PLATINUM TECHNOLOGY INTERNATIONAL INC, 424B3, 1999-02-05

PLATINUM TECHNOLOGY INTERNATIONAL INC
424B3, 1999-02-05
PREPACKAGED SOFTWARE

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Filed Pursuant to Rule 424(b)(3)
Registration Number 333-71637

Proxy Statement/Prospectus February 4, 1999

THE PROPOSED MEMCO/PLATINUM TRANSACTION

The board of directors of Memco Software Ltd. has agreed to combine Memco
with PLATINUM technology International, inc., to create a leading supplier of
software products. The combined businesses will offer a comprehensive suite of
software products backed by an experienced sales team and a wide distribution
network.

The arrangement is structured so that Memco shareholders will receive 0.836
of a share of PLATINUM common stock for each ordinary share of Memco that they
own. Memco will survive, continuing its existence as a company organized under
the laws of the State of Israel, as a wholly-owned subsidiary of PLATINUM. We
estimate that the shares of PLATINUM common stock to be issued to Memco
shareholders will represent approximately 14% of the outstanding common stock
of PLATINUM after the arrangement.

As part of the arrangement, the articles of association of Memco will be
amended and restated in their entirety to change the status of Memco under
Israeli law pursuant to the arrangement. Such amendment is fully described in
the proxy statement/prospectus enclosed herewith.

The arrangement cannot be completed unless the Memco shareholders approve
it. The board of directors of Memco has scheduled an extraordinary general
meeting for the Memco shareholders to vote on the arrangement. YOUR VOTE IS
VERY IMPORTANT.

Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the arrangement and any other proposal properly
submitted to shareholders at the meeting.

Returning your proxy card will not affect your right to vote in person,
should you choose to attend the meeting.

Only Memco shareholders of record as of February 1, 1999, are entitled to
attend and vote at the meeting. The date, time, and place of the meeting is as
follows:
February 24, 1999
- -------------------------------------
8:30 a.m. local time
- -------------------------------------
Memco Software Ltd. Offices
- -------------------------------------
24 Raoul Wallenberg Street
- -------------------------------------
Ramat Hahayal, Tel Aviv, Israel
- -------------------------------------

This Proxy Statement/Prospectus provides you with detailed information about
the proposed arrangement. We encourage you to read this entire document
carefully including the "Risk Factors" section beginning on page 13.

Israel Mazin
Chairman and Chief Executive Officer
Memco Software Ltd.

Neither the Securities and Exchange Commission nor any state securities
regulators have approved the PLATINUM common stock to be issued under this
Proxy Statement/Prospectus or determined if this Proxy
Statement/Prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.

This proxy statement/prospectus is dated February 4, 1999, and was first
mailed to Memco shareholders on February 5, 1999.
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MEMCO LOGO DISPLAYED HERE
----------------

NOTICE OF EXTRAORDINARY GENERAL MEETING
OF SHAREHOLDERS

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

To Our Shareholders:

We will hold an extraordinary general meeting of shareholders of Memco
Software Ltd. at 8:30 a.m., local time, on February 24, 1999 at the offices of
Memco, 24 Raoul Wallenberg Street, Ramat Hahayal, Tel Aviv, Israel. At the
Memco extraordinary general meeting, we will ask you to vote on:

1. A proposal to approve and adopt the agreement, dated as of August 13,
1998, between Memco and PLATINUM technology International, inc., and the
arrangement through which:

. each outstanding ordinary share of Memco, NIS 0.01 par value per
share, other than those owned by PLATINUM, will be exchanged for
0.836 of a share of common stock of PLATINUM, $0.001 par value per
share;

. Memco will become a wholly-owned subsidiary of PLATINUM; and

. the articles of association of Memco will be amended and restated in
their entirety to change the status of Memco under Israeli law
pursuant to the arrangement.

2. Such other business as may properly come before the meeting.

The agreement and arrangement are governed by Section 233 of the Companies
Ordinance of the State of Israel, New Version 5743-1983. Under the Companies
Ordinance, the Tel Aviv Jaffa District Court in Israel has authorized Memco to
call the meeting to adopt the agreement and the arrangement.

We have fixed the close of business on February 1, 1999, as the record date
for the determination of our shareholders entitled to vote at the meeting,
including any adjournment.

Your vote in connection with the agreement and the arrangement will also
constitute a vote by "special resolution" under Israeli law in connection with
the adoption of the amended articles of association of Memco.

After careful consideration, the members of your board of directors,
permitted to vote, unanimously recommend that you vote in favor of the
agreement and arrangement, including the adoption of the amended articles of
association of Memco, so that we may complete the arrangement. A majority of
shareholders present and 75% of the voting power of Memco ordinary shares
represented at the meeting must vote in favor of the agreement and arrangement.

Please sign and promptly return the proxy card in the enclosed prepaid
envelope marked "Proxy," WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. You
can revoke your proxy at any time before its exercise. Returning your proxy
card will not affect your right to vote in person, if you choose to attend the
meeting. If you return a proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the agreement and the
arrangement and any other proposal that may be properly submitted at the
meeting.

The foregoing is more fully described in the proxy statement/prospectus
accompanying this notice. Shareholders are urged to read the document in its
entirety.

By Order of the Board of Directors

SIGNATURE OF PENINA URI
Penina Uri
Secretary

Tel Aviv, Israel
February 4, 1999
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TABLE OF CONTENTS

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QUESTIONS AND ANSWERS ABOUT THE PLATINUM/MEMCO ARRANGEMENT................ 1
SUMMARY................................................................... 3
The Companies........................................................... 3
Reasons for the Arrangement............................................. 3
Amendment to the Articles of Association of Memco....................... 3
Recommendation to Shareholders.......................................... 4
The Agreement and the Arrangement....................................... 4
Exchange of Memco Ordinary Shares....................................... 4
The Memco Meeting....................................................... 5
Risk Factors............................................................ 5
Market and Market Prices................................................ 7
PLATINUM Summary Selected Consolidated Financial Information............ 8
Memco Summary Consolidated Financial Information........................ 10
Summary Unaudited Pro Forma Condensed Selected Combined Financial Data.. 11
Summary Pro Forma Combined Comparative Per Share Data................... 11
RISK FACTORS.............................................................. 13
Risks of Combining Our Businesses....................................... 13
Risks of a Fixed Exchange Ratio with Fluctuating Market Prices.......... 13
PLATINUM's Net Losses and Our Ability to Satisfy Future Debt
Obligations............................................................ 13
Rapid Technological Change; Reliance on New Products and Markets........ 14
Dependence on Mainframe Products........................................ 14
Risks of Memco's Israeli Operations..................................... 14
Risks of Reliance on an Acquisition Strategy............................ 15
Highly Competitive Markets.............................................. 15
Risks Associated with the Year 2000..................................... 16
Risk of Damage Claims and Costs Resulting from Product Defects.......... 16
Dependence on Proprietary Technology.................................... 17
Dependence on DB2....................................................... 17
Dependence on Relationships With Relational Database Vendors............ 17
Seasonality and Variability of Quarterly Operating Results.............. 17
Risks of International Sales and Exchange Rate Fluctuations............. 17
Risks of Consulting Services Business................................... 18
Dependence on Key Personnel............................................. 18
Volatility of PLATINUM's Stock Price.................................... 19
PLATINUM's Rights Agreement, Charter and Delaware Law May Inhibit a
Takeover............................................................... 19
UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS...................... 20
THE MEETING............................................................... 20
Purpose of the Meeting.................................................. 20
Time, Place and Date.................................................... 20
Record Date; Shares Entitled to Vote.................................... 20
Voting and Revocation of Proxies; Solicitation of Proxies; Accountants.. 21
Vote Required........................................................... 21
Broker Non-Votes........................................................ 22
Security Ownership of Memco's Principal Shareholders.................... 22
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THE ARRANGEMENT........................................................... 24
Exchange of Memco Ordinary Shares....................................... 24
Background of the Arrangement........................................... 24
Recommendation of the Memco Board; Reasons for the Arrangement.......... 27
PLATINUM's Reasons for the Arrangement.................................. 29
Opinion of Memco's Financial Advisor.................................... 29
Interests of Certain Persons in the Arrangement......................... 35
Certain U.S. Federal Income Tax Consequences............................ 35
Certain United States Tax Consequences to a Non-United States Holder
Regarding the Ownership and Disposition of PLATINUM Common Stock....... 37
Certain Israeli Tax Consequences........................................ 39
Accounting Treatment.................................................... 40
Regulatory Approvals.................................................... 40
Certain Federal Securities Law Consequences; Affiliates Agreements...... 40
Nasdaq National Market Listing.......................................... 41
No Appraisal or Dissenters' Rights...................................... 41
THE AMENDED ARTICLES OF ASSOCIATION OF MEMCO.............................. 42
THE AGREEMENT............................................................. 42
Exchange of Shares in the Arrangement................................... 42
Substitution of Options................................................. 42
Fractional Shares....................................................... 43
Adjustment of Exchange Ratio............................................ 43
Exchange Agent; Procedures for Exchange of Memco Certificates........... 43
Representations and Covenants........................................... 44
Conduct of Memco's Business Prior to the Arrangement.................... 45
Conduct of PLATINUM's Business Prior to the Arrangement................. 46
No Solicitation......................................................... 46
Conditions to the Agreement and the Arrangement......................... 47
Termination............................................................. 47
Expenses and Break-Up Fee............................................... 47
Employee Benefits....................................................... 48
Modifications........................................................... 48
Supplemental Agreements................................................. 48
PLATINUM SELECTED CONSOLIDATED FINANCIAL DATA............................. 50
MEMCO SELECTED CONSOLIDATED FINANCIAL INFORMATION......................... 52
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL DATA.................... 53
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
September 30, 1998........................................................ 53
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1995.............................................. 54
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1996.............................................. 55
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1997.............................................. 56
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UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1997...................................... 57
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1998...................................... 58
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS..... 59
Note A--Description of Agreement........................................ 59
Note B--Pro Forma Adjustments........................................... 59
Note C--Reclassifications............................................... 62
PRO FORMA COMBINED COMPARATIVE PER SHARE DATA............................. 63
BUSINESS OF PLATINUM...................................................... 64
Overview................................................................ 64
Market Overview......................................................... 65
Products................................................................ 65
Product Licenses........................................................ 68
Product Development..................................................... 68
Professional Services................................................... 69
Sales and Marketing..................................................... 70
Technical Support and Maintenance....................................... 70
Competition............................................................. 71
Intellectual Property Rights............................................ 71
Employees............................................................... 72
Properties.............................................................. 72
Legal Proceedings....................................................... 72
Material Contracts Between PLATINUM and Memco........................... 72
PLATINUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 73
Overview................................................................ 73
Nine Months Ended September 30, 1998 Compared with Nine Months Ended
September 30, 1997..................................................... 74
Results of Operations.................................................. 74
Liquidity and Capital Resources........................................ 81
Recent Developments.................................................... 83
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
and Year Ended December 31, 1996 Compared with Year Ended December 31,
1995................................................................... 84
Results Of Operations.................................................. 84
Foreign Currency Exchange Rates........................................ 91
Year 2000 Considerations............................................... 91
Liquidity and Capital Resources........................................ 93
Recently Issued Accounting Pronouncements............................... 94
DESCRIPTION OF PLATINUM'S CAPITAL STOCK................................... 96
Common Stock............................................................ 96
Preferred Stock......................................................... 96
Series B Preferred Stock................................................ 96
Preferred Stock Purchase Rights......................................... 97
Certain PLATINUM Charter and Bylaws Provisions.......................... 98
Delaware Business Combination Law....................................... 99
Transfer Agent.......................................................... 99
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BUSINESS OF MEMCO........................................................ 100
General................................................................ 100
Industry Background.................................................... 100
The Limitations of Traditional Security Solutions...................... 102
Products............................................................... 103
Customers.............................................................. 105
Marketing and Distribution............................................. 105
Research and Development............................................... 106
Intellectual Property.................................................. 107
Competition............................................................ 107
Employees.............................................................. 108
Description of Property................................................ 109
Legal Proceedings...................................................... 110
Exchange Controls and Other Limitations Affecting Security Holders..... 110
TAXATION................................................................. 111
ISRAELI TAX CONSIDERATIONS............................................... 111
General Corporate Tax Structure........................................ 111
Law for the Encouragement of Industry (Taxes), 1969.................... 111
Law for the Encouragement of Capital Investments, 1959................. 112
Taxation Under Inflationary Conditions................................. 114
Tax Benefits and Government Support for Research and Development....... 115
Taxation of Non-Israeli Subsidiaries................................... 115
MEMCO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 116
Overview............................................................... 116
Results of Operations.................................................. 117
Nine Months Ended September 30, 1998 Compared with Nine Months Ended
September 30, 1997.................................................... 117
Year Ended December 31, 1997 Compared with Year Ended December 31,
1996.................................................................. 120
Year Ended December 31, 1996 Compared with Year Ended December 31,
1995.................................................................. 121
Variability of Quarterly Operating Results............................. 121
Quarterly Results of Operations........................................ 122
Liquidity and Capital Resources........................................ 122
Impact of Inflation and Currency Fluctuations.......................... 123
Export Financing....................................................... 124
Effective Corporate Tax Rate........................................... 124
COMPARISON OF SHAREHOLDER RIGHTS......................................... 125
Dividends.............................................................. 125
Voting Rights.......................................................... 125
Directors--Number of Directors; Vacancies.............................. 125
Directors--Classification.............................................. 126
Directors--Removal..................................................... 126
Directors--Nominations................................................. 126
Limitation on Directors Liability; Indemnification of Officers and
Directors............................................................. 127
Call of Special Meetings............................................... 128
Action of Shareholders Without a Meeting............................... 128
Shareholder Proposals.................................................. 128
Amendment to Charter, Memorandum of Understanding...................... 129
Amendment to Bylaws, Articles of Association........................... 129
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Conflict of Interest..................................................... 129
Business Combinations; Antitakeover Effects.............................. 130
EXPERTS.................................................................... 131
LEGAL MATTERS.............................................................. 131
WHERE YOU CAN FIND MORE INFORMATION........................................ 132
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
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<C> <S> <C>
Appendices
Agreement and
A Arrangement.. A-1
Opinion of
Lehman
Brothers
B Inc.......... B-1
Amended and
Restated
Articles of
Association
of Memco
Software
C Ltd.......... C-1
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QUESTIONS AND ANSWERS ABOUT THE PLATINUM/MEMCO ARRANGEMENT

