture II are owned by
certain officers and directors of the Company. These percentage interests for
Venture I are as follows: Mr. Filipowski--8.3%; Mr. Cullinane--1.7%; Mr.
Humenansky--1.7%; Mr. Tatro--1.7%; Mr. Slowey--0.8%; Mr. Devick--3.3%;
Frontenac Company (of which Mr. Cowie is a general partner)--1.7%; Mr. Frigo--
5% and Mr. Fulgoni--1.7%. These percentage ownership interests for Venture II
are as follows: Mr. Filipowski--6.8%; Mr. Cullinane--0.7%; Mr. Humenansky--
0.5%; Mr. Frigo--1.4% and Frontenac Company--4.5%. In addition, PVP is the
general partner of each of Venture I and Venture II, and Messrs. Filipowski,
Cullinane and Devick are the President and Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer, respectively, of PVP.

The Board of Directors of the Company designated a special committee,
consisting of Messrs. Fulgoni and Cowie, to consider the acquisition of VREAM.
This committee retained an independent investment banking firm, which provided
its opinion that the transaction was fair from a financial point of view to
the stockholders of the Company.

In May 1996, the Company purchased from Visigenic Software, Inc.
("Visigenic") 222,222 shares of Visigenic's Series C Preferred Stock (the
"Visigenic Shares") for an aggregate purchase price of $999,999. Concurrently
therewith, the Company agreed to transfer to Venture I and Venture II all of
the Company's rights, title and interest to all of the appreciation,
depreciation and cash value of $100,000 and $150,000, respectively,

40
<PAGE>

of the Visigenic Shares in exchange for the price per share paid by the
Company. The Company retained all voting and dispositive power with respect to
all of the Visigenic Shares.

STOCK OPTION PLANS

Directors' Plan

The Board of Directors and the stockholders of the Company originally
adopted and approved the Directors' Stock Option Plan at the Company's 1994
Annual Meeting. The Directors' Stock Option Plan was amended and restated by
the Board in May 1996 and approved by the stockholders of the Company at the
Company's 1996 Annual Meeting. The Directors' Plan is administered by the
Company's Board of Directors. Options are granted under the Directors' Plan
only to non-employee directors of the Company. Options may be granted with
respect to a total of not more than 500,000 shares of Common Stock under the
Directors' Plan, subject to antidilution and other adjustment provisions. If
an option expires or is terminated or canceled unexercised as to any shares,
such released shares may again be optioned. As of October 31, 1997, options
and awards covering an aggregate 114,000 shares of Common Stock had been
granted under the Directors' Plan.

Under the Directors' Plan, on the date on which a person is first elected or
appointed a non-employee director, such director is granted an option to
purchase 10,000 shares of Common Stock. On the date of each annual meeting of
stockholders (or special meeting in lieu thereof) after which the person
continues as a non-employee director (other than the meeting in the year in
which the person is first elected or appointed as a non-employee director),
such non-employee director shall be granted an additional option to purchase
10,000 shares of Common Stock; provided, however, that no director may be
granted options to purchase an aggregate of more than 100,000 shares of Common
Stock under the Directors' Plan, excluding any shares covered by options
granted to the non-employee directors prior to the effective date of the
Directors' Plan.

The exercise price for all options granted under the Directors' Plan shall
be the fair market value per share of the Common Stock on the date of grant.
Each option granted under the Directors' Plan becomes exercisable in equal
installments on each of the first three anniversaries of the date of its grant
and is exercisable for a period of ten years beginning on the date of its
grant, subject to earlier termination if the optionee's service as a director
terminates.

Purchase Plan

The Board of Directors of the Company has adopted, and the stockholders of
the Company approved at the Company's 1996 Annual Meeting, the 1996 Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan is administered by a
committee of the Board of Directors made up of directors who are not eligible
to participate in the Purchase Plan (the "Purchase Plan Committee") and is
operated on an annual basis from March 1 to the last day of the following
February (a "Plan Year"). A total of 5,000,000 shares of Common Stock are
available for purchase under the Purchase Plan, subject to antidilution and
other adjustment provisions. No participant may purchase shares of Common
Stock in any calendar year under the Purchase Plan with an aggregate fair
market value (generally determined as of the beginning of the Plan Year) in
excess of $25,000.

The Purchase Plan permits eligible employee participants to purchase Common
Stock through payroll deductions at a price per share which is equal to the
lesser of eighty-five percent (85%) of the fair market value of the Common
Stock on the grant date, which is the beginning of the Plan Year, or on the
following purchase date. On each purchase date, which is generally quarterly
on the last day of February, May, August and November, each Purchase Plan
participant's accrued payroll deductions are automatically applied to the
purchase of Common Stock.

Employees eligible to participate in the Purchase Plan consist of all
persons employed by the Company and any subsidiaries designated by the Company
for participation in the Purchase Plan. The Purchase Plan excludes from
participation any employee whose customary employment is for 20 hours or less
per week or for not more than 5 months during a calendar year and any employee
who owns stock possessing 5% or more of the total combined voting power or
value of all classes of the Company's stock.

41
<PAGE>

Employee Plan

The Employee Incentive Compensation Plan (the "Employee Plan") was
originally adopted in 1995 and amended in 1996 and 1997 and approved by the
stockholders of the Company at the Company's 1995 Special Meeting, the 1996
Annual Meeting and 1997 Annual Meeting, respectively. The Employee Plan
permits the issuance of awards in a variety of forms, including: (i) non-
qualified and incentive stock options for the purchase of Common Stock, (ii)
stock appreciation rights ("SARs"), (iii) restricted stock ("Restricted
Stock"), (iv) deferred stock ("Deferred Stock"), (v) bonus stock and awards in
lieu of obligations, (vi) dividend equivalents, (vii) other stock-based
awards, and (viii) performance awards and cash incentive awards. The persons
eligible to participate in the Employee Plan are directors, officers,
employees and consultants of the Company or any subsidiary of the Company. The
Employee Plan is administered by the Compensation Committee, unless the Board
of Directors establishes a committee whose sole purpose is the administration
of the Employee Plan (in any case, the "Employee Plan Committee"). No member
of the Employee Plan Committee participates in the Employee Plan. Subject to
certain limitations described below, the Employee Plan Committee in its
discretion shall determine the persons to whom options and awards shall be
granted, the amount of options and awards to be granted to each participant,
the term, exercise, restriction, deferral and payment periods for options and
awards, and any other restrictions and limitations on options and awards.

The Employee Plan provides for the award of up to 8,600,000 shares of Common
Stock, subject to antidilution and other adjustment provisions. During any
fiscal year of the Company, the number of shares underlying options or SARs,
shares of Restricted Stock, shares of Deferred Stock, shares as a bonus or in
lieu of the Company's obligations and shares related to other stock-based
awards granted to any one participant shall not exceed 800,000 for each type
of such award, subject to adjustment in certain circumstances. The maximum
aggregate amount that may be paid out under the Employee Plan as final cash
incentive awards or other cash awards to any participant in any fiscal year is
$5,000,000. As of October 31, 1997, options and awards covering an aggregate
7,302,170 shares of Common Stock had been granted under the Employee Plan.

The exercise price for stock options granted under the Employee Plan is
determined by the Employee Plan Committee, but in no event is it less than
fair market value of the Common Stock on the date of grant. When incentive
stock options are granted to an individual who owns Common Stock possessing
more than 10% of the combined voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, the option price shall not
be less than 110% of fair market value. No stock option shall be exercisable
later than the tenth anniversary date of its grant. In the case of an
incentive stock option granted to a participant who owns more than 10% of the
combined voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, such option shall not be exercisable later than the
fifth anniversary date of its grant. No incentive stock option shall be
granted later than the tenth anniversary date of the adoption of the Employee
Plan.

An award of an SAR shall entitle a participant to receive Common Stock, cash
or a combination thereof. Upon exercise of an SAR, a participant receives an
amount in cash, shares of Common Stock, or both, equal to (i) the excess of
the fair market value of the Common Stock over the option price per share (if
the SAR is granted in conjunction with an option), multiplied by (ii) the
number of shares of Common Stock subject to the SAR. In the case of an SAR
granted on a stand-alone basis, the Employee Plan Committee shall determine
the value to be used in lieu of the option price. Restricted Stock awards are
grants of shares of Common Stock that are subject to certain restrictions and
to a risk of forfeiture. During the restriction period, the restricted stock
may not be sold, assigned, transferred, pledged or otherwise encumbered.
Deferred Stock awards are grants of rights to receive shares of Common Stock,
cash or a combination thereof at the end of a specified deferral period.
During the deferral period, the Deferred Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered. At the expiration of the
deferral period, the Employee Plan Committee may deliver to the participant
Common Stock, cash equal to the fair market value of such Common Stock or a
combination thereof for the shares covered by the Deferred Stock awards.

The Employee Plan Committee is also authorized to grant shares of Common
Stock as a bonus free of restrictions, or to grant shares of Common Stock or
other awards in lieu of Company obligations to pay cash

42
<PAGE>

under other plans or compensatory arrangements, subject to such terms as the
Employee Plan Committee may specify. The Employee Plan authorizes the Employee
Plan Committee to grant awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to the Common Stock. Such
awards might include convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares, purchase rights for shares, awards
with value and payment contingent upon performance of the Company or any other
factors designated by the Employee Plan Committee, and awards valued by
reference to the book value of shares of Common Stock or the value of
securities of or the performance of specified subsidiaries. The Employee Plan
Committee shall determine the terms and conditions of such awards, including
consideration to be paid to exercise awards in the nature of purchase rights,
the period during which awards will be outstanding and forfeiture conditions
and restrictions on awards.

The right of a participant to exercise or receive a grant or settlement of
an award, and the timing thereof, may be subject to such performance
conditions as may be specified by the Employee Plan Committee. In addition,
the Employee Plan authorizes specific cash incentive awards, which represent a
conditional right to receive cash upon achievement of preestablished
performance goals during calendar years, quarters or other periods specified
by the Employee Plan Committee.

1994 Plan

The 1994 Stock Incentive Plan (the "1994 Plan") was originally adopted in
1994 and amended in 1996 and approved by the stockholders of the Company at
the Company's 1994 Annual Meeting and the Company's 1996 Annual Meeting,
respectively. The 1994 Plan was replaced by the Employee Plan upon approval of
the Employee Plan at the Company's 1995 Special Meeting and, accordingly, no
new grants or awards are made under the 1994 Plan. The 1994 Plan permits the
issuance of stock options and awards, on substantially the same terms as under
the Employee Plan, in a variety of forms, including: (i) non-qualified and
incentive stock options for the purchase of Common Stock, (ii) SARs, (iii)
Restricted Stock, and (iv) Deferred Stock. The persons eligible to participate
in the 1994 Plan are officers, employees, consultants or advisors of the
Company or any subsidiary of the Company. The 1994 Plan is administered by the
Compensation Committee, unless the Board of Directors establishes a committee
whose sole purpose is the administration of the 1994 Plan (in any case, the
"1994 Plan Committee"). The 1994 Plan Committee is comprised of such number of
independent directors as is required for application of Rule 16b-3 under the
Securities Act. A member of the 1994 Plan Committee will not exercise any
discretion respecting himself or herself under the 1994 Plan.