Q: Why are PLATINUM and Memco proposing the arrangement?

A: Memco and PLATINUM believe that the complementary nature of our respective
product lines creates a combination which is more valuable to customers and
shareholders than the sum of our individual parts. We believe that this
arrangement will allow us to accelerate long-term growth and provide added
shareholder value. We note that achieving these anticipated benefits is
subject to certain risks discussed on pages 13 to 19. To review the reasons
for the arrangement in greater detail, and related uncertainties, see pages
24 to 41.

Q: How will I benefit?

A: We believe that shareholders of Memco will benefit by being owners of a
company that is better able to compete effectively in its industry than as a
stand-alone entity.

Q: What do I need to do now?

A: Just sign your proxy card and mail it in the enclosed return envelope as
soon as possible, so that your Memco ordinary shares may be represented at
the meeting. The meeting will take place on Wednesday, February 24, 1999.
The members of the board of directors of Memco permitted to vote on the
issue unanimously recommend voting in favor of the proposed agreement and
arrangement.

Q: What do I do if I want to change my vote?

A: Just deliver a later-dated, signed proxy card to Memco's secretary before
the meeting or attend the meeting in person and vote.

Q: Should I send in my Memco certificate now?

A: No. After the arrangement is completed, we will send Memco shareholders
written instructions for exchanging their Memco certificates.

Q: Please explain the exchange ratio.

A: Memco shareholders will receive 0.836 of a share of PLATINUM common stock in
exchange for each Memco ordinary share. We will not issue fractional shares.
Shareholders who would otherwise be entitled to receive a fractional share
will instead receive cash based on the market value of the fractional share
of PLATINUM common stock.

Example: If you currently own 100 ordinary shares of Memco, then after the
arrangement you will be entitled to receive 83 shares of PLATINUM common
stock and a check for the market value of the .6 fractional share.

The number of shares of PLATINUM common stock you will receive in exchange
for your Memco ordinary shares is fixed and will not be adjusted in the
event of any increase or decrease in the price of PLATINUM common stock.
The value of the consideration you receive will depend on the market value
of PLATINUM common stock at the time of the arrangement. Memco does not
have the right to terminate the agreement and you do not have the right to
vote again in the event that the market value of PLATINUM common stock
decreases below a certain level.

Q: What about future dividends?

A: Historically, neither Memco nor PLATINUM has paid dividends. We do not
expect that our combined businesses will pay any dividends in the future.

Q: When do you expect the arrangement to be completed?

A: We expect to complete the arrangement by mid-March, 1999.

Q: What are the tax consequences of the arrangement?

A: The exchange of ordinary shares by Memco shareholders generally will be tax-
free to

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Memco shareholders for U.S. and Israeli income tax purposes, except for
taxes on cash received for a fractional share. To review the U.S. and
Israeli tax consequences to shareholders in greater detail, see pages 35 to
40.

Q: What will happen if Memco shareholders don't vote in favor of the
arrangement?

A: Memco will continue to exist as a stand-alone company. There can be no
assurance that Memco, standing alone, could develop a worldwide direct sales
force or effectively compete with companies offering a full suite of
software products, both of which we believe are necessary to effectively
compete in the market.

Q: Am I entitled to appraisal or dissenters' rights?

A: Holders of Memco ordinary shares are not entitled to any appraisal or
dissenters' rights under Israeli law in connection with the agreement or the
arrangement.

Q: How do I obtain current PLATINUM common stock and Memco ordinary share
market prices?

A: Call:

. PLATINUM Investor Relations at 1-800-655-9985 or 1-630-691-9119;

. Memco Investor Relations at 1-800-322-2885 (toll-free) or
1-212-929-5500 (call collect).

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SUMMARY

For your convenience, we have provided a brief summary of certain
information contained in this proxy statement/prospectus. This summary
highlights selected information from this document and does not contain all of
the information that may be important to you. To understand the agreement and
the arrangement fully, and for a more complete description of the legal terms
of the agreement and the arrangement, you should carefully read this entire
document.
The Companies

PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
(630) 620-5000
www.platinum.com

Memco Software Ltd.
24 Raoul Wallenberg Street
Tel Aviv 69719, Israel
(972 3) 645-0000
www.memco.com

Memco is a leading provider of security solutions for distributed computing
environments. Memco's flagship software product, Security for Open Systems,
commonly referred to as SeOS, provides access control security for Unix and
Windows NT servers. For the single sign-on market, Memco offers its Proxima
product suite, which automates user logins and centralizes user account
management. Memco also offers the Session Wall-3 network surveillance,
intrusion detection and response software. Memco was incorporated in Israel in
1990.

Reasons for the Arrangement

The Memco board believes that the terms of the arrangement are fair to, and
in the best interests of, Memco and its shareholders. The Memco board
considered a wide variety of information and a number of factors in connection
with its evaluation of the proposed arrangement. The Memco board determined
that the arrangement provided an opportunity that serves the best interests of
Memco and its shareholders and an opportunity for Memco shareholders, if they
so choose, to share in the potential for long-term growth of the combined
businesses.

To review the reasons for the arrangement in greater detail, as well as
related uncertainties, see pages 27 through 35.

Amendment to the Articles of Association of Memco

As part of the arrangement, the articles of association of Memco will be
amended and restated in their entirety to change the status of Memco under
Israeli law pursuant to the arrangement. The amended articles of association of
Memco will be substantially identical to the existing articles of association
of Memco, except that:

. upon consummation of the arrangement, Memco will become a private
company;

. the authorized share capital of Memco will be increased from NIS
800,000, divided into 80,000,000 ordinary shares to NIS 850,000 divided
into 85,000,000 ordinary shares; and

. the highest number of directors that can make up the Memco board will be
decreased from 14 to 5.

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Your vote in connection with the agreement will also constitute a vote by
"special resolution" under Israeli law in connection with the adoption of the
amended articles of association in connection with the arrangement.

Recommendation to Shareholders

The members of the Memco board permitted to vote have unanimously approved
the agreement and the arrangement and recommend that Memco shareholders vote in
favor of the agreement and the arrangement including the adoption of the
amended articles of association of Memco.

The Agreement and the Arrangement

The agreement is attached as Appendix A to this proxy statement/prospectus.
We encourage you to read the agreement, as it is the legal document that
governs the arrangement.

Exchange of Memco Ordinary Shares

In the arrangement, each Memco ordinary share outstanding immediately prior
to completion of the arrangement, other than shares already owned by PLATINUM,
will be automatically exchanged for the right to receive 0.836 of a validly
issued, fully paid and nonassessable share of PLATINUM common stock. Cash will
be paid instead of issuing any fractional shares. PLATINUM common stock will be
listed for trading on the Nasdaq National Market. See pages 42 to 44 for more
information.

Fixed Exchange Ratio--The exchange ratio was determined through arms length
negotiations between the parties. The exchange ratio is fixed and will not be
adjusted in the event of any increase or decrease in the price of PLATINUM
common stock. As a result, the value of the consideration you will receive for
your Memco ordinary shares depends on the market value of PLATINUM common stock
at the time the arrangement is completed. See page 24 for more information.

Memco Stock Options--In the arrangement, options to purchase Memco ordinary
shares, whether or not vested or exercisable, shall convert into outstanding
options to purchase PLATINUM common stock based on the exchange ratio of 0.836
of a share of PLATINUM common stock for each Memco ordinary share on the same
terms and conditions as were applicable under the Memco option. The exercise
price will be adjusted for the options, as necessary, to account for the
arrangement. See pages 42 to 43.

Fairness Opinion of Memco's Financial Advisor--Lehman Brothers Inc.
delivered its written opinion to the Memco board to the effect that, as of
August 12, 1998, the exchange ratio was fair from a financial point of view to
the Memco shareholders. The full text of the Lehman Brothers opinion is
attached as Appendix B. Memco shareholders are urged to read the opinion for a
discussion of assumptions made, factors considered and limitations of review
undertaken by Lehman Brothers in rendering the opinion. See pages 29 to 35 and
Appendix B.

Conditions to the Arrangement--Completion of the arrangement depends upon
meeting a number of conditions including:

. Memco shareholders must approve the agreement and arrangement; and

. all necessary Israeli governmental consents must be received, including
the Final Court Order from an appropriate Israeli Court and approvals
from the Office of the Chief Scientist of the State of Israel, the
Investment Center of the State of Israel and the Israeli Securities
Authority.

Termination--Either Memco or PLATINUM may terminate the agreement if the
arrangement is not completed by June 30, 1999, and in certain other
circumstances. See page 47.

No Solicitation; Expenses and Break-up Fee--Memco has agreed, subject to
certain exceptions, not to engage in discussions with another party regarding a
business combination while the arrangement is pending. In general, the fees and
expenses incurred in connection with the agreement and the arrangement will be
paid by the party incurring such expenses. However, the
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agreement provides for the payment of $15,000,000 and the reimbursement of
expenses following a termination of the agreement or the grant of a non-
exclusive, royalty-free distribution license for Memco's products to PLATINUM.
See pages 47 to 48.

Interests of Certain Persons in the Arrangement--In considering the
recommendation of the Memco board with respect to the agreement and the
arrangement, Memco shareholders should be aware that members of Memco's
management and board of directors have certain interests in the arrangement
that are in addition to the interests of Memco shareholders generally.

The agreement provides that all rights to indemnification benefiting Memco's
directors and officers as of the date of the agreement will survive the
arrangement. PLATINUM has also agreed to maintain, for six years, a policy of
directors' and officers' liability insurance as it existed at the date of the
agreement for the benefit of Memco's directors and officers. There are certain
limitations on the amount PLATINUM is required to spend to maintain such
insurance. See page 35.

Certain Tax Consequences--No gain or loss will be recognized for U.S.
federal or Israel income tax purposes by Memco shareholders, except to the
extent any cash is received in lieu of a fractional share. Memco shareholders
are urged to consult their own tax advisors as to the specific tax consequences
to them of the arrangement. For U.S. federal and Israeli tax consequences, see
pages 35 to 40.

Accounting Treatment--The arrangement is intended to be accounted for as a
pooling of interests for financial reporting purposes in accordance with U.S.
generally accepted accounting principles.

No Appraisal or Dissenters' Rights--Memco shareholders are not entitled to
any dissenters' or appraisal rights under Israeli law in connection with the
agreement and arrangement.

The Memco Meeting

Time, Place and Date--The extraordinary general meeting of the Memco
shareholders will be held on February 24, 1999 at 8:30 a.m., local time, at
Memco's offices, 24 Raoul Wallenberg Street, Ramat Hahayal, Tel Aviv, Israel.

Purpose--The purpose of the meeting is to vote upon a proposal to approve
and adopt the agreement and the arrangement. Memco shareholders may also vote
upon such other matters as may be properly brought before the meeting.

Record Date and Vote Required--The Memco board has fixed the close of
business on February 1, 1999 as the record date for the determination of
shareholders entitled to vote at the meeting. On such date, there were
17,532,993 Memco ordinary shares issued and outstanding and entitled to vote at
the meeting. The affirmative vote of a majority of shareholders represented at
the meeting and holders of 75% of the voting power of Memco ordinary shares
represented at the meeting is required to approve the agreement and the
arrangement. See pages 20 to 22.

PLATINUM Security Ownership and Shareholder Agreements--Concurrently with
the execution of the agreement, each of Israel Mazin, Eliahu Mashiah, Izaak
Mashiah, Ori Mazin, Jules Marilus, Esriel Sternbuch and Ophir Holdings, Ltd.,
executed a shareholder agreement with PLATINUM in which each of them agreed to
vote all Memco ordinary shares "beneficially owned" by each of them in favor of
the agreement and the arrangement and each of them granted PLATINUM a proxy to
vote their shares.

Such shareholders beneficially own and have the right to vote an aggregate
of 6,823,851 Memco ordinary shares, constituting approximately 38.9% of the
outstanding Memco ordinary shares. Other than 1,085,907 Memco ordinary shares
owned by PLATINUM, constituting approximately 6.2% of the outstanding Memco
ordinary shares, no other directors, executive officers or affiliates of Memco
own any Memco ordinary shares.

Risk Factors

The agreement and the arrangement involve certain risks and uncertainties,
including risks related to the differences between Memco ordinary shares and
PLATINUM common stock, risks related

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<PAGE>

to the integration of our companies, and risks relating to our respective
businesses. To review these and other risks and uncertainties in greater
detail, see pages 13 through 19.

6
<PAGE>

Market and Market Prices

PLATINUM common stock and Memco ordinary shares--To help you in your
analysis of the proposed arrangement, we have included the following table
which sets forth: the average closing prices per share of PLATINUM common stock
and Memco ordinary shares on the Nasdaq National Market during July 30 to
August 12, 1998, the ten day trading period immediately preceding the last
trading day before the announcement of the proposed arrangement, and the high,
low and closing prices per share of PLATINUM common stock and Memco ordinary
shares on the Nasdaq National Market on: (a) August 12, 1998, the last trading
day before announcement of the proposed arrangement; and (b) on February 3,
1999, the last trading day before the printing of this proxy
statement/prospectus:

<TABLE>
<CAPTION>
PLATINUM Memco
common stock ordinary shares
------------ ---------------
<S> <C> <C>
10 day trading average preceding the
announcement of the proposed arrangement.... $31.10 $20.76
August 12, 1998:
High..................................... $31.75 $22.63
Low...................................... $30.81 $21.50
Close.................................... $30.88 $21.94
February 3, 1999:
High..................................... $13.06 $10.38
Low...................................... $12.00 $ 9.56
Close.................................... $12.69 $10.00
</TABLE>

We urge you to obtain current market quotations before making any decision
with respect to the arrangement. See page 2 for the numbers to call to obtain
such quotations.

We have also included the following table which sets forth the range of high
and low sale prices reported on the Nasdaq National Market for PLATINUM common
stock and Memco ordinary shares and a pro forma price per Memco ordinary share
for the period indicated. Memco ordinary shares began trading on October 17,
1996. The pro forma price per Memco ordinary share was determined by
multiplying the applicable prices for PLATINUM common stock by the exchange
ratio of 0.836.

<TABLE>
<CAPTION>
Pro Forma
Price Per
Memco Memco
PLATINUM ordinary ordinary
common stock shares share
------------- ------------- -------------
High Low High Low High Low
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1996:
First Quarter...................... $18.75 $11.25 $ -- $ -- $15.68 $ 9.41
Second Quarter..................... 18.75 12.75 -- -- 15.68 10.66
Third Quarter...................... 15.88 9.25 -- -- 13.28 7.73
Fourth Quarter..................... 15.50 10.63 20.00 14.25 12.96 8.89
Fiscal Year Ended December 31, 1997:
First Quarter...................... 17.88 10.88 20.50 13.63 14.95 9.10
Second Quarter..................... 14.81 10.50 19.75 10.25 12.38 8.78
Third Quarter...................... 25.00 12.63 23.13 17.75 20.90 10.56
Fourth Quarter..................... 30.81 20.13 28.75 16.13 25.76 16.83
Fiscal Year Ended December 31, 1998:
First Quarter...................... 31.13 22.13 32.75 16.50 26.02 18.50
Second Quarter..................... 28.69 22.38 31.50 18.69 23.99 18.71
Third Quarter...................... 34.31 16.00 23.75 12.75 28.68 13.38
Fourth Quarter..................... 22.13 9.00 17.00 6.00 18.50 7.52
Fiscal Year Ended December 31, 1999:
First Quarter (through February 3,
1999)............................. 19.56 11.94 15.88 9.38 16.35 9.98
</TABLE>

7
<PAGE>

As of February 1, 1999, there were approximately 75 holders of record of
Memco ordinary shares. Other than a one-time cash distribution of $1,200,000
made in 1995, Memco has not paid any dividends to shareholders and does not
currently intend to pay any cash dividends in the foreseeable future. As of
January 15, 1999, there were approximately 1,440 record holders of PLATINUM
common stock. PLATINUM has not paid dividends on the PLATINUM common stock, and
the PLATINUM board intends to continue a policy of retaining earnings to
finance its growth and for general corporate purposes. PLATINUM does not
anticipate paying any cash dividends in the foreseeable future.

Following completion of the arrangement, Memco ordinary shares will cease to
be quoted on the Nasdaq National Market. See pages 18 to 19.

PLATINUM Summary Selected Consolidated Financial Information

We are providing the following financial information to aid you in your
analysis of the financial aspects of the arrangement. We derived this summary
historical consolidated financial information for the five fiscal years ended
December 31, 1997 from PLATINUM's consolidated financial statements. The
financial data as of September 30, 1998 and for the nine month periods ended
September 30, 1997 and 1998 are derived from unaudited consolidated financial
statements and include, in the opinion of PLATINUM management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the data for the periods presented. The following information is only a
summary, and you should read it in conjunction with PLATINUM's consolidated
financial statements and the related notes, on pages F-3 to F-40.

<TABLE>
<CAPTION>
Nine Months
Ended September
Years Ended December 31, 30,
--------------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- --------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $235,393 $304,182 $ 408,425 $ 553,484 $ 738,880 $496,182 $653,479
Operating income
(loss)................. 2,073 (1) (2,975)(2) (125,863)(3) (101,609)(4) (102,141)(5) (90,510)(6) (30,132)(7)
Net loss from continuing
operations............. (881)(1) (4,408)(2) (110,426)(3) (83,782)(4) (105,103)(5) (84,821)(6) (35,157)(7)
Net loss from continuing
operations per share--
Basic.................. $ (0.02)(1) $ (0.09)(2) $ (2.03)(3) $ (1.16)(4) $ (1.35)(5) $ (1.10)(6) $ (0.42)(7)
Shares used in per share
calculation--Basic..... 46,835 48,832 54,349 71,919 78,072 77,457 82,965
</TABLE>

8
<PAGE>

(2) Reflects a pre-tax charge for acquired in-process technology of $24,594,000
relating primarily to PLATINUM's acquisitions of Dimeric Development, Inc.
and the net assets of Aston Brooke Software, Inc. and AutoSystems
Corporation, and a pre-tax charge of $4,418,000 for restructuring costs
relating to Learmonth and Burchett Management Systems Plc.
(3) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating primarily to PLATINUM's acquisitions of Advanced Software
Concepts, Inc., SQL Software Corporation, RELTECH Group, Inc., Protellicess
Software, Inc., AIB Software Corporation and BMS Computer, Inc. and the net
assets of ViaTech Development, Inc., BrownStone Solutions, Inc. and
ProtoSoft, Inc. and to certain product acquisitions. Reflects a pre-tax
charge for merger costs of $31,287,000 relating to PLATINUM's acquisitions
of Software Interfaces, Inc., Answer Systems, Inc., Locus, Altai, Inc.,
Trinzic and Softool Corporation.
(4) Reflects a pre-tax charge for acquired in-process technology of $49,451,000
relating to PLATINUM's acquisitions of Advanced Systems Technologies, Inc.,
Software Alternatives, Inc. (d/b/a System Software Alternatives), Grateful
Data, Inc. (d/b/a TransCentury Data Systems) and VREAM, Inc.; substantially
all of the assets of the Access Manager business unit of the High
Performance Systems division of International Computers Limited; and
certain product technologies. Also reflects a pre-tax charge for merger
costs of $5,782,000 relating primarily to PLATINUM's acquisitions of Prodea
Software Corporation, Paradigm Systems Corporation and Axis Systems
International, Inc.; and a pre-tax charge of $16,312,000 relating to
Learmonth and Burchett and Logic Works, Inc. restructuring costs.
(5) Reflects a pre-tax charge for acquired in-process technology of $67,904,000
relating to PLATINUM's acquisitions of GEJAC, Inc. and ProMetrics Group
Limited, the purchase of certain product technologies and other intangible
assets from Intel Corporation and the purchase of certain other product
technologies. Also reflects a pre-tax charge for merger costs of $8,927,000
relating to PLATINUM's acquisitions of Australian Technology Resources Pty
Limited, I&S Informationstechnik and Services GmbH and Vayda Consulting,
Inc.; and a pre-tax charge of $55,829,000 for restructuring costs.
(6) Reflects a pre-tax charge for acquired in-process technology of $17,164,000
relating to PLATINUM's purchase of GEJAC and the purchase of certain
product technologies. Also reflects a pre-tax charge for merger costs of
$3,706,000 relating to PLATINUM's acquisitions of Australian Technology
Resources and I&S Informationstechnik; and a pre-tax charge of $56,063,000
for restructuring costs.
(7) Reflects a pre-tax charge for acquired in-process technology of $32,615,000
relating to PLATINUM's acquisitions of Geneva Software, Inc. and certain
other software businesses and product technologies. Also reflects a pre-tax
charge for merger costs of $39,965,000 relating primarily to PLATINUM's
acquisitions of Mastering, Inc., Learmonth and Burchett and Logic Works.