The 1994 Plan provides for the award of up to 1,000,000 shares of Common
Stock, subject to antidilution and other adjustment provisions. During any
fiscal year of the Company, the number of shares underlying options or SARs,
shares of restricted stock, and shares of deferred stock granted to any one
participant shall not exceed 275,000 for each type of such award, subject to
adjustment in certain circumstances. As of October 31, 1997, options and
awards covering an aggregate 1,000,000 shares of Common Stock had been granted
under the 1994 Plan.

CERTAIN TRANSACTIONS

See the discussion under "Compensation Committee Interlocks and Insider
Participation" above for a description of certain transactions involving the
Company and its executive officers and directors.

43
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS

The following table sets forth, as of October 31, 1997 unless otherwise
indicated below, certain information regarding the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to own
beneficially 5% or more of the outstanding shares of Common Stock, (ii) each
director, (iii) each of the Named Officers, and (iv) all Company executive
officers and directors as a group.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED (2)
-----------------
NAME(1) NUMBER PERCENT
------- --------- -------
<S> <C> <C>
Andrew J. Filipowski (3)................................ 4,065,255 6.3%
T. Rowe Price Associates, Inc. (4)...................... 6,999,900 11.1
Jennison Associates Capital Corp. (5)................... 5,740,500 9.1
Michael P. Cullinane.................................... 703,531 1.1
Paul L. Humenansky...................................... 751,177 1.2
Steven D. Devick........................................ 101,717 *
Thomas A. Slowey........................................ 275,616 *
Paul A. Tatro (6)....................................... 248,782 *
Gian Fulgoni............................................ 19,333 *
James E. Cowie.......................................... 32,333 *
Arthur P. Frigo......................................... 83,600 *
All Executive Officers and Directors as a Group
(9 persons) (3)(6)..................................... 6,281,344 9.4%
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of such person is c/o PLATINUM
technology, inc., 1815 South Meyers Road, Oakbrook Terrace, Illinois
60181.
(2) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. The numbers and percentages of shares owned by
the Company's directors and executive officers include shares issuable
upon the exercise by the respective individual of stock options that are
exercisable within 60 days after October 31, 1997 in the following
amounts: Mr. Filipowski--2,082,500; Mr. Cullinane--617,500; Mr.
Humenansky--747,500; Mr. Devick--9,333; Mr. Slowey--274,750; Mr. Tatro--
207,782; Mr. Fulgoni--19,333; Mr. Frigo--0; and Mr. Cowie--9,333.
(3) Includes 189,000 shares held by a foundation established by Mr. Filipowski
and as to which he disclaims beneficial ownership.
(4) As reported on a Schedule 13G/A filed with the Commission on February 12,
1997 (the "Price 13G") jointly by T. Rowe Price Associates, Inc. ("Price
Associates") and T. Rowe Price Science Technology Fund, Inc. ("Price
Fund"). According to the Price 13G, Price Associates has sole voting power
with respect to 235,753 shares and sole dispositive power with respect to
all 6,999,990 shares and Price Fund has sole voting power with respect to
3,000,000 shares. The address of Price Associates and Price Fund is 100 E.
Pratt Street, Baltimore, Maryland 21202.
(5) As reported on a Schedule 13G/A filed with the Commission on February 7,
1997 (the "Jennison 13G") by Jennison Associates Capital Corp.
("Jennison"). According to the Jennison 13G, Jennison has sole voting
power with respect to 11,600 shares, shared voting power with respect to
4,936,200 shares and shared dispositive power with respect to all
5,740,500 shares. The address of Jennison is 466 Lexington Avenue, New
York, New York 10017.
(6) Includes 41,000 shares held by Mr. Tatro, as co-trustee with his wife, of
trusts for their benefit.

44
<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, $.001 par value per share (the "Preferred Stock"). As of
October 31, 1997, 62,924,476 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"), copies of which have been
filed 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 in connection with transactions contemplated
by this Prospectus, 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 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 one-hundredth of a Preferred Rights
Share (the "Rights Purchase Price"), subject to adjustment. Each one 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

45
<PAGE>

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 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 of the Company may 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 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 of
the Company may 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

46
<PAGE>

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 has been filed 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.

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

47
<PAGE>

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 time within the
three-year 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 period. 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 a majority of the
Company's 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.

SHARES ELIGIBLE FOR FUTURE SALE

As of October 31, 1997, the Company had 62,924,476 shares of Common Stock
outstanding. Of those shares, 62,084,297 are freely tradable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or registration under the Securities Act. The remaining
840,179 outstanding shares of Common stock were issued and sold in private
transactions ("Restricted Shares") and may not be resold unless registered
under the Securities Act or sold in accordance with an exemption therefrom,
such as Rule 144 thereunder.

In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from the Company or
an affiliate of the Company within the previous one year would be entitled to
sell in the public market within any three-month period a number of shares
that does not exceed the greater of (i) one percent of the then outstanding
shares of Common Stock or (ii) the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities
and Exchange Commission. Sales pursuant to Rule 144 are also subject to
certain other requirements relating to manner of sale, notice, and the
availability of current public information about the Company. A person who is
deemed not to have been an affiliate of the Company at any time during the
three months immediately preceding a sale and who beneficially owns shares
that were not acquired from the Company or an affiliate of the Company within
the past two years is entitled to sell such shares under Rule 144(k) without
regard to the foregoing limitations.

The Company has registered under the Securities Act all shares reserved for
issuance under the Directors' Plan, the Purchase Plan, the Employee Plan and
the 1994 Plan. All shares purchased in the future under such plans will be
available for resale in the public market without restriction, except that
affiliates must comply with the provisions of Rule 144 other than the holding
period requirement.

EXPERTS

The consolidated financial statements of PLATINUM technology, inc., as of
December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996, appearing in this Prospectus and the Registration
Statement relating to this Prospectus have been audited by KPMG Peat Marwick
LLP,

48
<PAGE>

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 and Arthur Andersen 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 statements of operations, stockholders' equity, and cash
flows of Trinzic Corporation for the year ended March 31, 1995 (combined with
those of PLATINUM technology, inc. for the year ended December 31, 1994 and
not presented separately herein) have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing in the Registration
Statement, and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

49
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited).............................................................. F-2
Consolidated Statements of Operations for the six months ended June 30,
1996 (unaudited) and 1997 (unaudited).................................... F-3
Consolidated Statements of Cash Flows for the six months ended June 30,
1996 (unaudited) and 1997 (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, 1995 and 1996.............. F-7
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996...................................................... F-8
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996......................................... F-9
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996...................................................... F-10
Notes to Consolidated Financial Statements................................ F-11
</TABLE>

F-1
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1996 1997
------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 140,783 $ 72,941
Short-term investment securities.................... 42,755 53,155
Trade accounts receivable, net of allowances of
$2,503 and $1,674.................................. 165,131 144,076
Installment accounts receivable, net of allowances
of $395 and $427................................... 13,603 8,079
Accrued interest and other current assets........... 11,729 22,964
Refundable income taxes............................. 629 364
--------- ---------
Total current assets.............................. 374,630 301,579
--------- ---------
Non-current investment securities..................... 2,135 1,944
Property and equipment, net........................... 72,750 71,920
Purchased and developed software, net................. 82,438 92,102
Excess of cost over net assets acquired, net of
accumulated amortization of $10,610 and $12,665...... 37,382 35,511
Non-current installment receivables, net of allowances
of $816 and $786..................................... 21,665 22,880
Other assets.......................................... 27,572 30,655
--------- ---------
Total assets...................................... $ 618,572 $ 556,591
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables........................ $ 7,872 $ 5,997
Income taxes payable................................ 2,420 1,627
Accounts payable.................................... 15,436 21,094
Accrued commissions and bonuses..................... 10,622 4,595
Accrued royalties................................... 3,913 6,361
Accrued restructuring costs......................... -- 29,727
Other accrued liabilities........................... 29,798 28,239
Current maturities of long-term obligations......... 3,246 3,732
Deferred revenue.................................... 84,166 77,695
--------- ---------
Total current liabilities......................... 157,473 179,067
--------- ---------
Acquisition-related payables.......................... 2,502 2,502
Deferred revenue...................................... 38,674 54,031
Deferred rent......................................... 8,360 8,470
Long-term obligations, net of current maturities...... 115,803 116,409
--------- ---------
Total liabilities................................. 322,812 360,479
--------- ---------
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 60,577 and 61,717........... 61 62
Paid-in capital..................................... 487,417 500,599
Accumulated deficit................................. (208,788) (312,990)
Unrealized holding gains on marketable securities... 17,805 11,350
Foreign currency translation adjustment............. (735) (2,909)
--------- ---------
Total stockholders' equity........................ 295,760 196,112
--------- ---------
Total liabilities and stockholders' equity........ $ 618,572 $ 556,591
========= =========
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1997
-------- ---------
<S> <C> <C>
Revenues:
Software products....................................... $ 92,123 $ 128,937
Maintenance............................................. 47,664 60,084
Professional services................................... 56,469 63,040
-------- ---------
Total revenues........................................ 196,256 252,061
-------- ---------
Costs and expenses:
Professional services................................... 54,907 59,030
Product development and support......................... 71,639 91,385
Sales and marketing..................................... 80,887 100,137
General and administrative.............................. 17,918 33,742
Restructuring charges................................... -- 57,319
Merger costs............................................ 5,782 3,706
Acquired in-process technology.......................... 7,005 17,164
-------- ---------
Total costs and expenses.............................. 238,138 362,483
-------- ---------
Operating loss............................................ (41,882) (110,422)
Other income, net......................................... 2,135 7,512
-------- ---------
Loss before income taxes.................................. (39,747) (102,910)
Income taxes.............................................. (9,970) 1,292
-------- ---------
Net loss.................................................. $(29,777) $(104,202)
======== =========
Net loss per share........................................ $ (0.53) $ (1.70)
======== =========
Shares used in computing per share amounts................ 56,483 61,212
======== =========
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(29,777) $(104,202)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 16,183 27,067
Acquired in-process technology........................ 7,005 17,164
Write-off of fixed assets, capitalized software and
other intangible assets in conjunction with the
restructuring plan................................... -- 19,687
Unrealized holding gains on marketable equity
securities........................................... -- (5,050)
Realized net gain on sales of investment securities... -- (3,596)
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables................... (49,993) (67,928)
Deferred income taxes............................... (10,488) (351)
Accrued interest and other current assets........... 2,782 (11,140)
Accounts payable and accrued liabilities............ (3,294) 23,386
Deferred revenue.................................... 9,334 8,886
Income taxes payable................................ (780) (528)
Other............................................... 2,069 (6,702)
-------- ---------
Net cash used in operating activities............. (56,959) (103,307)
-------- ---------
Cash flows from investing activities:
Purchases of investment securities...................... (17,765) (19,616)
Sales of investment securities.......................... 20,377 4,598
Maturities of investment securities..................... 3,919 7,098
Purchases of property and equipment..................... (17,648) (11,464)
Purchased and developed software........................ (18,213) (30,667)
Payments for acquisitions............................... (8,792) (8,998)
Other assets............................................ (2,156) (2,685)
-------- ---------
Net cash used in investing activities............. (40,278) (61,734)
-------- ---------
Cash flows from financing activities:
Proceeds from the exercise of stock options and Stock
Purchase Plan.......................................... 2,215 6,307
Proceeds from the sale of receivables................... 41,718 93,800
Short-term borrowings................................... 1,000 --
Payments on borrowings.................................. (6,374) (2,908)
Other................................................... 200 --
-------- ---------
Net cash provided by financing activities......... 38,759 97,199
-------- ---------
Adjustment to conform fiscal years of pooled businesses... (140) --
-------- ---------
Net decrease in cash and cash equivalents................. (58,618) (67,842)
Cash and cash equivalents at the beginning of the period.. 115,809 140,783
-------- ---------
Cash and cash equivalents at the end of the period........ $ 57,191 $ 72,941
======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of
PLATINUM technology, inc. and its subsidiaries (collectively, the "Company")
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 Australian Technology Resources Pty Limited ("ATR") and I&S
Informationstechnik and Services GmbH ("I&S") during the first quarter of 1997
are being treated as poolings of interests for accounting purposes,
consolidated financial statements for the periods prior to the acquisitions
have been restated to reflect 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, 1996, included elsewhere herein.