9
<PAGE>

Memco Summary Consolidated Financial Information

We are providing the following financial information to aid you in your
analysis of the financial aspects of the arrangement. We derived this summary
historical consolidated financial information for the five fiscal years ended
December 31, 1997 from Memco's audited consolidated financial statements. The
financial data as of September 30, 1998 and for the nine month periods ended
September 30, 1997 and 1998 are derived from unaudited consolidated financial
statements and include, in the opinion of Memco management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the data for the periods presented. The following information is only a
summary, and you should read it in conjunction with Memco's consolidated
financial statements, and the related notes, on pages F-41 to F-85.

<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
--------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------- ------- ------- --------- ----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 372 $ 440 $ 1,549 $15,312 $30,591 $ 18,457 $ 33,892
Cost of revenues........ 96 185 242 1,603 3,087 1,983 4,114
------ ------ ------- ------- ------- --------- ----------
Gross profit........... 276 255 1,307 13,709 27,504 16,474 29,778
Operating expenses:
Research and
development, net...... 60 331 872 2,254 4,066 2,854 4,357
Marketing and
selling............... 76 186 2,361 7,417 13,628 7,858 16,273
General and
administrative........ 115 246 535 1,506 2,995 1,994 3,496
Amortization of excess
of cost over net
assets acquired,
net................... -- -- -- -- -- -- 1,286
Acquired in-process
technology............ -- -- -- -- -- -- 31,553
------ ------ ------- ------- ------- --------- ----------
Total operating
expenses............ 251 763 3,768 11,177 20,689 12,706 56,965 (1)
------ ------ ------- ------- ------- --------- ----------
Operating income
(loss)................. 25 (508) (2,461) 2,532 6,815 3,768 (27,187)(1)
Financing income, net... 9 25 298 1,282 3,196 2,342 2,218
------ ------ ------- ------- ------- --------- ----------
Income (loss) before
taxes on income........ 34 (483) (2,163) 3,814 10,011 6,110 (24,969)(1)
Taxes on income......... 26 -- 300 430 935 705 1,700
------ ------ ------- ------- ------- --------- ----------
Net income (loss).... $ 8 $ (483) $(2,463) $ 3,384 $ 9,076 $ 5,405 $ (26,669)(1)
====== ====== ======= ======= ======= ========= ==========
Net income (loss) per
share--Basic........... $ -- $(0.09) $ (0.23) $ 0.27 $ 0.58 $ 0.35 $ (1.59)(1)
Net income (loss) per
share--Diluted......... $ -- $(0.09) $ (0.23) $ 0.25 $ 0.55 $ 0.33 $ (1.59)(1)
Weighted average number
of shares--Basic....... 2,181 5,117 10,769 12,722 15,574 15,527 16,825
Weighted average number
of shares--Diluted..... 2,181 5,117 10,769 13,469 16,648 16,551 16,825
</TABLE>

<TABLE>
<CAPTION>
As of
As of December 31, September 30,
------------------------------------ -------------
1993 1994 1995 1996 1997 1998
---- ------ ------- ------- ------- -------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $(12) $1,001 $ 8,297 $55,118 $61,383 $52,908
Total assets............ 540 1,614 11,342 64,515 77,733 99,046
Long-term liabilities... 210 231 5,619 3,923 2,238 1,120
Total shareholders'
equity................. 21 1,119 3,502 52,940 63,329 81,446
</TABLE>
- --------
(1) Reflects a pre-tax charge for acquired in-process technology of $31,553,000
relating to the acquisitions of AbirNet, Ltd. and Network Information
Technology, Inc.

10
<PAGE>

Summary Unaudited Pro Forma Condensed Selected Combined Financial Data

The following summary unaudited pro forma condensed selected combined
financial data reflects the pooling-of-interests method of accounting and is
intended to give you a better picture of what our businesses might have looked
like if PLATINUM and Memco had been consolidated for all periods presented. We
derived this financial data from the unaudited pro forma combined financial
statements, our separate historical consolidated financial statements and other
financial information. We have included this unaudited pro forma condensed
combined financial information for comparative purposes only, and it does not
necessarily indicate the results of operations or financial position which
actually would have been obtained if the arrangement had been completed at the
beginning of the periods or as of the date presented. This combined financial
data does not necessarily represent the results of operations or financial
position that we will experience in the future. Book value per share under "Pro
Forma Combined Balance Sheet Data," is computed by dividing pro forma
stockholders' equity by the pro forma number of shares of common stock
outstanding at September 30, 1998.

<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------- ------------------
1995 1996 1997 1997 1998
--------- --------- --------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Pro Forma Combined
Statement of Operations
Data:
Total revenues........... $ 409,311 $ 563,829 $ 764,155 $511,949 $673,454
Operating loss........... (128,750) (100,902) (97,278) (87,428) (69,568)
Net loss from continuing
operations.............. (112,957) (83,551) (113,859) (91,803) (83,219)
Net loss from continuing
operations per share--
Basic................... $ (1.78) $ (1.01) $ (1.25) $ (1.02) $ (0.86)
Shares used in computing
per share amounts--
Basic................... 63,351 82,554 91,092 90,438 97,031
</TABLE>

<TABLE>
<CAPTION>
As of
September 30, 1998
---------------------
(in thousands, except
per share data)
<S> <C>
Pro Forma Combined Balance Sheet Data:
Cash, cash equivalents and investments.................. $ 319,415
Working capital......................................... 342,354
Total assets............................................ 1,090,650
Long-term obligations and acquisition-related payables,
less current portion................................... 277,832
Total stockholders' equity.............................. 433,148
Book value per share.................................... 4.33
</TABLE>

Summary Pro Forma Combined Comparative Per Share Data

We have summarized below certain historical per share data of PLATINUM and
Memco and combined per share data on an unaudited pro forma basis after giving
effect to the arrangement accounted for under the pooling-of-interests method
of accounting and assuming that 0.836 of a share of PLATINUM common stock was
issued in exchange for each Memco ordinary share, other than shares owned by
PLATINUM.

You should read this data in conjunction with each of our Selected
Consolidated and Pro Forma Condensed Combined Financial Information and the
related notes on pages 50 to 62.

This unaudited pro forma combined financial data does not necessarily
indicate the operating results that would have been achieved had the
arrangement been in effect as of the beginning of the periods presented, or the
results of operations or financial position that we will experience in the
future.

11
<PAGE>

The book value per share of PLATINUM common stock is computed by dividing
stockholders' equity by the number of shares of PLATINUM common stock
outstanding on those dates. Book value per ordinary share of Memco is computed
by dividing shareholders' equity by the number of ordinary shares of Memco
outstanding on those dates. Historical Memco per share data reflect basic
earnings per share for each period below. The per share amounts under the
column "Pro Forma Combined" reflect the arrangement. The per share amounts
under the column "Equivalent Memco Pro Forma Combined" are calculated by
multiplying the pro forma combined per share amount for each period by the
exchange ratio of 0.836.

<TABLE>
<CAPTION>
Equivalent
Memco
Historical Historical Pro Forma Pro Forma
PLATINUM Memco Combined Combined
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss) from Continuing
Operations Per Share
Years ended December 31:
1995............................ $(2.03) $(0.23) $(1.78) $(1.49)
1996............................ (1.16) 0.27 (1.01) (0.84)
1997............................ (1.35) 0.58 (1.25) (1.05)
Nine months ended September 30:
1997............................ (1.10) 0.35 (1.02) (0.85)
1998............................ (0.42) (1.59) (0.86) (0.72)
Book Value Per Share:
December 31, 1997................. 4.27 4.01 4.10 3.43
September 30, 1998................ 4.37 4.65 4.33 3.62
</TABLE>

12
<PAGE>

RISK FACTORS

In addition to the other information contained in this proxy
statement/prospectus, you should carefully consider the following factors when
you evaluate (1) the proposal to approve the agreement and the arrangement and
(2) your acquisition of PLATINUM common stock. You should understand that for
periods after the completion of the arrangement, references to "we," "our" or
"ours" means the combined PLATINUM and Memco businesses.

Risks of Combining Our Businesses

The execution of the proposed arrangement inherently involves a certain
amount of risk in successfully integrating our two companies in a timely and
efficient manner. If we do not successfully integrate and achieve the
anticipated benefits, our businesses could be materially adversely affected.
Specifically, risks in successfully integrating our companies include:

. Coordinating the efforts and managing the decision making process in our
geographically distant organizations, with PLATINUM in suburban Chicago,
Illinois and Memco in Tel Aviv, Israel;

. Integrating personnel with different business and corporate culture
backgrounds; and

. Expending significant amounts of financial and other resources in
integrating our businesses, making such resources unavailable for our
daily business needs. These expenditures could disrupt our on-going
operations and could add to the existing strain on PLATINUM's management
resources from the integration of other recent acquisitions and the
rapid internal growth of PLATINUM's business. PLATINUM expects to incur
charges of approximately $15,000,000 in connection with the arrangement.

Risks of a Fixed Exchange Ratio with Fluctuating Market Prices

The value of what you receive in the arrangement depends on the market
price of PLATINUM common stock upon completion of the arrangement. In the
arrangement, you will receive 0.836 of a share of PLATINUM common stock for
each outstanding Memco ordinary share that you own. This exchange ratio is
fixed and will not vary regardless of any fluctuations in the market price of
either PLATINUM common stock or Memco ordinary shares. You should note that
the market price of PLATINUM common stock has been volatile. These
fluctuations could cause the value of what you receive to vary greatly. See
"--Volatility of PLATINUM's Stock Price."

Since the announcement of the proposed arrangement, the trading prices of
both PLATINUM and Memco have decreased; as of February 3, 1999, the latest
practical date before the publication of this proxy statement/prospectus, the
closing price of PLATINUM common stock was $12.69, and the closing price of
Memco ordinary shares was $10.00. Prior to voting on the agreement and the
arrangement, you should obtain recent market quotations for the PLATINUM
common stock and Memco ordinary shares. See "Questions and Answers About the
PLATINUM/Memco Arrangement--How do I obtain current PLATINUM common stock and
Memco ordinary share market prices," "Market and Market Prices" and "Pro Forma
Combined Comparative Per Share Data."

PLATINUM's Net Losses and Our Ability to Satisfy Future Debt Obligations

PLATINUM experienced operating losses and net losses from continuing
operations from 1995 through the first nine months of 1998. Merger costs and
charges for acquired in-process technology, as well as expenses related to the
integration of acquired businesses contributed significantly to the losses for
these periods. See
"--Risks of Reliance on an Acquisition Strategy." In contrast to the
consistent losses suffered by PLATINUM,
Memco had operating and net losses in 1995, but earned operating and net
income in 1996, 1997 and the first

13
<PAGE>

nine months of 1998. As a result of the arrangement, your investment will
change from ownership in a company that has been profitable in recent periods
to ownership in a company that has historically been unprofitable. PLATINUM's
future operating results will depend upon a number of business factors as well
as general economic conditions. See "--Risks of Reliance on an Acquisition
Strategy," "--Highly Competitive Markets," "--Seasonality and Variability of
Quarterly Operating Results" and "Unaudited Pro Forma Condensed Combining
Financial Data."

If we do not achieve our anticipated revenues and operating income and
continue to incur losses in the future, our ability to pay interest on, or
ultimately pay the principal amount of, our indebtedness could become impaired.
If we do not meet our cash requirements out of cash flow from operations and
available borrowings, we may not be able to obtain alternative financing or may
not be permitted to do so under the terms of our existing financing
arrangements. If we do not arrange for sufficient financing, our ability to
respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or increased working capital requirements may be adversely
affected. We could also become more vulnerable to industry downturns and
competitive pressures. See "PLATINUM Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

Rapid Technological Change; Reliance on New Products and Markets

PLATINUM expects the market for its products to continue to be subject to
frequent and rapid changes in technology and customer preferences. The
emergence of new product technologies and industry standards could cause
PLATINUM's existing products to become obsolete and unmarketable. PLATINUM's
growth and future financial performance will depend upon its ability to develop
and introduce new products and enhance existing products to accommodate the
latest technological advances and customer requirements. If PLATINUM fails to
anticipate or adequately respond in a timely fashion to changes in technology
and customer preferences, its business, financial condition or results of
operations could be materially adversely affected. Additionally, PLATINUM's
future growth and financial performance will be adversely affected if:

. New products developed by PLATINUM are not accepted in the marketplace;

. Other software vendors develop and market products which are superior to
PLATINUM's products and gain greater acceptance in the marketplace; or

. Customers delay purchases in anticipation of technological changes.

Dependence on Mainframe Products

PLATINUM derives a significant percentage of its revenues from products for
mainframe computers and believes that mainframes will continue to be an
integral part of organizations' open systems IT environments. However, there
has been debate in the marketplace regarding the future role of mainframe
computers. Although PLATINUM now derives a majority of its revenues from non-
mainframe products and services, if there were a decline in utilization of
mainframe computers, PLATINUM's business, financial condition and results of
operations could be materially adversely affected.

Risks of Memco's Israeli Operations

Memco is an Israeli company with its principal offices and research and
development facilities in Israel. Although virtually all of Memco's sales are
made to customers outside of Israel, Memco is directly influenced by the
political, economic and military conditions affecting Israel. Any major
hostilities involving Israel or the interruption or curtailment of trade
between Israel and its present trading partners could have a material adverse
effect on our business, financial condition and results of operations. In
addition, if certain Israeli governmental grants, programs or tax benefits are
terminated or reduced, our business could be materially adversely affected.

14
<PAGE>

Risks of Reliance on an Acquisition Strategy

PLATINUM has grown largely through the acquisition of businesses and
technologies. Since mid-1994, PLATINUM has acquired 48 businesses and 31
technologies. PLATINUM believes that its future growth depends, in part, upon
the continued success of this acquisition strategy. In the future, PLATINUM may
not be able to successfully identify, acquire on favorable terms or integrate
suitable businesses or technologies. PLATINUM may also face increased
competition for acquisition opportunities, which may adversely effect its
ability to complete suitable acquisitions and may increase the costs of
completing acquisitions.

An acquisition strategy involves a number of other risks and challenges,
including the following:

. Diversion of management's attention;

. Integration 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;

. Potential dilutive effect on PLATINUM's stockholders from continued
issuance of common stock as consideration for acquisitions;

. Adverse effect of acquisition-related charges, costs and expenses on
operating and net income;

. Potential loss of key employees; and

. Difficulty of presenting a unified corporate image.

Highly Competitive Markets

PLATINUM operates in the highly competitive markets of information
technology infrastructure products and professional services, and PLATINUM
expects competition to increase. Many of PLATINUM's current and prospective
competitors have significantly greater financial, technical and marketing
resources than PLATINUM. In addition, many prospective customers have the
internal capability to implement solutions to their information technology
infrastructure problems.

PLATINUM's ability to compete successfully in the information technology
infrastructure products market depends on a number of factors, both within and
outside PLATINUM's control, including the following:

. Comparative functionality, integration, performance and reliability of
the products offered by PLATINUM and its competitors;

. Success and timing of new product development efforts;

. Changes affecting the hardware, operating systems or database systems
which PLATINUM currently supports;

. Level of demonstrable economic benefits for users relative to cost; and

. Relative quality of customer support and user documentation.

PLATINUM's ability to compete successfully in the professional services
market depends on a number of factors, including the following:

. Breadth and quality of services offered;

. Vendor reputation; and

. Ability to retain qualified technical personnel.

15
<PAGE>

Risks Associated with the Year 2000

Many currently installed computer systems, hardware and software products
are coded to accept only two digit entries in the date field. Beginning in the
Year 2000, these systems and products will need to accept four digit entries to
recognize twenty-first century dates. As a result, such systems and products
may need to be upgraded or replaced to comply with Year 2000 requirements.

PLATINUM believes that substantially all of the products that it currently
sells or maintains are now Year 2000 compliant. However, PLATINUM is subject to
certain risks related to the Year 2000:

. Products have been created and marketed for the arrival of the Year
2000; thus, demand for such products and services may diminish as the
Year 2000 arrives, which could negatively impact PLATINUM's growth rate;

. Customers have allocated significant portions of their IT budgets to
Year 2000 compliance which could diminish demand for PLATINUM's
traditional products; and

. Certain of PLATINUM's products may contain undetected Year 2000
problems.

PLATINUM has implemented a comprehensive program, with a dedicated project
manager, to address Year 2000 issues in PLATINUM's internal systems, including
information technology and non-information technology systems, and technical
infrastructure. PLATINUM is analyzing Year 2000 compliance with respect to
third party service providers, building systems and equipment upon which
PLATINUM relies. PLATINUM believes that the internal costs associated with the
Year 2000 will not have a material effect on PLATINUM's financial condition or
results of operations. See "PLATINUM Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Considerations."

Risk of Damage Claims and Costs Resulting from Product Defects

Upon release, PLATINUM's software products typically contain certain errors
or bugs which are usually resolved through the regular maintenance and updating
process. However, products may contain more serious errors, failures or bugs
which may not be discovered until PLATINUM has delivered the products to
customers. As a result of serious failures or bugs:

. PLATINUM's customers could suffer major business interruptions or other
problems which could lead to claims for damages against PLATINUM;

. Customers may delay their purchases of products until they are satisfied
that the problems have been resolved;

. Customers may decide not to purchase the defective products or other
PLATINUM products;

. Customers who have already received the defective products may return
them for refunds and possibly may bring other claims against PLATINUM;

. PLATINUM may need to devote significant financial and product
development resources to fix software defects; and

. PLATINUM may be forced to delay the introduction of new products or new
versions of existing products.

PLATINUM believes that its software license agreements provide it with
substantial protection against liability. In addition, PLATINUM possesses
"errors and omissions" insurance covering PLATINUM in the event it is held
responsible for losses suffered by its customers due to product defects.
Nevertheless, PLATINUM may be found liable for customer losses, and its
insurance may not be adequate to cover such losses. If PLATINUM's products
contain serious failures or bugs, PLATINUM's business, results of operations or
financial condition may be materially adversely affected.

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<PAGE>

Dependence on Proprietary Technology

Our success is heavily dependent upon our proprietary software technology.
We establish and protect our proprietary rights through a combination of
contractual rights, trademarks, trade secrets, patents and copyright laws.
However, the steps we have taken to protect our proprietary rights may not be
adequate to prevent the unauthorized use or imitation of our products. As
discussed under "--Risks of International Sales" below, PLATINUM has derived a
significant percentage of its revenues from sales in foreign countries. Certain
of these countries may afford less protection to proprietary technology rights
than is provided under United States laws.

We do not believe that our products or technologies materially infringe on
the intellectual property rights of others. However, infringement claims may be
asserted against us in the future. Any claim or litigation, with or without
merit, or an adverse determination in such claims or litigation, could be
costly and could have a material adverse effect on our results of operations
and financial condition.

Dependence on DB2

PLATINUM expects to continue to derive a significant portion of its revenues
from licensing products that enhance the performance of IBM's DB2 software for
managing mainframe corporate databases. If IBM decreases its commitment to DB2
or there is a decline in the market's acceptance and utilization of DB2,
PLATINUM's business could be materially adversely effected. Also, if IBM
enhances DB2 and thereby renders PLATINUM's products obsolete or devotes more
resources to developing and marketing IBM's own DB2 tools, PLATINUM's business,
results of operations or financial condition could be materially adversely
affected.

Dependence on Relationships with Relational Database Vendors

PLATINUM must develop and maintain close relationships with leading database
vendors to compete effectively. For example, PLATINUM has entered into
alliances with Oracle Systems Corp., Sybase, Inc. and Informix Software, Inc.
If PLATINUM fails to maintain existing relationships or establish new
relationships with database vendors, PLATINUM's business, results of operations
and financial condition could be materially adversely affected.

Seasonality and Variability of Quarterly Operating Results

PLATINUM's operating results may vary significantly from quarter to quarter.
In the fourth quarter of each year, PLATINUM typically achieves its highest
total revenues and operating income, excluding certain acquisition-related
charges and other special charges. PLATINUM generally records a majority of its
quarterly software products revenues in the third month of any given quarter,
particularly in the last week of that third month. PLATINUM believes the
seasonality of its operating results is caused primarily by the budgeting
cycles of its software product customers and the structure of its sales
commission and bonus programs. As a result, estimating PLATINUM's operating
results prior to the end of a quarter is extremely difficult.

PLATINUM operates with little order backlog and derives substantially all of
its software product revenues in any quarter from sales made in that quarter.
Consequently, if near term demand for PLATINUM's products weakens or sales do
not close in any quarter as anticipated, PLATINUM's results of operations for
that quarter could be materially adversely affected.

Risks of International Sales and Exchange Rate Fluctuations

Historically, PLATINUM has derived a significant portion of its revenues
from international sales. PLATINUM's total level of foreign sales and the
profitability of these sales could be materially adversely affected by exchange
rate fluctuations. To date, fluctuations in foreign currency exchange rates
have not had a

17
<PAGE>

material effect on PLATINUM's results of operations or liquidity. However,
PLATINUM closely monitors its foreign operations and net asset position to
determine the need for hedging foreign currency exchange risk. Since 1997,
PLATINUM has considered hedging appropriate only for short-term intercompany
balances. These currency balances are hedged by purchases and sales of forward
exchange contracts to reduce the exchange rate exposure. At September 30, 1998,
PLATINUM held an aggregate of approximately $14,500,000 in notional amount of
forward exchange contracts. As PLATINUM's operations expand in international
regions outside Western Europe, where PLATINUM's international operations are
currently concentrated, PLATINUM may increasingly need to hedge foreign
currency exchange risk.