Certain prior period costs and expenses have been reclassified to conform to
the current period presentation.

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, 1995 and 1996, 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, 1996.
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. In 1994, we did not
audit the financial statements of Trinzic Corporation, Locus Computing
Corporation, and Softool Corporation, wholly-owned subsidiaries, which
statements reflect total revenue constituting 34 percent of the related
consolidated total for that year. 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, 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Chicago, Illinois
February 28, 1997

F-6
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
AS OF DECEMBER
31,
------------------
ASSETS 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $115,809 $140,783
Short-term investment securities......................... 7,802 42,755
Trade accounts receivable, net of allowances of $2,695
and $2,503.............................................. 125,473 165,131
Installment accounts receivable, net of allowances of
$103 and $395........................................... 6,058 13,603
Accrued interest and other current assets................ 10,568 11,729
Refundable income taxes.................................. 355 629
-------- --------
Total current assets................................... 266,065 374,630
-------- --------
Non-current investment securities.......................... 13,126 2,135
Property and equipment, net................................ 51,420 72,750
Purchased and developed software, net...................... 52,271 82,438
Excess of cost over net assets acquired, net of accumulated
amortization of $6,249 and
$10,610................................................... 35,526 37,382
Non-current installment receivables, net of allowances of
$11 and $816.............................................. 527 21,665
Other assets............................................... 33,332 27,572
-------- --------
Total assets........................................... $452,267 $618,572
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables............................. $ 12,518 $ 7,872
Income taxes payable..................................... 1,068 2,420
Accounts payable......................................... 16,899 15,436
Accrued commissions and bonuses.......................... 8,598 10,622
Accrued royalties........................................ 1,637 3,913
Other accrued liabilities................................ 31,227 29,798
Current maturities of long-term obligations.............. 7,151 3,246
Deferred revenue......................................... 58,977 84,166
-------- --------
Total current liabilities.............................. 138,075 157,473
-------- --------
Acquisition-related payables............................... 9,756 2,502
Deferred revenue........................................... 3,795 38,674
Deferred rent.............................................. 8,795 8,360
Long-term obligations, net of current maturities........... 1,633 115,803
-------- --------
Total liabilities...................................... 162,054 322,812
-------- --------
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
54,598 and 60,577....................................... 55 61
Paid-in capital.......................................... 433,856 487,417
Notes receivable......................................... (515) --
Accumulated deficit...................................... (143,771) (208,788)
Unrealized holding gains on marketable securities........ -- 17,805
Foreign currency translation adjustment.................. 588 (735)
-------- --------
Total stockholders' equity............................. 290,213 295,760
-------- --------
Total liabilities and stockholders' equity............. $452,267 $618,572
======== ========
</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,
-----------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Software products............................. $113,749 $ 158,597 $243,938
Maintenance................................... 58,837 76,498 102,364
Professional services......................... 71,021 91,316 121,763
-------- --------- --------
Total revenues.............................. 243,607 326,411 468,065
Costs and expenses:
Professional services......................... 66,242 92,374 116,133
Product development and support............... 51,404 94,027 155,277
Sales and marketing........................... 72,850 113,978 182,597
General and administrative.................... 29,034 34,097 39,224
Merger costs.................................. -- 30,819 5,782
Acquired in-process technology................ 24,594 88,493 48,456
-------- --------- --------
Total costs and expenses.................... 244,124 453,788 547,469
-------- --------- --------
Operating loss.................................. (517) (127,377) (79,404)
Other income, net............................... 2,848 4,130 5,237
-------- --------- --------
Income (loss) before income taxes............... 2,331 (123,247) (74,167)
Income taxes.................................... 3,893 (11,680) (9,245)
-------- --------- --------
Net loss........................................ $ (1,562) $(111,567) $(64,922)
======== ========= ========
Net loss per share.............................. $ (0.04) $ (2.50) $ (1.14)
======== ========= ========
Shares used in computing per share amounts...... 41,294 44,671 56,968
</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,
----------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Balance at beginning of
year................... 34,956 $ 35 39,670 $ 40 54,598 $ 55
Exercise of stock
options................ 1,186 1 803 1 517 1
Issuance of common stock
under Stock Purchase
Plan................... -- -- -- -- 197 --
Issuance of common
stock.................. 3,629 4 14,125 14 5,265 5
Repurchase of common
stock.................. (100) -- -- -- -- --
Adjustment to conform
fiscal years of pooled
businesses............. (1) -- -- -- -- --
------ -------- ------ --------- ------ ---------
Balance at end of year.. 39,670 $ 40 54,598 $ 55 60,577 $ 61
====== ======== ====== ========= ====== =========
Paid in capital:
Balance at beginning of
year................... $122,353 $ 191,194 $ 433,856
Exercise of stock
options................ 5,083 4,754 2,380
Income tax benefit
related to stock
options................ 108 -- --
Issuance of common stock
under Stock Purchase
Plan................... -- -- 1,801
Issuance of common
stock.................. 65,065 237,907 49,515
Repurchase of common
stock.................. (1,413) -- --
Amortization of shelf
registration costs..... -- -- (135)
Adjustment to conform
fiscal years of pooled
businesses............. (2) 1 --
-------- --------- ---------
Balance at end of year.. $191,194 $ 433,856 $ 487,417
======== ========= =========
Notes receivable:
Balance at beginning of
year................... $ (247) $ (333) $ (515)
Exercise of stock
options................ (7) -- --
Issuance of notes
receivable............. (79) (200) --
Repayment of note
receivable............. -- 18 --
Reclassification to non-
current asset.......... -- -- 515
-------- --------- ---------
Balance at end of year.. $ (333) $ (515) $ --
======== ========= =========
Accumulated deficit:
Balance at beginning of
year................... $(28,475) $ (30,958) $(143,771)
Net loss................ (1,562) (111,567) (64,922)
Other................... (296) (22) --
Adjustment for
immaterial pooled
business............... -- -- 45
Adjustment to conform
fiscal years of pooled
businesses............. (625) (1,224) (140)
-------- --------- ---------
Balance at end of year.. $(30,958) $(143,771) $(208,788)
======== ========= =========
Unrealized appreciation
in marketable
securities:
Balance at beginning of
year................... $ -- $ -- $ --
Net unrealized holding
gains, net of income
taxes.................. -- -- 17,805
-------- --------- ---------
Balance at end of year.. $ -- $ -- $ 17,805
======== ========= =========
Foreign currency
translation adjustment:
Balance at beginning of
year................... $ (316) $ 183 $ 588
Translation adjustment.. 476 405 (1,323)
Adjustment to conform
fiscal years of pooled
businesses............. 23 -- --
-------- --------- ---------
Balance at end of year.. 183 588 (735)
-------- --------- ---------
Total stockholders'
equity.................. $160,126 $ 290,213 $ 295,760
======== ========= =========
</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,
------------------------------ --- ---
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $ (1,562) $(111,567) $ (64,922)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization...... 13,640 24,140 38,824
Acquired in-process technology..... 24,594 88,493 48,456
Unrealized holding gains on
marketable equity securities...... -- -- (920)
Realized net gain on sales of
investment securities............. -- (332) (1,032)
Write-off of capitalized software
in connection with product
stabilization and mergers......... -- 942 654
Noncash compensation............... 186 78 --
Changes in assets and liabilities,
net of acquisitions:
Trade and installment
receivables..................... (25,137) (56,748) (196,547)
Deferred income taxes............ 1,335 (13,000) (16,337)
Accrued interest and other
current assets.................. 496 (3,134) (1,170)
Accounts payable and accrued
liabilities..................... 3,901 6,888 (7,080)
Deferred revenue................. 9,494 20,325 59,196
Income taxes refundable
(payable)....................... (2,234) 2,615 993
Other............................ 6,429 16,073 6,657
-------- --------- ---------
Net cash provided by (used in)
operating activities.......... 31,142 (25,227) (133,228)
-------- --------- ---------
Cash flows from investing activities:
Purchases of investment securities... (25,079) (61,484) (18,797)
Sales of investment securities....... -- 75,519 30,223
Maturities of investment securities.. 18,910 10,753 5,846
Purchases of property and equipment.. (14,250) (39,435) (35,542)
Purchased and developed software..... (10,898) (20,742) (41,279)
Payments for acquisitions............ (22,756) (103,085) (17,853)
Other assets......................... 1,549 (482) (3,749)
-------- --------- ---------
Net cash used in investing
activities.................... (52,524) (138,956) (81,151)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net of issuance costs........ 66,051 194,420 --
Proceeds from issuance of convertible
notes, net of issuance costs........ -- -- 110,783
Repurchase of common stock........... (1,413) (2) --
Proceeds from exercise of stock
options and Stock Purchase Plan..... 3,826 4,144 4,182
Income tax benefit from stock option
exercises........................... 108 -- --
Proceeds from the sale of
receivables......................... -- 2,903 129,328
Short-term borrowings................ 6,921 8,205 1,115
Payments on borrowings............... (4,058) (7,331) (5,915)
Other................................ (1,234) (254) --
-------- --------- ---------
Net cash provided by financing
activities.................... 70,201 202,085 239,493
-------- --------- ---------
Adjustment to conform fiscal years of
pooled businesses..................... 276 (2,203) (140)
-------- --------- ---------
Net increase in cash and cash
equivalents........................... 49,095 35,699 24,974
Cash and cash equivalents at beginning
of year............................... 31,015 80,110 115,809
-------- --------- ---------
Cash and cash equivalents at end of
year.................................. $ 80,110 $ 115,809 $ 140,783
======== ========= =========
</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 provide
related professional services, that help chief information officers ("CIOs")
better manage their software infrastructures. The Company's products and
services increase the performance and interoperability of computing systems
and databases and provide users, primarily in large and data intensive
organizations, with more reliable and productive access to and use of critical
information. The Company's products typically perform fundamental functions
and mission-critical automation, such as maintenance of data integrity,
systems security, systems scheduling, project and process management, and end-
user specific analysis and reporting. The Company develops software products
under four business units: database management, systems management,
application lifecycle and data warehouse. The Company markets and supports its
products and services principally through its own sales organization,
including an international network of wholly-owned subsidiaries.

Use of Estimates

In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, 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 periods. 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

Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery and customer acceptance, when
all significant contractual obligations have been satisfied and the collection
of the resulting receivables are reasonably assured. Software product sales
under extended payment terms are discounted to present value. Revenues from
maintenance fees implicit in software product sales or separately priced
maintenance agreements are 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
contract revenues are recognized as services are performed. Fixed-price
contract revenues are 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 three months or less. Investment securities consist
primarily of state and municipal bonds with original maturities generally
ranging from two to ten years, corporate bonds with original maturities
generally ranging from six months to one year and equity securities. The
Company classifies its investment securities as either available-for-sale or
trading and reports them at fair value.

F-11
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. For
available-for-sale securities, unrealized holding gains and losses, net of
income taxes, are reported as a separate component of stockholders' equity.
For trading securities, unrealized holding gains and losses are reflected in
pre-tax earnings.

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
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 Statement of
Financial Accounting Standards ("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, 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 years, using the straight-line method. This method generally results in
greater amortization expense per year 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 of cost 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

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. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
earnings in the period of enactment.

Fair Value of Financial Instruments and Long-Lived Assets

The Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1996: cash and cash equivalents; trade and installment receivables; accrued
interest and other current assets; refundable income taxes; acquisition-
related payables;

F-12
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

accounts payable and other accrued liabilities; and long-term obligations,
excluding convertible subordinated notes. Investment securities are discussed
in note 3, and convertible subordinated notes are discussed in note 11.

On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
under which the Company has reviewed long-lived assets and certain intangible
assets and determined that their carrying values as of December 31, 1996 are
recoverable in future periods.

Earnings Per Share

Net income per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of common stock equivalents 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
common stock equivalents.

Foreign Currency Translation and Transactions

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. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.

Stock-Based Compensation

On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and provide pro forma net income and earnings
per share disclosures as if the fair value method defined in SFAS No. 123 had
been applied. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures of SFAS No. 123.

Supplemental Cash Flow Disclosure

Income tax refunds received by the Company amounted to $72,000, $933,000 and
$307,000 in 1994, 1995 and 1996, respectively. Cash paid for income taxes in
1994, 1995 and 1996 was $4,248,000, $987,000 and $2,179,000, respectively.
Cash paid for interest in 1994, 1995 and 1996 was $377,000, $824,000 and,
$787,000, respectively.

Reclassifications

Certain prior year balance sheet items have been reclassified to conform to
the 1996 presentation. In addition, certain prior years' costs and expenses
have been reclassified to conform to the 1996 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, in exchange for 1,085,450 shares of the Company's
Common Stock, $.001 par

F-13
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

value (the "Common Stock"), which had a market value, based upon the trading
price of the Common Stock on the Nasdaq National Market ("Market Value"), of
approximately $20,000,000 at the time of the acquisition. 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, which
had a Market Value of approximately $38,000,000 at the time of the
acquisition. 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, which had a Market Value of
approximately $33,000,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase 231,905
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,
which had a Market Value of approximately $23,000,000 at the time of the
acquisition. 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, which had a Market Value of approximately $150,000,000 at the
time of the acquisition. 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, which had a Market Value of approximately $25,000,000
at the time of the acquisition.

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, which had a Market Value of approximately $36,000,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 212,427 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
information technology consulting services, in exchange for 762,503 shares of
Common Stock, which had a Market Value of approximately $12,800,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 87,912 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
information technology consulting services, in exchange for 319,926 shares of
Common Stock, which had a Market Value of approximately $6,300,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 59,986 shares of Common Stock.

F-14
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for
313,784 shares of Common Stock, which had a Market Value of approximately
$5,000,000 at the time of the acquisition.

On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("I&S"), a leading provider
of information technology consulting services, in exchange for 1,089,867
shares of Common Stock, which had a Market Value of approximately $17,200,000
at the time of the acquisition.

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 and
1996 amounted to $30,819,000 and $5,782,000, respectively, of which $1,942,000
and $353,000, respectively, were included in other accrued liabilities at
December 31, 1995 and 1996. These costs included investment banking and other
professional fees, write downs of certain assets, employee severance payments,
costs of closing excess office facilities and various other expenses.

The following information reconciles total revenues and net income (loss) of
PLATINUM technology, inc. as previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 with the amounts
presented in the accompanying consolidated statements of operations for the
years ended December 31, 1994, 1995 and 1996.

<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
NET INCOME NET INCOME NET INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1).. $225,439 $(2,644) $304,676 $(111,933) $439,190 $(67,962)
ATR.......... 10,634 1,016 9,492 301 9,132 142
I&S.......... 7,534 66 12,243 65 19,743 2,898
-------- ------- -------- --------- -------- --------
Total.... $243,607 $(1,562) $326,411 $(111,567) $468,065 $(64,922)
======== ======= ======== ========= ======== ========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the poolings of interests consummated during
1997. All merger costs and acquired in-process technology charges are
reflected in the historical results of PLATINUM.

The following information sets forth the 1996 results of Prodea, Paradigm,
Axis, ATR and I&S during the periods preceding their acquisition. The 1996
results presented for Prodea represent the one month ended January 31, 1996.
The 1996 results for Paradigm and Axis are for the three months ended March
31, 1996. The 1996 ATR and I&S results are for the year ended December 31,
1996.

<TABLE>
<CAPTION>
NET INCOME
REVENUES (LOSS)
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Prodea................................................ $ 40 $ (264)
Paradigm.............................................. 3,837 261
Axis.................................................. 1,844 112
ATR................................................... 9,132 142
I&S................................................... 19,743 2,898
</TABLE>

F-15
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 included more than once
were $2,514,000 and $441,100, respectively. The revenue 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 NET
ENDED REVENUES 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>

During 1996, the Company consummated an immaterial acquisition accounted for
as a pooling of interests. The Company did not restate the consolidated
financial statements to reflect the results of this entity for the periods
preceding the acquisition. As a result, the retained earnings of this entity
were recorded as of the acquisition date, causing a $45,000 adjustment to the
Company's accumulated deficit in 1996. This adjustment is reflected in the
consolidated statement of stockholders' equity.

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. 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
consolidated statements of operations reflect the results of operations of the
purchased companies since the effective dates of the acquisitions.

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 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 charges for the use of contributory assets. The future net
revenue stream is discounted to present value based upon the specific level of
risk associated with 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.

The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and
development activities which required further refinement and testing. The

F-16
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

development activities required to complete the acquired in-process
technologies included additional coding, cross-platform porting and
validation, quality assurance procedures and customer beta testing.

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

Effective August 1994, the Company acquired all of the outstanding capital
stock of Dimeric Development, Inc. ("Dimeric"), a developer of database tools,
for approximately $7,600,000.

Effective September 1994, the Company acquired the net assets of Aston
Brooke Corporation ("Aston Brooke"), a developer of performance management
tools, for approximately $6,500,000.

Effective December 1994, the Company acquired the net assets of AutoSystems
Corporation ("AutoSystems"), a leading provider of job management tools for
commercial UNIX workstations and open systems, for approximately $10,000,000.

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 all of the outstanding capital
stock of SQL Software Corporation ("SQL"), a provider of Windows-based
development tools for managing multiple relational databases, for
approximately $2,000,000; the assets of Viatech Development, Inc. ("Viatech"),
a provider of electronic distribution tools, for approximately $5,300,000; and
the assets of BrownStone Solutions, Inc. ("BrownStone"), a vendor of
repository technology, for approximately $6,300,000. Also effective March
1995, the Company acquired all of the outstanding capital stock of RELTECH
Group, Inc. ("Reltech"), a vendor of repository technology, for approximately
$9,800,000 in cash plus 318,453 shares of Common Stock, which had a Market
Value of approximately $7,500,000 at the time of the acquisition.

Effective July 1995, the Company acquired all of the outstanding capital
stock of Advanced Software Concepts, Inc. ("ASC"), a leading provider of
distributed storage network management solutions for heterogeneous
environments, for approximately $7,000,000.

Effective November 1995, the Company acquired substantially all of the
assets of ProtoSoft, Inc. ("ProtoSoft"), a pioneer in portable, object-
oriented analysis and design software for building enterprise-wide
applications and the developer of Paradigm Plus, for approximately $30,000,000
in cash plus 582,121 shares of Common Stock, which had a Market Value of
approximately $10,000,000 at the time of the acquisition.

Effective December 1995, the Company purchased all of the outstanding
capital stock of AIB Software Corporation ("AIB"), a leader in multi-platform
application development and testing tools, for approximately $2,200,000 in
cash plus 478,045 shares of Common Stock, which had a Market Value of
approximately $9,000,000 at the time of the acquisition; Protellicess
Software, Inc. ("Protellicess"), a leader in enterprise project and process
management software, in exchange for 822,077 shares of Common Stock, which had
a Market Value of approximately $15,000,000 at the time of the acquisition;
and BMS Computer, Inc. ("BMS"),

F-17
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

a leader in integrated chargeback systems that provide job accounting,
chargeback, cost analysis and resource reporting for heterogeneous
environments, for approximately $6,900,000. In conjunction with the
acquisitions of AIB and Protellicess, the Company assumed stock options which
converted into options to purchase 116,144 and 128,320 shares of Common Stock,
respectively.

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.

Effective January 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. ("AST"), a leading developer of
performance management tools, in exchange for approximately $445,000 in cash
plus 344,640 shares of Common Stock, which had a Market Value of approximately
$5,800,000 at the time of the acquisition.

Effective July 1996, the Company acquired all of the outstanding capital
stock of Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), a leading provider of production scheduling
software, for approximately $1,900,000. Also effective July 1996, the Company
acquired all of the outstanding capital stock of Grateful Data, Inc. (d/b/a
TransCentury Data Systems) ("Grateful Data"), a Year 2000 solution provider,
for $100,000 in cash plus 333,333 shares of Common Stock, which had a Market
Value of approximately $4,000,000 at the time of the acquisition.

Effective December 1996, the Company acquired all of the outstanding capital
stock of VREAM, Inc. ("VREAM"), a leading provider of virtual reality software
for the World Wide Web and other interactive environments, in exchange for
760,383 shares of Common Stock, which had a Market Value of approximately
$10,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 70,257 shares of Common
Stock.

During 1996, the Company also acquired certain software technologies for an
aggregate purchase price of approximately $3,513,000.

Internationally, effective December 1996, the Company acquired substantially
all of the assets of the Access Manager business unit of the High Performance
Systems division of International Computers Limited ("Access Manager"), a
leading provider of single-sign-on security computer software for enterprise
computing technology, in exchange for 2,286,222 shares of Common Stock, which
had a Market Value of approximately $30,000,000 at the time of the
acquisition.

In conjunction with 1996 acquisitions accounted for as purchases, the
Company assumed liabilities of approximately $7,300,000. These liabilities
were primarily composed of costs for involuntary termination of employees,
legal expenses and other professional services expenses. The plan of
termination includes severance and related costs of employees of the acquired
companies and is planned to be completed in 1997. Any significant adjustments
to amounts provided for under the plan will be treated as adjustments to
excess of cost over net assets acquired.

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

F-18
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

for informational 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>
1995 1996
--------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Revenues..................................... $ 354,992 $472,782
Net loss..................................... (113,415) (72,076)
Net loss per share........................... (2.54) (1.27)
</TABLE>

The Company estimates aggregate payments for acquisition-related payables,
in connection with the acquisitions described above, to be $7,872,000,
$1,892,000 and $610,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.

The Company may be required to make payments in future years to various
former owners of acquired businesses based upon the attainment of certain
operating results by such businesses. The amounts of these payments cannot be
estimated. These additional payments will be charged to compensation expense
or recorded as an adjustment to the respective purchase price in the periods
in which such payments are made.

3. INVESTMENT SECURITIES

At December 31, 1996, the Company classified its marketable debt and equity
securities as either available-for-sale or trading. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity and are not actively traded. For investment securities
classified as available-for-sale, net unrealized holding gains of
approximately $29,936,000, reduced by income taxes of approximately
$12,131,000, are recorded as a separate component of stockholders' equity. For
trading securities, unrealized holding gains of approximately $920,000 are
reflected in pre-tax earnings for the year ended December 31, 1996.