PLATINUM is also subject to the risks generally associated with doing
international business, including the following:

. Longer payment cycles;

. Difficulty of managing remote offices;

. Greater difficulties in accounts receivable collection;

. Burdens of complying with a wide variety of foreign laws; and

. Exposure to general foreign economic declines and political conditions.

Risks of Consulting Services Business

PLATINUM is subject to the risks associated with a consulting services
business, including:

. Dependence on reputation with existing customers;

. Volatility of workload; and

. Dependence on ability to attract and retain qualified technical
personnel.

Also, PLATINUM may derive a substantial portion of its future consulting
services revenue from the performance of services under fixed-price contracts.
PLATINUM may not be able to perform in a profitable manner under these
contracts, particularly in the field of software development, where cost
overruns occur frequently. PLATINUM recently announced an expected shortfall in
revenues attributable to its consulting services business. See "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."

Dependence on Key Personnel

PLATINUM's success depends largely on the skills, experience and efforts of
its key management, marketing, product development, professional services and
operational personnel, including key personnel of Memco and other acquired
companies. Because competition for qualified personnel in the software industry
is intense, PLATINUM may face increasing difficultly in hiring, training and
integrating new employees and keeping current valued employees required for
PLATINUM's continued growth. Further, certain key members of the management of
acquired companies, including Memco, may not continue with the combined
businesses. If PLATINUM encounters difficulty in attracting and retaining key
employees, PLATINUM's business, results of operations and financial condition
could be materially adversely affected. See "Memco Management's Discussion and
Analysis of Financial Condition and Results of Operations--Employees."

PLATINUM's success depends in large part on the skills and efforts of Andrew
J. Filipowski, PLATINUM's President and Chief Executive Officer, and Paul L.
Humenansky, PLATINUM's Executive Vice President--Product Development and Chief
Operations Officer. PLATINUM has not entered into non-competition agreements
with Messrs. Filipowski or Humenansky or any of its other key personnel and has
not obtained "key man" life insurance covering these individuals.

18
<PAGE>

Volatility of PLATINUM's Stock Price

The market price of PLATINUM common stock has historically been volatile.
PLATINUM believes various factors may cause the market price of its common
stock to fluctuate substantially, including the following:

. Quarterly fluctuations in financial results;

. Announcements of new products and acquisitions by PLATINUM or its
competitors;

. Changes or anticipated changes in earnings estimates by analysts or
others;

. Changes in accounting treatments or principles; and

. PLATINUM's ability to meet or exceed analysts' or "street" expectations.

PLATINUM recently announced that earnings per share will be lower than analyst
expectations for the fourth quarter of 1998. See "PLATINUM Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Developments."

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 PLATINUM's common stock in the future. In the past,
following periods of volatility in the market price of a company's securities,
class action lawsuits have often been brought against that company. If any such
lawsuit were brought against PLATINUM, PLATINUM could incur substantial costs
and management's attention and resources could be diverted in defending such
lawsuits.

PLATINUM's Rights Agreement, Charter and Delaware Law May Inhibit a Takeover

PLATINUM's rights agreement, commonly referred to as a "poison pill,"
restated certificate of incorporation, and provisions of the Delaware General
Corporation Law may prevent or delay a change of control of PLATINUM, even if
stockholders would benefit from a change in control. See "Comparison of
Shareholder Rights" and "Description of PLATINUM's Common Stock."

Antitakeover measures implemented by PLATINUM include:

. The rights agreement, which provides that when any person or group
acquires 15% of the outstanding shares of PLATINUM common stock,
PLATINUM's stockholders will have the right to purchase from PLATINUM
additional shares of PLATINUM common stock with a market value equal to
two times the exercise price of this right;

. PLATINUM's restated certificate of incorporation, which separates the
board of directors into three classes, with only one class up for
election in any given year; and

. Section 203 of the Delaware General Corporation Law which imposes
restrictions upon 15% holders of PLATINUM common stock.

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<PAGE>

UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risk and uncertainty and actual results
could differ materially from those set forth in the forward-looking statements
contained herein for a variety of reasons, including without limitation, the
risks outlined under the caption "Risk Factors," as well as those discussed
elsewhere in this proxy statement/prospectus.

THE MEETING

Purpose of the Meeting

The purpose of the extraordinary general meeting of the shareholders of
Memco is to approve and adopt the agreement dated as of August 13, 1998,
between Memco Software Ltd. and PLATINUM technology International, inc. and the
arrangement, pursuant to which, at the effective time of the arrangement, each
outstanding Memco ordinary share, NIS 0.01 par value per share, other than
those already owned by PLATINUM, will be exchanged for 0.836 of a share of
PLATINUM common stock, $0.001 par value per share, and Memco will become a
wholly-owned subsidiary of PLATINUM.

As part of the arrangement, the articles of association of Memco will be
amended and restated in their entirety to change the status of Memco under
Israeli law. The amended articles of association of Memco will be substantially
identical to the existing articles of association of Memco with the following
changes:

. upon consummation of the arrangement, Memco will become a private
company;

. the authorized share capital of Memco will be increased from NIS
800,000, divided into 80,000,000 ordinary shares to NIS 850,000 divided
into 85,000,000 ordinary shares; and

. the maximum number of directors on the board of directors of Memco will
be decreased from 14 to 5.

Your vote in connection with the agreement and the arrangement shall also
constitute a vote by "special resolution" under Israeli law in connection with
the adoption of the amended articles of association of Memco in connection with
the arrangement.

The proposed revisions to Memco's articles are designed to reflect the
change in Memco's status upon consummation of the arrangement. Israeli law
recognizes two types of companies, public and private. Under the Israeli
Companies Ordinance--1983, a public company is required to have at least seven
shareholders. Since PLATINUM will be the sole shareholder of Memco following
the consummation of the arrangement, Memco will become a private company.

Since Memco will become a wholly-owned subsidiary of PLATINUM and a private
company, a reduction in the maximum number of directors on the Memco board was
deemed appropriate. Upon the consummation of the arrangement, the maximum
number of directors will be reduced from the current fourteen to five.
PLATINUM, as the sole shareholder of Memco, will have the power to nominate all
of the directors of Memco. The proposed increase in the number of authorized
shares of Memco is a technical change solely for convenience.

Time, Place and Date

The meeting will be held on February 24, 1999 at Memco's offices, 24 Raoul
Wallenberg Street, Ramat Hahayal, Tel Aviv, Israel, commencing at 8:30 a.m.,
local time.

Record Date; Shares Entitled to Vote

The Memco board has fixed the close of business on February 1, 1999 as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the meeting and any postponement or adjournment thereof. On the
record date, there were 17,532,993 Memco ordinary shares issued and outstanding
and entitled to vote.

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<PAGE>

Voting and Revocation of Proxies; Solicitation of Proxies; Accountants

The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Memco board for use at the meeting. Memco shareholders are
requested to complete, date and sign the accompanying proxy and return it
promptly. All proxies that are properly executed and returned will be voted at
the meeting in accordance with any directions noted thereon. If no direction is
indicated, proxies will be voted FOR approval and adoption of the agreement and
the arrangement. Proxies will be voted in the discretion of the holders of the
proxy with respect to any other business that may properly come before the
meeting and all matters incidental to the conduct of the meeting. It is not
expected that any other matter will be brought before the meeting.

Any Memco shareholder signing and delivering a proxy may revoke it at any
time before it is voted by submitting a later dated proxy with respect to the
same shares or by delivering to Memco's Secretary a written revocation. Any
Memco shareholder attending the meeting in person may also revoke his or her
proxy and vote his or her shares at the meeting. Attendance at the meeting will
not in and of itself constitute a revocation of a proxy.

The cost of soliciting proxies will be paid by Memco. Proxies may be
solicited without extra compensation by certain directors, officers and regular
employees of Memco by mail, telegram or personally. Brokers, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to the beneficial owners of Memco ordinary shares and will be
reimbursed by Memco for their reasonable expenses in forwarding such materials.
Memco may use the services of MacKenzie Partners, Inc. to solicit proxies
pursuant to customary contractual terms, with total estimated fees of
approximately $15,000 plus reimbursement of expenses.

Representatives of Luboshitz, Kasierer & Co., are expected to be present at
the meeting with the opportunity to make a statement if they so desire and are
expected to be available to respond to appropriate questions.

Vote Required

Memco shareholders are entitled to one vote per share on all matters to be
considered at the meeting. The presence of one third of the outstanding Memco
ordinary shares entitled to vote, in person or by proxy, at the meeting shall
constitute a quorum. The affirmative vote of a majority of Memco shareholders
represented at the meeting, in person or by properly executed proxy, and the
holders of 75% of the voting power of Memco ordinary shares represented at the
meeting, voting in person or by proxy, is required to approve the agreement and
the arrangement, including the adoption of the amended articles of association
of Memco.

Concurrently with the execution of the agreement, each of Israel Mazin, the
Chairman and Chief Executive Officer of Memco, Eliahu Mashiah, director and
Chief Technology Officer of Memco, Izaak Mashiah, director and Senior Vice
President Technologies of Memco, Ori Mazin, director and Chief Operating
Officer of Memco, Jules Marilus, director of Memco, Esriel Sternbuch and Ophir
Holdings, Ltd., executed a shareholder agreement with PLATINUM in which each
agreed to vote all Memco ordinary shares "beneficially owned" by them in favor
of the agreement and the arrangement and granted PLATINUM a proxy to vote their
shares at the meeting. As of the record date, such shareholders beneficially
own and have the right to vote an aggregate of 6,823,851 Memco ordinary shares,
constituting approximately 38.9% of the outstanding Memco ordinary shares.
Other than 1,085,907 Memco ordinary shares owned by PLATINUM, constituting
approximately 6.2% of the outstanding Memco ordinary shares, no other
directors, executive officers or affiliates of Memco own any Memco ordinary
shares.

Under Section 115 of the Companies Ordinance--1983 and the current articles
of association of Memco, any amendment to Memco's articles must be effected by
a "special resolution" of the shareholders of Memco. Such a "special
resolution" must be adopted at a shareholders meeting by the holders of not
less than 75% of

21
<PAGE>

the voting power of Memco's ordinary shares represented, in person or by proxy,
at such meeting. Thus, the vote required to approve the arrangement under
Section 233 of the Companies Ordinance encompasses the requirements for the
adoption of the "special resolution" under Section 115. The notice of such
meeting must be given no less than 21 days in advance of such meeting in which
the adoption of a "special resolution" is contemplated. Memco sent a notice to
its shareholders with respect to the meeting on February 1, 1999, at least 21
days prior to such a meeting, which stated that adoption of a "special
resolution" is contemplated at the meeting.

Broker Non-Votes

The election inspectors will count Memco ordinary shares represented by
proxies that reflect "broker non-votes" only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum. "Broker non-votes" are shares represented at the meeting held by
brokers or nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does
not have the discretionary voting power on a particular matter. For purposes of
determining whether the agreement and the arrangement have been approved, the
election inspectors will exclude broker non-votes from the number of shares
deemed to have voted on such matter at the meeting. Accordingly, broker non-
votes will not affect the voting on the agreement or the arrangement.