At December 31, 1995, all marketable securities were classified as
available-for-sale and were carried at amortized cost, which approximated the
fair market value.

During 1996, certain cost-basis equity investments became marketable equity
securities and were reclassified as either available-for-sale or trading. The
Company owns equity interests in certain technology companies which executed
initial public offerings during 1996. As a result, the Company reclassified
these investments based upon future trading intentions. The cost and
unrealized gain, net of income taxes, on the investment transferred to the
available-for-sale classification were approximately $8,383,000 and
$17,800,000, respectively. The cost and unrealized gain on the investment
transferred to the trading classification were approximately $1,125,000 and
$920,000, respectively.

F-19
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

<TABLE>
<CAPTION>
1995
----------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale:
U.S. Government
bonds.............. $ 2,015 $-- $ (4) $ 2,011
State and municipal
bonds.............. 5,276 6 (16) 5,266
Other............... 511 -- -- 511
------- ---- ---- -------
$ 7,802 $ 6 $(20) $ 7,788
======= ==== ==== =======
Non-current:
Available-for-sale:
U.S. Government
bonds.............. $ 116 $-- $-- $ 116
State and municipal
bonds.............. 7,110 65 (22) 7,153
Other............... 5,900 21 -- 5,921
------- ---- ---- -------
$13,126 $ 86 $(22) $13,190
======= ==== ==== =======
</TABLE>

The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1996
were as follows:

<TABLE>
<CAPTION>
1996
----------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale:
State and municipal
bonds.............. $ 402 $ 1 $-- $ 403
Corporate bonds..... 2,002 -- (1) 2,001
Marketable equity
securities......... 8,383 29,923 -- 38,306
-------- ------- ---- -------
10,787 29,924 (1) 40,710
-------- ------- ---- -------
Trading securities:
Marketable equity
securities......... 1,125 920 -- 2,045
-------- ------- ---- -------
$ 11,912 $30,844 $ (1) $42,755
======== ======= ==== =======
Non-current:
Available-for-sale:
State and municipal
bonds.............. $ 2,122 $ 51 $(38) $ 2,135
======== ======= ==== =======
</TABLE>

The contractual maturities of debt securities at December 31, 1996 were as
follows:

<TABLE>
<CAPTION>
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Due within one year........................................ $ 2,404
Due after one year through five years...................... 1,466
Due after five years....................................... 669
-------
$ 4,539
=======
</TABLE>

F-20
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Under the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were
approximately $467,000 and $(135,000), respectively, for the year ended
December 31, 1995 and $1,032,000 and $0, respectively, for the year ended
December 31, 1996.

4. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures................................... $20,072 $26,568
Computers and software................................... 38,891 62,338
Transportation........................................... 8,132 8,117
Leasehold improvements................................... 13,908 20,780
------- -------
81,003 117,803
Less accumulated depreciation and amortization........... 29,583 45,053
------- -------
$51,420 $72,750
======= =======
</TABLE>

5. PURCHASED AND DEVELOPED SOFTWARE

Purchased and developed software consists of the following:

<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Purchased software....................................... $24,812 $34,618
Software development costs............................... 51,499 89,400
------- -------
76,311 124,018
Less accumulated amortization............................ 24,040 41,580
------- -------
$52,271 $82,438
======= =======
</TABLE>

During the years ended December 31, 1994, 1995 and 1996, $10,898,000,
$19,867,000 and $38,555,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $4,911,000, $6,276,000 and
$11,309,000 during 1994, 1995 and 1996, respectively. The Company recognized
amortization expense applicable to purchased software of $868,000, $3,084,000,
and $6,237,000, during 1994, 1995 and 1996, respectively. During 1995, the
Company wrote-off $942,000 of capitalized software costs related to certain
Trinzic product technologies. During 1996, the Company wrote-off $654,000 of
capitalized software costs related to certain AIB, SII and other product
technologies.

The increase in purchased software costs in 1996 as compared to 1995 is
primarily attributable to the Company's acquisitions and purchases of certain
product technologies.

F-21
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. INSTALLMENT ACCOUNTS RECEIVABLE

Installment accounts receivable consist of the following:

<TABLE>
<CAPTION>
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Current installment receivables.......................... $8,682 $19,763
Allowance for uncollectible amounts...................... (103) (395)
Unamortized discount and maintenance fees................ (2,521) (5,765)
------ -------
$6,058 $13,603
====== =======
Non-current installment receivables...................... $1,777 $40,827
Allowance for uncollectible amounts...................... (11) (816)
Unamortized discount and maintenance fees................ (1,239) (18,346)
------ -------
$ 527 $21,665
====== =======
</TABLE>

The Company offers long-term license agreements, bundling perpetual license,
upgrade and maintenance fees, with financing terms typically ranging from
three to five years. The resulting installment receivables are recorded net of
unamortized discounts and deferred maintenance fees.

The Company sells a significant portion of its installment receivables to
third parties. When these receivables are sold, the Company reduces the gross
installment receivable balance. Additionally, the Company reclassifies the
deferred maintenance to an obligation, which was previously reflected as a
reduction of the related installment receivable balance. The deferred
maintenance is recognized ratably into income over the term of the maintenance
agreement.

Proceeds from the sale of installment receivables for 1995 and 1996 were
approximately $2,903,000 and $129,328,000, respectively. A portion of the
receivables were sold with recourse in 1995 and 1996. As of December 31, 1996,
the Company's maximum exposure under recourse provisions was approximately
$26,100,000. The Company assessed the exposure related to these recourse
provisions and determined the potential liability to be minimal. The fair
market value of the recourse obligation at December 31, 1996 was not
determinable.

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 $241,000, $406,000 and $1,071,000, in 1994, 1995 and 1996,
respectively.

8. LINES OF CREDIT

At December 31, 1996, the Company had unsecured bank lines of credit for
$26,015,000, under which borrowings generally bear interest ranging from LIBOR
plus 1% to the bank's prime rate. These lines of credit are subject to
limitations based upon certain financial covenants. At December 31, 1996,
there were no borrowings outstanding under these lines of credit.

At December 31, 1996, the Company had aggregate letters of credit
outstanding for approximately $1,300,000, with expiration dates ranging from
March 1997 to March 1998. These letters of credit reduce the available line of
credit balance.

F-22
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

As of December 31, 1996, the Company had six stock option plans, which are
described below, as well as several plans that have been assumed pursuant to
acquisitions. The Company applies APB Opinion No. 25 in accounting for its
plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans and its employee stock purchase plan (the "Stock Purchase
Plan"). Had compensation cost for the Company's stock option plans and the
Stock Purchase Plan been determined consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
1995 1996
--------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net loss:
As reported........................................ $(111,567) $(64,922)
Pro forma.......................................... (115,022) (71,022)
Net loss per share:
As reported........................................ $ (2.50) $ (1.14)
Pro forma.......................................... (2.57) (1.25)
</TABLE>

Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option and Stock Purchase Plan, before effects for income
taxes, was approximately $5,809,000 and $10,200,000 in 1995 and 1996,
respectively.

Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The 1995 Employee Incentive
Plan, 1994 Stock Incentive Plan, 1991 Option Plan and 1989 Option Plan provide
for the granting of options to employees and non-employee directors for up to
an aggregate of 12,560,000 shares. Under the Chief Executive Option Plan, the
Company has authority to grant options for up to 1,600,000 shares to its Chief
Executive Officer and President. Under the Directors' Option Plan, the Company
may grant options for up to 500,000 shares to non-employee directors.

In general, the options granted under the Company Plans during 1995 and
1996, excluding the Directors' Option Plan, have similar provisions. Under
these plans, the Company has granted both non-qualified and incentive stock
options. These options have an exercise price equal to the closing market
price of the Company's stock on the date of grant, have a legal life of ten
years, and typically vest in equal annual installments over a four-year period
beginning one year from the date of grant. Certain options granted prior to
1995 have a legal life of fifteen years. The specific provisions of any grant
are determined by the Compensation Committee of the Board of Directors or
another designated committee.

Under the Directors' Option Plan, only non-qualified options have been
granted. These options have an exercise price equal to the closing market
price of the Company's stock on the date of grant and have a legal life of ten
years. The options granted in 1995 under this plan vested immediately, while
those granted in 1996 vest annually over a three-year period beginning one
year from the date of grant.

As discussed in note 2, the Company has assumed various option grants
related to certain acquisitions in 1995 and 1996. The assumption of these
option grants resulted in the deemed issuance by the Company of options for
1,206,566 and 430,582 shares in 1995 and 1996, respectively. The options
assumed reflect outstanding options at the time of acquisition. The provisions
of the assumed options are generally the same as those provided for in the
original option agreements.

In 1996, the Company began offering the Stock Purchase Plan to its employees
who work more than 20 hours per week. Under this plan, the Company is
authorized to issue up to 5,000,000 shares of Common Stock. Under terms of the
Stock Purchase Plan and current policies of the administrative committee,
employees may

F-23
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

elect to withhold 1 to 20 percent of their cash compensation through regular
payroll deductions to purchase Common Stock each year. The purchase price of
the stock is 85 percent of the lower of the price at the grant date, which is
the beginning of the plan year (March 1st) or the exercise date, which is the
end of each plan quarter (February 28, May 31, August 31 and November 30). As
of December 31, 1996, approximately 41% of eligible employees had participated
in the Stock Purchase Plan since inception. Under the Stock Purchase Plan, the
Company sold 197,165 shares to employees in 1996.

The fair value of the stock option grants is estimated using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used for stock option grants in 1995 and 1996, respectively: option price,
which equals the fair market value at date of grant, of $18.97 and $12.39;
expected dividend yields of 0% for both years; expected volatility of 55% for
both years; risk-free interest rates of 6.12% and 6.37%; and expected life of
4.5 years for both years. The fair value of the employees' purchase rights
pursuant to the Stock Purchase Plan are estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
purchase rights granted in 1996: fair market value of $10.75; option price of
$9.14; expected dividend yield of 0%; expected volatility of 51%; risk-free
interest rate of 5.42%; and expected life of three months.