Security Ownership of Memco's Principal Shareholders

The following table sets forth certain information, as of December 1, 1998,
with respect to:

. each person or entity known by Memco to be the beneficial owner of more
than 5% of the outstanding Memco ordinary shares;

. the number of outstanding Memco ordinary shares beneficially owned by
each director and executive officer;

. the number of outstanding Memco ordinary shares beneficially owned by
all officers and directors of Memco as a group; and

. the number of shares of PLATINUM common stock to be acquired by each
such 5% holder of Memco ordinary shares, director or executive of MEMCO
and their estimated percentage of ownership of PLATINUM common stock
based on shares of PLATINUM common stock outstanding as of January 15,
1999 and an exchange rate of 0.836.

<TABLE>
<CAPTION>
Memco Ordinary Shares PLATINUM Common
Beneficially Owned(1) Stock Acquired
------------------------- -----------------
Identity of Person or Group Number Percent Number Percent
--------------------------- ------------- ----------- --------- -------
<S> <C> <C> <C> <C>
Eliahu Mashiah(2)................. 2,081,231 11.9% 1,739,909 2.0%
Israel Mazin(2)................... 2,061,584 11.8% 1,723,484 2.0%
Ophir Holdings Ltd.(3)............ 1,626,388 9.3% 1,359,660 1.6%
Platinum technology International,
inc.(4).......................... 1,085,907 6.2% -- --
Jules Marilus(5).................. 362,574 2.1% 303,111 *
Izaak Mashiah(2).................. 42,250 * 35,321 *
Dov Gal(2)........................ 20,370 * 17,029 *
Ori Mazin(2)...................... 12,250 * 10,241 *
Andrew J. Filipowski(6)........... 0 * 0 *
All directors and officers as a
group............................ 4,580,259 26.2% 3,829,095 4.4%
(9 persons)
*Less than 1%
</TABLE>
- --------
(1) 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. A person is deemed to have "beneficial
ownership" of any shares which such person has a right to acquire within 60
days of December 1, 1998.

22
<PAGE>

(2) The address of such person is c/o Memco Software Ltd., 24 Raoul Wallenberg
Street, Tel Aviv 69719, Israel.
(3) The address of Ophir Holdings Ltd. is Shderot Shaul Hamelech, 8th Floor,
Tel Aviv, Israel. Effective August 11, 1998, Mr. Yirmiahu Kaplan, Ophir
Holdings Ltd.'s designee on Memco's board of directors, resigned from the
board of directors.
(4) The address of PLATINUM is 1815 South Meyers Road, Oakbrook Terrace, IL
60181.
(5) The address of Mr. Marilus is Binzstrasse 7, CH-8045, Zurich, Switzerland.
(6) Mr. Filipowski is director of Memco and Chief Executive Officer of
PLATINUM. Mr. Filipowski disclaims beneficial ownership of all of the Memco
ordinary shares owned by PLATINUM. His business address is 1815 South
Meyers Road, Oakbrook Terrace, IL 60181.

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<PAGE>

THE ARRANGEMENT

Exchange of Memco Ordinary Shares

The arrangement will become effective when a Final Court Order is received
from a proper court in Israel and is filed with the Registrar of Companies in
Israel. The filing of the Final Court Order will occur as soon as practicable
following the satisfaction or waiver of the conditions set forth in the
agreement. See "The Agreement--Conditions to the Agreement and the
Arrangement."

Each Memco ordinary share outstanding immediately prior to the effective
time shall, at the effective time, be exchanged for 0.836 of a share of
PLATINUM common stock. Cash will be paid in lieu of any fractional share of
PLATINUM common stock.

The exchange ratio was determined through arms length negotiations between
PLATINUM and Memco. On August 13, 1998, the closing price of a share of
PLATINUM common stock was $27.38 and the price of a Memco ordinary share was
$21.69. As of August 13, 1998, this represented a 5.5% premium to Memco
shareholders. As of February 3, 1999, the PLATINUM common stock price was
$12.69 and the Memco ordinary share price was $10.00. Accordingly, as of
February 3, 1999, the premium to Memco shareholders was 6.1%.

At the effective time, Memco will become a wholly-owned subsidiary of
PLATINUM with all its purposes, powers and objects unaffected and unimpaired by
the arrangement, continuing its corporate existence under the laws of the State
of Israel. The current members of the Memco board will resign from office
pursuant to Section 9.10 of the agreement upon consummation of the arrangement.
Since PLATINUM will be the sole shareholder of Memco at such time, PLATINUM
will have the power to nominate all of the members of the Memco board. At this
time, PLATINUM has not yet determined who the officers and directors of Memco
will be following consummation of the arrangement.

Background of the Arrangement

On July 13, 1995, PLATINUM purchased 10% of the outstanding Memco ordinary
shares for $4.0 million pursuant to a share purchase agreement, among PLATINUM,
Memco, Eliahu Mashiah, Israel Mazin, Ophir Holdings Ltd., Jules Marilus and
Esriel Sternbuch. The PLATINUM purchase agreement further provides that
PLATINUM is entitled to designate a representative to the Memco board as long
as PLATINUM holds a number of Memco ordinary shares equal to at least 5% or
more of all of the issued and outstanding Memco ordinary shares. Since November
27, 1995, Andrew Filipowski, President and Chief Executive Officer of PLATINUM,
has been a director of Memco.

On July 13, 1995, PLATINUM entered into a stock purchase agreement with
Jules Marilus and Esriel Sternbuch, pursuant to which PLATINUM purchased
583,422 Memco ordinary shares from Marilus and Sternbuch for an aggregate
purchase price of $0.6 million. In addition, in October 1996, prior to Memco's
initial public offering, PLATINUM exercised an option pursuant to which
PLATINUM purchased an additional 520,582 Memco ordinary shares from Marilus and
Sternbuch for an aggregate price of $1.6 million.

Concurrently with the execution of the share purchase agreement, on July 13,
1995, Memco and PLATINUM entered into an original equipment manufacturer
licensing agreement, or "OEM agreement," pursuant to which Memco granted
PLATINUM a perpetual, world-wide, non-exclusive and non-transferable license to
sublicense specified Memco products, including all updates and enhancements
thereto, under PLATINUM's private label, "AutoSecure." PLATINUM paid an initial
fee of $6.0 million and agreed to pay subsequent license fees annually to Memco
based on a percentage of the sublicense fees collected by PLATINUM. Pursuant to
the OEM agreement, PLATINUM is responsible for the service and support of
Memco's products that it sublicenses and must make an annual payment to Memco
of a percentage of the service fees that it collects. Memco is responsible for
providing all backline support training with respect to

24
<PAGE>

Memco's products and updates and enhancements to the products as well as
providing certain support and training in the marketing of such products. In
light of PLATINUM's ownership in Memco, the OEM agreement restricts Memco from
entering into similar OEM agreements with software vendors relating to all, or
substantially all of its existing products that are worldwide, unless such
vendor pays a non-refundable fee of a specified amount in advance for such
rights, and that relate specifically to Austria, Belgium, Eastern Europe,
Germany, Holland, Italy, Luxembourg and Switzerland, unless such vendor enters
into a worldwide OEM agreement and pays the non-refundable fee. The OEM
agreement also limits the ability of Memco to grant rights to sell Memco's
products to seven specified software vendors. Such restrictions only apply if
PLATINUM pays specified minimum fees and, with respect to the country
restriction, only if the distribution agreement with a specific distributor of
certain of Memco's products in certain European countries is in effect. During
the term of the OEM agreement, PLATINUM is required to provide certain reports
with respect to quantity of products sold and prices paid and Memco has
auditing rights to verify that PLATINUM is complying with all of the terms and
conditions of the OEM agreement. PLATINUM has the right to terminate the OEM
agreement without the allegation or establishment of a material breach upon 180
days prior notice to Memco. Pursuant to the OEM agreement, PLATINUM paid Memco
$1.3 million, $3.5 million and $2.3 million in 1996, 1997 and the first nine
months of 1998, respectively.

In 1995, Memco also began to establish its own direct sales force in North
America. In October 1996, Memco completed its initial public offering of Memco
ordinary shares in the United States.

In light of the trend toward full suite vendors within the industry in which
Memco competes and the resulting emergence of larger security companies and
system management/security companies, during 1997, Memco's senior management
determined that Memco would be likely to compete more effectively by allying
itself with a large security vendor or with a large systems management company.
In September 1997, Memco engaged Lehman Brothers as its financial advisor to
assist Memco in evaluating various strategic alternatives. Towards the end of
1997 and through the first six months of 1998, Memco, and Lehman Brothers on
behalf of Memco, contacted a number of potential buyers and merger candidates.
None of the persons which were initially contacted, however, indicated serious
interest in pursuing a transaction with Memco.

In mid-1998, disputes arose between Memco and PLATINUM regarding PLATINUM's
compliance with certain covenants of the OEM agreement and Memco's refusal to
provide certain software technology to PLATINUM that Memco considered to be
outside, and PLATINUM considered to be inside, the scope of the OEM agreement.
Pursuant to the OEM agreement, on June 27, 1998, Memco advised PLATINUM that it
was exercising its audit rights under the OEM agreement.

On July 20, 1998, Messrs. Filipowski and Larry Freedman, Senior Vice
President and General Counsel of PLATINUM, Israel Mazin, and Scott Lenga, Vice
President of Business Development and General Counsel of Memco, discussed via
teleconference the issues outlined above that had arisen under the OEM
agreement. During this conversation, Mr. Mazin, who was aware of PLATINUM's
strategy of growth by acquisition, suggested that it might be beneficial for
both parties if PLATINUM acquired Memco. Messrs. Mazin and Filipowski agreed to
further discuss this possibility at a later date.

On Sunday, July 26, 1998, Messrs. Filipowski and Mazin discussed via
teleconference the possibility of a potential acquisition of Memco by PLATINUM.
Mr. Filipowski expressed a preliminary interest, subject to the performance of
a detailed due diligence and negotiations of satisfactory transaction
documents, to purchase all of the outstanding Memco ordinary shares at a price
in the mid-twenties per Memco ordinary share. Messrs. Filipowski and Mazin
agreed to meet again to further discuss such proposal.

Following the July 26 call, Mr. Filipowski contacted Mr. Michael Cullinane,
Chief Financial Officer of PLATINUM, Mr. Gavin Coote, Finance Director--
Software Operations and Mergers and Acquisitions of PLATINUM and Mr. Freedman.
Mr. Filipowski also contacted Mr. Michael Barker at Credit Suisse First Boston
to discuss a possible transaction.

On July 27, 1998, Messrs. Coote and Barker discussed preparation of the
financial analysis necessary for a possible acquisition.

25
<PAGE>

On July 31, 1998 and on August 1, 1998, Messrs. Mazin and Dov Gal, Chief
Financial Officer of Memco, discussed the possibility of a transaction with
PLATINUM with Lehman Brothers and Memco's legal counsel, Meitar, Liquornik,
Geva & Co. of Israel and Chadbourne & Parke LLP of the United States. During
the week of August 3, 1998, senior management of Memco and Lehman Brothers
prepared a financial analysis of a possible transaction with PLATINUM. In
addition, several discussions were held with Lehman Brothers, Memco's legal
counsel and accountants to discuss structural, legal and tax issues.