Stock option plan activity during the years ended December 31, 1994, 1995
and 1996 was as follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- ---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 6,165,392 $ 7.55 6,853,673 $ 9.45 8,026,949 $12.09
Granted................. 2,055,334 12.83 2,493,753 18.97 2,606,687 12.39
Exercised............... (1,084,377) 4.21 (742,482) 6.29 (516,874) 4.60
Canceled................ (282,676) 12.59 (577,995) 7.60 (265,407) 14.61
---------- --------- ---------
Outstanding at end of
year................... 6,853,673 9.45 8,026,949 12.09 9,851,355 12.41
========== ========= =========
Options exercisable at
year-end............... 3,719,479 3,915,068 4,777,941
========== ========= =========
Weighted-average fair
value of options
granted during the
year................... $ 9.76 $ 6.41
</TABLE>

The following table summarizes information about fixed stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
RANGE OF WEIGHTED-AVG.
EXERCISE NUMBER OF REMAINING WEIGHTED-AVG. NUMBER OF WEIGHTED-AVG.
PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.0025-
9.75 1,689,672 5.71yrs. $ 3.10 1,516,126 $ 3.04
10.13-
12.00 1,875,341 9.78 10.57 954,951 10.40
12.38-
14.00 2,597,393 9.39 12.68 951,890 12.83
14.13-
18.19 1,708,715 10.48 15.25 735,913 15.29
$18.25-
57.30 1,980,234 8.56 19.28 619,061 19.58
--------- ---------
9,851,355 8.86 12.41 4,777,941 10.49
========= =========
</TABLE>

F-24
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1994, 1995 and
1996 consisted of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................... $1,084 $ 315 $ --
State......................................... 190 133 175
Foreign....................................... 1,256 740 2,035
Deferred:
Federal....................................... 985 (7,899) (7,838)
State......................................... 378 (4,969) (3,617)
------ -------- -------
$3,893 $(11,680) $(9,245)
====== ======== =======
</TABLE>

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

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax computed at statutory rate....... $ 816 $(43,137) $(25,959)
State income tax, net of Federal tax
benefit.................................... 568 (4,836) (3,442)
Research and experimentation credits........ (1) (1,213) (1,491)
Foreign tax credit.......................... (60) (239) (59)
Foreign taxes............................... 1,423 240 751
Foreign sales corporation................... (401) (294) (1,036)
Municipal interest.......................... (431) (554) (289)
Utilization of net operating losses......... (302) -- --
Stock acquisitions.......................... 2,626 11,450 6,281
Change in valuation allowance............... (2,293) 22,856 12,608
Nondeductible merger costs.................. -- 4,625 1,440
Other....................................... 1,948 (578) 1,951
------- -------- --------
Effective tax............................... $ 3,893 $(11,680) $ (9,245)
======= ======== ========
</TABLE>

F-25
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities at December 31, 1995 and 1996 were as
follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Deferred revenue............................... $ 5,804 $ 1,152
Allowance for doubtful accounts................ 964 749
Net operating loss carryforwards............... 53,685 95,190
Foreign net operating losses................... 3,006 --
General business, AMT and state tax credits.... 6,365 9,544
Foreign tax credits............................ 1,270 1,138
Accrued expenses and reserves.................. 856 157
Rent abatement................................. 2,143 1,957
Other.......................................... 1,197 5,128
-------- --------
Total gross deferred tax assets.............. 75,290 115,015
Less valuation allowance......................... (47,328) (59,936)
-------- --------
Net deferred tax assets...................... 27,962 55,079
-------- --------
Deferred tax liabilities:........................
Capitalized software, net...................... 12,566 23,908
Installment sales.............................. 1,175 826
Acquired technology............................ 2,952 3,124
Unrealized gain on marketable equity
securities.................................... -- 12,499
Other.......................................... 766 --
-------- --------
Total gross deferred tax liabilities......... 17,459 40,357
-------- --------
Net deferred tax asset....................... $ 10,503 $ 14,722
======== ========
</TABLE>

The net change in the total valuation allowance during 1994, 1995 and 1996
was a decrease of $2,293,000, an increase of $22,856,000 and an increase of
$12,608,000, respectively. The Company has reduced the deferred 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, 1996 reflects management's estimate of the amount which will be
realized as a result of future profitability. The amount of the deferred tax
asset considered realizable could be reduced if estimates of future taxable
income are reduced.

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 1994, 1995 and 1996, $108,000, $0 and
$0, respectively, were credited to paid-in capital.

At December 31, 1996, the Company had approximately $234,891,000 of net
operating loss carryforwards and $10,682,000 of tax credit carryforwards,
which are available to reduce future Federal income taxes, if any, through the
year 2011. The Company's ability to utilize the net operating loss
carryforwards and available tax credits may be limited due to changes in
ownership as a result of business combinations.

F-26
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. CONVERTIBLE SUBORDINATED NOTES

As of December 31, 1996, the Company had $115,000,000 in convertible
subordinated notes (the "Notes") outstanding, bearing interest at 6.75%
annually. The Notes mature on November 15, 2001. Interest is payable semi-
annually on May 15 and November 15, commencing May 15, 1997. The holders of
the Notes have the option to convert them into shares of Common Stock, at any
time prior to maturity, at a conversion price of $13.95 per share. The Notes
are redeemable at the option of the Company, in whole or in part, at any time
during the twelve-month period commencing November 15, 1999 at 102.7% of their
principal amount and during the twelve-month period commencing November 15,
2000 at 101.35% of their principal amount.

The Company estimated the fair value of the Notes as of December 31, 1996 at
approximately $140,013,000, based upon their trading price on the Nasdaq
SmallCap Market on that date.

12. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space, computer and telecommunications equipment
under long-term lease agreements expiring through the year 2007. Total future
minimum lease payments under noncancelable leases are as follows:

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997...................... $ 34,612
1998...................... 30,123
1999...................... 24,123
2000...................... 18,354
2001 and thereafter....... 41,270
--------
$148,482
========
</TABLE>

Total rent expense under all operating leases amounted to $12,598,000,
$15,659,000 and $22,510,000 in 1994, 1995 and 1996, respectively.

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.

13. OTHER INCOME (EXPENSE)

Other income (expense) for the years ended December 31, 1994, 1995 and 1996
is comprised of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income................................... $2,850 $4,637 $5,163
Interest expense.................................. (359) (782) (1,825)
Foreign exchange gain (loss)...................... 278 64 (35)
Net realized gain on sale of investments.......... -- 332 1,032
Unrealized gain on marketable equity securities... -- -- 920
Other............................................. 79 (121) (18)
------ ------ ------
$2,848 $4,130 $5,237
====== ====== ======
</TABLE>

F-27
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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>
DOMESTIC EUROPE OTHER TOTAL
-------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994
Revenues.......................... $179,562 $40,156 $23,889 $243,607
Operating income (loss)........... (12,276) 9,865 1,894 (517)
Identifiable assets............... 233,388 21,977 17,968 273,333
1995
Revenues.......................... $222,568 $67,906 $35,937 $326,411
Operating income (loss)........... (137,672) 9,885 410 (127,377)
Identifiable assets............... 365,799 59,465 27,003 452,267
1996
Revenues.......................... $326,673 $97,708 $43,684 $468,065
Operating loss.................... (74,742) (1,892) (2,770) (79,404)
Identifiable assets............... 498,500 84,201 35,871 618,572
</TABLE>

The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1994, 1995 and 1996
include all merger costs, restructuring costs and acquired in-process
technology charges.

No single customer accounted for 10% or more of total revenues in 1994, 1995
or 1996.

15. SUBSEQUENT EVENTS

On February 18, 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 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 first quarter of 1997.

F-28
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee and the
Nasdaq listing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 23,115
Nasdaq listing fee.............................................. 17,500
Blue Sky fees and expenses...................................... 5,000
Printing and engraving expenses................................. 25,000
Legal fees and expenses......................................... 25,000
Accounting fees and expenses.................................... 40,000
Miscellaneous................................................... 4,385
--------
Total....................................................... $140,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article Ten of the Company's Restated Certificate of Incorporation provides
that the Company shall indemnify its directors to the full extent permitted by
the Delaware General Corporation Law and may indemnify its officers to such
extent, except that the Company shall not be obligated to indemnify any such
person (i) with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense, or (ii) for any
amounts paid in settlement of an action indemnified against by the Company
without the prior written consent of the Company. With the approval of its
stockholders, the Company has entered into indemnity agreements with each of
its directors and certain of its officers. These agreements may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers, to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' and officers' liability insurance if available on reasonable
terms.

In addition, Article Nine of the Company's Restated Certificate of
Incorporation provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
his or her fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware, or (iv) for any transaction
from which the director derives an improper personal benefit.

Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.

The Company has purchased an insurance policy under which it is entitled to
be reimbursed for certain indemnity payments it is required or permitted to
make to its directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In March 1995, the Company issued 318,453 shares of Common Stock and paid
approximately $9,800,000 in cash to the stockholders of RELTECH Group, Inc.
("Reltech"), a vendor of repository technology, in connection with a merger
with Reltech. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.

II-1
<PAGE>

In June 1995, the Company issued 1,085,450 shares of Common Stock to the
stockholders of Software Interfaces, Inc. ("SII"), a leading provider of data
access, reporting and data conversion utilities for relational and non-
relational database management systems, in exchange for all of the outstanding
capital stock of SII in connection with a merger with SII. Such securities
were issued without registration under the Securities Act, in reliance upon
the exemption in Section 4(2) of the Securities Act.

In November 1995, the Company issued 1,452,708 shares of Common Stock to the
stockholders of Softool Corporation ("Softool"), a leading provider of
software change and configuration management technology, in exchange for all
of the outstanding capital stock of Softool in connection with a merger with
Softool. Such securities were issued without registration under the Securities
Act, in reliance upon the exemption in Section 4(2) of the Securities Act.

In November 1995, the Company issued 582,121 shares of Common Stock and paid
approximately $30,000,000 in cash to the stockholders of ProtoSoft, Inc.
("ProtoSoft"), a provider of portable, object-oriented analysis and design
software for building enterprise-wide applications, in exchange for
substantially all of the assets of ProtoSoft. Such securities were issued
without registration under the Securities Act, in reliance upon the exemption
in Section 4(2) of the Securities Act.

In December 1995, the Company issued 478,045 shares of Common Stock and paid
approximately $2,200,000 in cash to the stockholders of AIB Software
Corporation ("AIB"), a leading provider of multi-platform application
development and testing tools, in exchange for all of the outstanding capital
stock of AIB. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.

In December 1995, the Company issued 822,077 shares of Common Stock to the
stockholders of Protellicess Software, Inc. ("Protellicess"), a provider of
enterprise project and process management software, in exchange for all of the
outstanding capital stock of Protellicess. Such securities were issued without
registration under the Securities Act, in reliance upon the exemption in
Section 4(2) of the Securities Act.

In January 1996, the Company issued 344,640 shares of Common Stock and paid
approximately $445,000 in cash to the stockholders of Advanced System
Technologies, Inc. ("AST"), a developer of performance management tools, in
exchange for all of the outstanding capital stock of AST in connection with a
merger with AST. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.

In February 1996, the Company issued 2,126,913 shares of Common Stock to the
stockholders of Prodea Software Corporation ("Prodea"), a leading provider of
data warehousing and business intelligence tools, in exchange for all of the
outstanding capital stock of Prodea in connection with a merger with Prodea.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation D under the Securities Act.

In March 1996, the Company issued 125,000 shares of Common Stock to the
stockholders of Browning and Clements, Inc. ("B&C") in exchange for all of the
outstanding capital stock of B&C in connection with a merger with B&C. Such
securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.

In March 1996, the Company issued 762,503 shares of Common Stock to the
stockholders of Paradigm Systems Corporation ("Paradigm"), a leading provider
of information technology consulting services, in exchange for all of the
outstanding capital stock of Paradigm in connection with a merger with
Paradigm. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.

II-2
<PAGE>

In March 1996, the Company issued 319,926 shares of Common Stock to the
stockholders of Axis Systems International, Inc. ("Axis"), a leading provider
of information technology consulting services, in exchange for all of the
outstanding capital stock of Axis in connection with a merger with Axis. Such
securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.

In August 1996, the Company issued 236,466 shares of Common Stock to the
stockholders of DB Tech Limited (d/b/a Symbiosis) ("DB Tech"), a leading
provider of training and consulting services, in exchange for all of the
outstanding capital stock of DB Tech in connection with a merger with DB Tech.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation S under the Securities Act.

In December 1996, the Company issued 760,383 shares of Common Stock to the
stockholders of VREAM, Inc. ("VREAM"), a leading provider of virtual reality
software for the World Wide Web and other interactive environments, in
exchange for all of the outstanding capital stock of VREAM. Such securities
were issued without registration under the Securities Act, in reliance upon
the exemption in Section 4(2) of the Securities Act.

In January 1997, the Company issued 313,784 shares of Common Stock to the
stockholders of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for all of
the outstanding capital stock of ATR in connection with a merger with ATR.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation S under the Securities Act.

In February 1997, the Company issued 1,089,867 shares of Common Stock to the
stockholders of I&S Informationstechnik and Services GmbH ("I&S"), a leading
provider of information technology consulting services, in exchange for all of
the outstanding capital stock of I&S in connection with a merger with I&S.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation S under the Securities Act.

In October 1997, the Company issued 364,396 shares of Common Stock and paid
approximately $2,000,000 in cash to the stockholders of ProMetrics Group
Limited ("ProMetrics"), a developer of productivity management software tools,
in exchange for all of the outstanding capital stock of ProMetrics in
connection with a merger with ProMetrics. Such securities were issued without
registration under the Securities Act, in reliance upon Regulation S under the
Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization, dated as of March 7, 1995,
among the Company and Trinzic Corporation ("Trinzic"), and the
related Agreement of Merger (incorporated by reference to
Exhibit 2.1 of the Company's Annual Report on Form 10-K (as
amended) for the year ended December 31, 1994 (the "1994 10-
K")).
2.2 Agreement and Plan of Merger by and among the Company, RELTECH
Acquisition Corp., RELTECH Group, Inc. and the Shareholders of
Reltech Group, Inc., dated as of March 31, 1995 (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form
8-K dated March 31, 1995).
2.3 Agreement and Plan of Reorganization, dated as of April 21,
1995, between the Company and Altai, Inc. ("Altai"), and the
related Articles of Merger and Plan of Merger (incorporated by
reference to Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995).
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S> <C>
EXHIBIT DESCRIPTION OF EXHIBIT
NUMBER ----------------------
-------
2.4 Agreement and Plan of Reorganization by and among the Company,
Answer Acquisition Corp. and Answer Systems, Inc. ("Answer"),
dated as of May 16, 1995, and the related Agreement of Merger
(incorporated by reference to Exhibit 2.3 to the Company's
Registration Statement on Form S-4, Registration No. 33-94410
(the "1995 S-4")).
2.5 Agreement and Plan of Reorganization by and among the Company,
PTI Acquisition Corp. and Locus Computing Corporation ("Locus"),
dated as of June 14, 1995, and the related Agreement of Merger
(incorporated by reference to Exhibit 2.4 to the 1995 S-4).
2.6 Agreement and Plan of Reorganization by and among the Company,
SII Acquisition Corp., Software Interfaces, Inc. and the
Shareholders of Software Interfaces, Inc., dated as of June 15,
1995 (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated June 15, 1995).
2.7 Agreement and Plan of Reorganization by and among the Company,
Softool Acquisition Corp., Softool Corporation and the
Shareholders of Softool Corporation, dated as of November 17,
1995 (incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated November 17, 1995).
2.8 Asset Purchase Agreement by and among the Company, ProtoSoft,
Inc. and Anthony Lekkos, Ph.D., the majority shareholder of
ProtoSoft, Inc., dated as of November 17, 1995 (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form
8-K dated November 17, 1995).
2.9 Agreement and Plan of Reorganization dated as of January 16,
1996, as amended by Amendment No. 1 thereto dated as of January
31, 1996, by and among the Company, PS Acquisition Corporation
and Prodea Software Corporation, and the related Agreement of
Merger (incorporated by reference to Exhibits 2.1 and 2.2,
respectively, to the Company's Current Report on Form 8-K dated
February 8, 1996).
3.1(a) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, Registration Statement No.
33-39233 (the "IPO S-1 Registration Statement")).
3.1(b) Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated August 24, 1995
(incorporated by reference to Exhibit 4.11 to the Company's
Registration Statement on Form S-8, Registration No. 33-96762
(the "1995 S-8")).
3.1(c) Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated May 28, 1996, as amended
(incorporated by reference to Exhibit 3.1(c) to the Company's
Registration Statement on Form S-1, Registration Statement No.
333-07783 (the "1996 S-1")).
3.1(d) Conformed copy of Certificate of Incorporation of the Company,
as amended (incorporated by reference to Exhibit 3.1(d) to the
1996 S-1).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the IPO S-1 Registration Statement).
4.1 Specimen stock certificate representing Common Stock
(incorporated by reference to Exhibit 4.1 to the IPO S-1
Registration Statement).
4.2 Rights Agreement dated as of December 21, 1995 between the
Company and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A, filed December 26, 1995).
4.3 Certificate of Designations of the Class II Series A Junior
Participating Preferred Stock (incorporated by reference to
Exhibit 4.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (the "1995 10-K")).
</TABLE>

II-4
<PAGE>

<TABLE>
<C> <S> <C>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT ---
------- ----------------------
4.4 Form of Indenture between the Company and American National Bank
and Trust Company, as Trustee (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-3,
Registration No. 333-15421 (the "1996 S-3")).
4.5 Form of Note for the Company's convertible subordinated notes
due 2001 (incorporated by reference to Exhibit 4.2 to the 1996
S-3).
5.1 Opinion of Bell, Boyd & Lloyd
10.1 1989 Stock Option Plan (incorporated by reference to Exhibit
10.1 to the IPO S-1 Registration Statement).
10.2 Forms of Stock Option Agreements (incorporated by reference to
Exhibit 10.2 to the IPO S-1 Registration Statement).
10.3 Chief Executive Stock Option Plan (incorporated by reference to
Exhibit 10.3 to the IPO S-1 Registration Statement).
10.4 Chief Executive Stock Option Agreement (incorporated by
reference to Exhibit 10.4 to the IPO S-1 Registration
Statement).
10.5 1991 Stock Option Plan (incorporated by reference to Exhibit
10.5 to the IPO S-1 Registration Statement).
10.6 Employment Agreement between Andrew J. Filipowski and the
Company (incorporated by reference to Exhibit 10.6 to the IPO S-
1 Registration Statement).
10.7 Employment Agreement between Paul L. Humenansky and the Company,
as amended (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Registration No.
33-43345).
10.8 Employment Agreement between Michael P. Cullinane and the
Company (incorporated by reference to Exhibit 10.8 to the IPO S-
1 Registration Statement).
10.9 Form of Indemnification Agreement between the Company and each
of Andrew J. Filipowski, Michael P. Cullinane, Paul L.
Humenansky, Casey G. Cowell, James E. Cowie, Steven D. Devick
and Gian Fulgoni (incorporated by reference to Exhibit 10.10 to
the IPO S-1 Registration Statement).
10.10 Forms of Affiliate Agreements (incorporated by reference to
Exhibit 10.11 to the IPO S-1 Registration Statement).
10.11 Form of Master Product License Agreement (incorporated by
reference to Exhibit 10.11 to the 1995 10-K).
10.12 Office Lease, dated May 6, 1992, between the Company and LaSalle
National Trust N.A. as Trustee (the "Oakbrook Terrace Lease")
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.13 PLATINUM technology, inc. 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.18 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (the "June 1994 10-Q")).
10.14 PLATINUM technology, inc. 1994 Stock Incentive Plan
(incorporated by reference to Exhibit 10.19 to the June 1994 10-
Q).
10.15 PLATINUM technology, inc. Chief Executive Officer Bonus
Compensation Plan (incorporated by reference to Exhibit 10.20 to
the June 1994 10-Q).
</TABLE>

II-5
<PAGE>

<TABLE>
<C> <S> <C>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT ---
------- ----------------------
10.16 Amendments to the PLATINUM technology, inc. 1994 Stock Incentive
Plan (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8, Registration No.
33-85798 (the "1994 S-8")).
10.17 Form of Option Agreement under the PLATINUM technology, inc.
1993 Directors' Stock Option Plan (incorporated by reference to
Exhibit 4.4 to the 1994 S-8).
10.18 Form of Option Agreement under the PLATINUM technology, inc.
1994 Stock Incentive Plan (incorporated by reference to Exhibit
4.5 to the 1994 S-8).
10.19 Amendment Number One, dated as of May 3, 1993, to the Oakbrook
Terrace Lease (incorporated by reference to Exhibit 10.19 to the
1994 10-K).
10.20 Amendment Number Two, dated as of October 26, 1993, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.20 to the 1994 10-K).
10.21 Amendment Number Three, dated as of December 22, 1994, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.21 to the 1994 10-K).
10.22 Office Lease, dated August 8, 1994, between the Company and L.J.
Sheridan & Co. as court appointed receiver (incorporated by
reference to Exhibit 10.22 to the 1994 10-K).
10.23 PLATINUM technology, inc. Employee Incentive Compensation Plan
(incorporated by reference to Exhibit 10.23 to the 1995 S-4).
10.24 Lease Agreement, dated as of March 30, 1995, between the Company
and Lisle Property Venture, Inc. (the "Lisle Lease")
(incorporated by reference to Exhibit 10.24 to the 1995 S-4).
10.25 First Amendment, dated as of September 15, 1995, to the Lisle
Lease (incorporated by reference to Exhibit 10.25 to the 1995
10-K).
10.26 Second Amendment, dated as of September 15, 1995, to the Lisle
Lease (incorporated by reference to Exhibit 10.26 to the 1995
10-K).
10.27 Third Amendment, dated as of January 3, 1996, to the Lisle Lease
(incorporated by reference to Exhibit 10.27 to the 1995 10-K).
10.28 Lease Agreement, dated as of October 31, 1995, between Lisle
Property Venture, Inc. and the Company (the "October 1995 Lisle
Lease") (incorporated by reference to Exhibit 10.28 to the 1995
10-K).
10.29 Amendment Number Four, dated as of March 9, 1995, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.29 to the 1995 10-K).
10.30 Loan Agreement, dated as of December 31, 1995, between the
Company and American National Bank and Trust Company of Chicago
(the "Loan Agreement") (incorporated by reference to Exhibit
10.30 to the 1995 10-K).
10.31 First Amendment, dated as of December 31, 1996, to the Loan
Agreement (incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 10-K")).
10.32 First Amendment, dated as of May 23, 1996, to the October 1995
Lisle Lease (incorporated by reference to Exhibit 10.31 to the
1996 10-K).
10.33 Second Amendment, dated as of May 24, 1996, to the October 1995
Lisle Lease (incorporated by reference to Exhibit 10.32 to the
1996 10-K).
10.34 Lease Agreement, dated as of July 17, 1996, between the Company
and Oakbrook Tower Limited Partnership (incorporated by
reference to Exhibit 10.33 to 1996 10-K).
10.35 PLATINUM technology, inc. 1996 Stock Purchase Plan (incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, Registration No. 333-03284 (the "April
1996 S-8")).
</TABLE>

II-6
<PAGE>

<TABLE>
<C> <S> <C>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.36 PLATINUM technology, inc. Amended and Restated 1993 Directors'
Stock Option Plan (incorporated by reference to Exhibit 4.2 to
the April 1996 S-8).
10.37 Amendment to the PLATINUM technology, inc. 1994 Stock Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 (the "June 1996 10-Q")).
10.38 First Amendment to the PLATINUM technology, inc. Employee
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.3 to the June 1996 10-Q).
10.39 Second Amendment to the PLATINUM technology, inc. Employee
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 (the "June 1997 10-Q")).
10.40 Amendment Number Five, dated as of December 1, 1996, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.2 to the June 1997 10-Q).
10.41 Amendment Number Six, dated as of April 30, 1997, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.3 to the June 1997 10-Q).
10.42 Amendment Number Seven, dated as of September 16, 1997, to the
Oakbrook Terrace Lease.
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the 1996 10-K).
23.1 Consent of KPMG Peat Marwick LLP with respect to the Company's
financial statements.
23.2 Consent of Deloitte & Touche LLP with respect to Trinzic's
financial statements.
23.3 Consent of Arthur Andersen LLP with respect to Locus' financial
statements.
23.4 Consent of Arthur Andersen LLP with respect to Softool's
financial statements.
23.5 Consent of Bell, Boyd & Lloyd (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on the signature page of this
registration statement).
27 Financial Data Schedule.
99.1 Report of Deloitte & Touche LLP on Trinzic's financial
statements.
99.2 Report of Arthur Andersen LLP on Locus' financial statements.
99.3 Report of Arthur Andersen LLP on Softool's financial statements.
</TABLE>

(b) Financial Statement Schedules

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................. S-1
Schedule II--Valuation and Qualifying Accounts....................... S-2
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required under the related instructions, are not
applicable, or the information has been provided in the consolidated financial
statements or the notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.

II-7
<PAGE>

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 14 above or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted against the Company by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

II-8
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OAKBROOK TERRACE, STATE
OF ILLINOIS, ON NOVEMBER 11, 1997.

PLATINUM technology, inc.

/s/ Michael P. Cullinane
By: _________________________________
Michael P. Cullinane
Executive Vice President
and Chief Financial Officer

POWER OF ATTORNEY

EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS MICHAEL P.
CULLINANE AND MICHAEL C. WYATT, AND EACH OF THEM SEVERALLY, ACTING ALONE AND
WITHOUT THE OTHER, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT WITH AUTHORITY
TO EXECUTE IN THE NAME OF EACH SUCH PERSON AND TO FILE WITH THE SECURITIES AND
EXCHANGE COMMISSION, TOGETHER WITH ANY EXHIBITS THERETO AND OTHER DOCUMENTS
THEREWITH, ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO
THIS REGISTRATION STATEMENT NECESSARY OR ADVISABLE TO ENABLE THE REGISTRANT TO
COMPLY WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY RULES,
REGULATIONS, AND REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION IN
RESPECT THEREOF, WHICH AMENDMENTS MAY MAKE SUCH OTHER CHANGES IN THE
REGISTRATION STATEMENT AS THE AFORESAID ATTORNEY-IN-FACT EXECUTING THE SAME
DEEMS APPROPRIATE, AND ANY FILINGS PURSUANT TO RULE 462(B) UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON NOVEMBER 11, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
PRINCIPAL EXECUTIVE OFFICER:

<S> <C>
/s/ Andrew J. Filipowski President, Chief Executive Officer and
___________________________________________ Chairman of the Board of Directors
Andrew J. Filipowski

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/ Michael P. Cullinane Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer and Director
Michael P. Cullinane
A MAJORITY OF THE DIRECTORS:

/s/ Andrew J. Filipowski Director
___________________________________________
Andrew J. Filipowski

/s/ Paul L. Humenansky Director
___________________________________________
Paul L. Humenansky

/s/ Michael P. Cullinane Director
___________________________________________
Michael P. Cullinane
/s/ James E. Cowie Director
___________________________________________
James E. Cowie

/s/ Steven D. Devick Director
___________________________________________
Steven D. Devick

/s/ Arthur P. Frigo Director
___________________________________________
Arthur P. Frigo

/s/ Gian M. Fulgoni Director
___________________________________________
Gian M. Fulgoni

</TABLE>

II-9
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

Under date of February 28, 1997, we reported on the consolidated balance
sheets of PLATINUM technology, inc. and subsidiaries as of December 31, 1995
and 1996, 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, 1996, which are included in the registration statement. Our
report is based in part on the reports of other auditors. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule included in this
registration statement. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
the financial statement schedule based on our audits.

In our opinion, based on our audits and the reports of other auditors, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Chicago, Illinois
February 28, 1997

S-1
<PAGE>

SCHEDULE II

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS BEGINNING BAD DEBT ENDING
FOR TRADE AND INSTALLMENT RECEIVABLES BALANCE EXPENSE BALANCE
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1996.................. $2,809,000 $ 905,000 $3,714,000
Year ended December 31, 1995.................. 1,522,000 1,287,000 2,809,000
Year ended December 31, 1994.................. 1,290,000 232,000 1,522,000
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
5.1 Opinion of Bell, Boyd & Lloyd.
23.1 Consent of KPMG Peat Marwick LLP with respect to the
Company's financial statements.
23.2 Consent of Deloitte & Touche LLP with respect to
Trinzic's financial statements.
23.3 Consent of Arthur Andersen LLP with respect to Locus'
financial statements.
23.4 Consent of Arthur Andersen LLP with respect to
Softool's financial statements.
27 Financial Data Schedule.
99.1 Report of Deloitte & Touche LLP on Trinzic's financial
statements.
99.2 Report of Arthur Andersen LLP on Locus' financial
statements.
99.3 Report of Arthur Andersen LLP on Softool's financial
statements.
</TABLE>

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF BELL, BOYD & LLOYD]

November 11, 1997

PLATINUM technology, inc.
1801 South Meyers Road
Oakbrook Terrace, IL 60181

Registration Statement on Form S-1

Ladies and Gentlemen:

We have represented PLATINUM technology, inc., a Delaware corporation (the
"Company"), in connection with the registration statement on Form S-1 (the
"Registration Statement"), filed under the Securities Act of 1933, as amended
(the "Act"), for the purpose of registering under the Act 5,000,000 shares of
common stock, $.01 par value, (the "Common Stock") of the Company, which the
Company may offer from time to time pursuant to Rule 415 under the Act. In
this connection, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate and other
records, certificates and other papers, including the Registration Statement
and pertinent resolutions of the board of directors of the Company, as we
deemed it necessary to examine for the purpose of this opinion.

Based upon such examination, on the existing provisions of the certificate
of incorporation of the Company and on the applicable laws of the State of
Delaware now in effect, it is our opinion that such of the shares of Common
Stock as are issued from time to time as contemplated by the Registration
Statement, will, upon issuance and delivery thereof against receipt by the
Company of the agreed consideration therefor, constitute legally issued, fully
paid and non-assessable shares of the Company, provided each such issuance is
duly authorized by the board of directors of the Company, or a duly authorized
committee of the board of directors, for a consideration (not less than the
par value of the shares) fixed by said board of directors or committee, and
determined by it to be adequate.

We consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Securities
Act.

Very truly yours,

/s/ Bell, Boyd & Lloyd

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
PLATINUM technology, inc.:

We consent to the use of our reports dated February 28, 1997, relating to
the consolidated balance sheets of PLATINUM technology, inc. and subsidiaries
as of December 31, 1995 and 1996, 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, 1996, and related financial statement
schedule, included in this registration statement on Form S-1 and to the
reference to our firm under the headings "Selected Financial Data" and
"Experts." Our report was based in part on the reports of other auditors.

KPMG Peat Marwick LLP

Chicago, Illinois
November 11, 1997

<PAGE>

EXHIBIT 23.2

CONSENT OF DELOITTE & TOUCHE LLP

We consent to the use in this Registration Statement of PLATINUM technology,
inc. on Form S-1 of our report dated April 28, 1995 (relating to the
consolidated financial statements of Trinzic Corporation not presented
separately herein) and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.

Deloitte & Touche LLP

San Jose, California
November 11, 1997

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report for Locus Computing Corporation dated March 20, 1995 in this Form S-1
Registration Statement and to all references to our Firm included in this
Registration Statement.

Arthur Andersen LLP

Los Angeles, California
November 11, 1997

<PAGE>

EXHIBIT 23.4

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report for Softool Corporation dated August 29, 1995 (except with respect to
the matter discussed in Note 14, as to which the date is November 17, 1995) in
this Form S-1 Registration Statement and to all references to our Firm
included in this Registration Statement.

Arthur Andersen LLP

Los Angeles, California
November 11, 1997

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 140,783 72,941
<SECURITIES> 44,890 55,099
<RECEIVABLES> 167,634 145,750
<ALLOWANCES> 2,503 1,674
<INVENTORY> 0 0
<CURRENT-ASSETS> 374,630 301,579
<PP&E> 117,803 117,675
<DEPRECIATION> 45,053 45,755
<TOTAL-ASSETS> 618,572 556,591
<CURRENT-LIABILITIES> 157,473 179,067
<BONDS> 0 0
0 0
0 0
<COMMON> 61 62
<OTHER-SE> 295,699 196,050
<TOTAL-LIABILITY-AND-EQUITY> 618,572 556,591
<SALES> 0 0
<TOTAL-REVENUES> 468,065 252,061
<CGS> 0 0
<TOTAL-COSTS> 547,469 362,483
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 905 7,073
<INTEREST-EXPENSE> 1,825 4,202
<INCOME-PRETAX> (74,167) (102,910)
<INCOME-TAX> (9,245) 1,292
<INCOME-CONTINUING> (64,922) (104,202)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (64,922) (104,202)
<EPS-PRIMARY> (1.14) (1.70)
<EPS-DILUTED> (1.14) (1.70)

</TABLE>

<PAGE>

EXHIBIT 99.1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Trinzic Corporation:

We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of Trinzic Corporation and subsidiaries for the year
ended March 31, 1995 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Trinzic
Corporation and subsidiaries for the year ended March 31, 1995 in conformity
with generally accepted accounting principles.

Deloitte & Touche LLP

San Jose, California
April 28, 1995

<PAGE>

EXHIBIT 99.2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of
Locus Computing Corporation:

We have audited the consolidated statements of operations, shareholders'
equity and cash flows of LOCUS COMPUTING CORPORATION (a California
corporation) AND SUBSIDIARIES for the year ended January 31, 1995 (not
presented herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of LOCUS
COMPUTING CORPORATION AND SUBSIDIARIES for the year ended January 31, 1995 in
conformity with generally accepted accounting principles.

As discussed further in Note 6, the Company's Articles of Incorporation
allow for a redemption privilege of the Series A preferred stock together with
accrued dividends on March 27, 1992. While the ultimate outcome is uncertain,
it is the belief of management that total redemption would not currently be
allowed under California law. Management has reached an agreement with the
remaining Series A preferred stockholders that the Company will make
redemptions based on cash flows, current profitability, and planned future
profitability, as defined. As there is no assurance that amounts will be
redeemed in the next year, the Company has not included the redemption amount
in current liabilities at January 31, 1995 (see Note 6).

Arthur Andersen LLP

Los Angeles, California
March 20, 1995

<PAGE>

EXHIBIT 99.3

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Softool Corporation:

We have audited the combined and consolidated statements of operations,
shareholders' equity and cash flows of Softool Corporation (a California
corporation) and Subsidiaries and Softool International Corporation (a
California corporation) for the year ended December 31, 1994 (not presented
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Softool
Corporation and Subsidiaries and Softool International Corporation for the
year ended December 31, 1994 in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Los Angeles, CaliforniaAugust
29, 1995 (except with respect
to the matter discussed in
Note 14, as to which the date
is November 17, 1995).