Between August 3 and August 7, 1998, management of PLATINUM and
representatives of Credit Suisse commenced a financial analysis of a possible
acquisition of Memco by PLATINUM.

On August 5, 1998, Messrs. Filipowski, Cullinane, Freedman and Mr. Marty
Leamy, Senior Vice President--Systems Management Solutions of PLATINUM, met
with Messrs. Mazin and Gal in Oakbrook Terrace, Illinois to discuss various
aspects of a possible transaction. Mr. Filipowski expressed PLATINUM's interest
to purchase Memco for $26 worth of PLATINUM common stock for each Memco
ordinary share, subject to due diligence and satisfactory transaction
documents. Mr. Mazin explained that the only transaction acceptable to Memco
would be a transaction that was only conditioned upon the receipt of the
necessary regulatory approvals. At the conclusion of this meeting, Messrs.
Filipowski and Mazin agreed to have the parties' respective financial and legal
advisors meet to negotiate transaction documents and commence due diligence.

Following the meeting, Mr. Freedman contacted Credit Suisse and PLATINUM's
legal counsel, Herzog, Fox & Neeman of Israel and Katten Muchin & Zavis of the
United States, regarding a possible transaction. On August 7, 1998, the parties
commenced legal and business due diligence with respect to a possible
acquisition of Memco.

On August 7, 1998, PLATINUM and Memco executed a mutual confidentiality
agreement.

On or about August 8, 1998, legal counsel for PLATINUM distributed a first
draft of the agreement and voting agreement. From August 10 through August 13,
1998, representatives of the parties, including Messrs. Freedman and Leamy of
PLATINUM and Messrs. Mazin, Gal, Ori Mazin, Chief Operating Officer of Memco,
and Lenga of Memco, as well as their respective financial and legal advisors,
continued due diligence and met to negotiate the terms and conditions of the
agreement. The principal issues involved in the negotiations were:

. whether the significant Memco shareholders would enter into voting
agreements;

. whether the agreement would include a "fiduciary out" provision; and

. what the conditions to closing would be.

The final agreement includes a "fiduciary out" provision. If Memco exercises
the "fiduciary out" provision and enters into a transaction with a party other
than PLATINUM at the option of PLATINUM, either Memco pays to PLATINUM $30
million or Memco grants PLATINUM a non-exclusive, royalty-free license. The
significant Memco shareholders also entered into voting agreements.

On August 12 and 13, 1998, special meetings of the Memco board were held via
teleconference. All members of the Memco board, except Mr. Filipowski,
participated. Mr. Filipowski did not participate in the discussions of, or the
vote on, the proposed transaction due to the inherent conflict of interest of
being both a Memco board member and the CEO of PLATINUM. For each special
meeting, calls were held separately with a separate committee, consisting of
Mr. Shalom Berkowitz, Mr. Moshe Allon and Mr. Yirmiyahu Kaplan, Memco's Audit
Committee, consisting of Mr. Israel Mazin, Mr. Shalom Berkowitz and Mr. Moshe
Allon, and the entire Memco board, except Mr. Filipowski. Israeli counsel to
Memco also participated on the calls. During the calls, Mr. Mazin updated the
Memco board on conversations held with PLATINUM and the terms of the proposed
transaction. Israeli counsel to Memco reviewed the terms of the agreement with
the Memco board and its committees and advised them of their duties under
Israeli law and responded to questions and comments from the various Memco
board members. During the call on August 13, 1998, Lehman Brothers presented a

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financial analysis of the proposed transaction and responded to questions and
comments from the various Memco board members. Lehman Brothers then delivered
its opinion, dated as of August 12, 1998, that as of such date and subject to
the assumptions made, factors considered and limitation on the review
undertaken, the exchange ratio was fair, from a financial point of view, to
Memco shareholders. After further deliberation, each of the Memco board's
committees, and the Memco board unanimously, other than Mr. Filipowski,
approved the agreement and the arrangement and authorized management to execute
the agreement.

On August 13, 1998, a special meeting of the PLATINUM board of directors was
held via teleconference. All members of the PLATINUM board participated in
person or by telephone. Copies of a draft of the agreement and Credit Suisse's
written opinion were distributed to the PLATINUM board prior to the meeting.
Mr. Joe Josephson of Credit Suisse and Mr. Matthew Brown of Katten Muchin &
Zavis reviewed the terms of the definitive agreement with the PLATINUM board
and answered questions. Representatives of Credit Suisse then presented an oral
and written opinion to the PLATINUM board that the consideration to be paid by
PLATINUM was fair from a financial point of view. After further deliberation,
the PLATINUM board unanimously approved the agreement and the arrangement, and
authorized management to execute the agreement.

Subsequent to this meeting, each company executed and delivered the
agreement. The execution of the agreement was announced on August 13, 1998 by
the issuance of press releases.

Recommendation of the Memco Board; Reasons for the Arrangement

On August 12, 1998, the members of the Memco board permitted to vote thereon
unanimously approved the proposal to enter into the arrangement, as being in
the best interests of Memco and its shareholders, and unanimously approved the
agreement. Under Israeli law, only disinterested directors may vote to approve
a transaction. As CEO of PLATINUM, Mr. Filipowski was not permitted to vote on
the arrangement or the agreement. The members of the Memco board permitted to
vote hereby unanimously recommend that the Memco shareholders vote FOR approval
of the arrangement and the agreement for the reasons set forth below.

Limitation of Current Distribution Relationships. A cornerstone of Memco's
distribution strategy has been to expand the number and depth of its OEM
relationships with software companies that provide security as one component of
broad-based system management. While Memco achieved initial success with this
strategy, a recent trend towards direct ownership of technology by system
management vendors has made it more difficult for Memco to retain and enhance
its sales through its indirect distribution channels. With the continuation of
this trend, Memco believes that the only viable alternative left for Memco
would be to develop a worldwide direct sales force, which would likely take
years to develop, involve significant investment in human resources and
marketing and result in increased costs of sales. Moreover, Memco would likely
lose significant market opportunities by failing to build a direct sales force
and associated infrastructure in time to fully exploit the current rate of
market expansion for system security products. The arrangement with PLATINUM
would not only provide Memco with a significant international direct sales
force, but would also enable Memco to accelerate its plans to enter into
various markets through a direct sales strategy and reduce Memco's dependency
on OEM relationships over time.

Creation of a Comprehensive Suite of Software Products. The software
industry, as it stands today, is led by several large companies which generally
have the capacity to provide a full suite of software products for large
corporate environments. These companies own or license security products which
they offer as modules in an integrated suite of system management products.
This benefits the customer because responsibility for integration,
interoperability and technical support resides with a single vendor rather than
an array of smaller vendors. Memco believes that the current trend towards full
suite vendors within the software market will continue and that it will become
increasingly difficult for Memco to effectively market its security products to
customers who prefer a "one-stop-shop" for system management and other
information technology requirements. The arrangement with PLATINUM would enable
Memco's products to be fully integrated as modules in PLATINUM's suite of
software products for system management and other corporate requirements, thus
eliminating the inconvenience of purchasing stand-alone security software
products.

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<PAGE>

Ownership of a More Diversified Security and Participation in Future
Growth. The Memco board believes that the exchange of Memco ordinary shares for
shares of PLATINUM common stock will give Memco shareholders interest in a
larger, more diversified software company which would not likely be subject to
the same level of risk as Memco, which is focused exclusively in the security
sector of the software industry. As holders of PLATINUM common stock, Memco
shareholders would likely have greater liquidity in their holdings. In
addition, Memco shareholders would have the opportunity to participate in the
potential growth of the combined businesses that management believes would not
have been possible to achieve as a stand-alone company.

Access to Experienced Sales Force and Wide Distribution Network. Memco's
traditional indirect sales channel strategy has not been particularly
successful in penetrating the European and Asian markets. The arrangement with
PLATINUM would enable Memco immediate access to PLATINUM's international team
of sales personnel in over 25 countries, in addition to its global distribution
network.

Consolidation in Security Industry. As a result of customers' increasing
preference for "one-stop-shop" vendors, the security industry has undergone
significant consolidation toward full-suite providers over the last year. With
the emergence of larger security companies and system management/security
companies, Memco believes that in order to succeed in the market, it has to
combine forces with either a large security vendor or with a large systems
management company. Memco had been exploring such alternatives since September
1997 directly and through Lehman Brothers. See "--Background of the
Arrangement." PLATINUM was also seeking to acquire leading software security
companies to integrate into its existing product line. The combination of
PLATINUM and Memco will increase the chances that the combined businesses will
become a leader in the system management and software security areas.

Complementary Nature of Product Lines. Management believes that the
complementary nature of Memco's and PLATINUM's product lines creates a
combination which is more valuable to customers and shareholders than the sum
of its parts. For example, many industry analysts are saying that the Year 2000
situation will curtail demand for security software in 1999 because corporate
software budgets will be diverted to Year 2000 solutions, despite customer
concerns regarding security. The arrangement with PLATINUM and its strong
reputation in the Year 2000 solution area will offer potential customers a
viable choice for system management which include security and Year 2000
solutions in an integrated modular product suite.

Sharing of Administrative and Operational Expenses. The arrangement with
PLATINUM would result in business synergies, through, among other things, the
sharing of certain administrative, operational and research and development
expenses, which would permit cost savings through the elimination of certain
duplicative costs.

PLATINUM Historical Financial Statements. The Memco board considered the
historical financial condition, results of operations and cash flows of
PLATINUM. The Memco board noted the losses incurred by PLATINUM in the past and
also noted that such losses were mostly attributable to one-time charges
incurred by PLATINUM as a result of its growth though acquisitions.

In connection with the approval of the arrangement and recommendation to the
Memco shareholders, the Memco board considered the following factors:

. the reasons described above;

. the terms and conditions of the proposed arrangement and related
agreements, including among other things, the agreement of the
significant Memco shareholders to vote in favor of the proposed
transaction and the express terms of the agreement and the arrangement;

. the advice of Memco's independent accountants with respect to the
ability to account for the arrangement as a pooling-of-interests
transaction under U.S. generally accepted accounting principles;

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<PAGE>

. the business rationale for the arrangement, including but not limited to
the strategic fit between PLATINUM and Memco, that the combination of
the two companies has the potential to increase shareholder value
through additional opportunities for global expansion and operating
efficiencies;

. the current and prospective environment in which Memco operates,
including international and local economic conditions;

. the difficulty and management distraction inherent in integrating two
businesses and the risk that the synergies and benefits sought in the
arrangement would not be fully achieved;

. the risk that the arrangement will not be consummated;

. the presentations by Memco's management and its financial, legal,
accounting and other advisors regarding the arrangement;

. the opinion of Lehman Brothers that, as of August 12, 1998, the exchange
ratio was fair from a financial point of view to the Memco shareholders;

. the familiarity of the Memco board with the business, properties and
prospects of PLATINUM, including the opportunities and alternatives
available to Memco if the arrangement were not to be undertaken;

. the interests of the officers and directors of PLATINUM and Memco in the
arrangement and the impact of the arrangement on the customers and
employees of each company;

. the likelihood of the arrangement being approved by the appropriate
regulatory authorities and Memco shareholders; and

. the termination fee to be paid by Memco to PLATINUM in the event the
agreement is terminated under certain conditions.

The foregoing discussion of the information and factors considered by the
Memco board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the arrangement, the Memco
board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Memco board may have
given different weights to different factors. For a discussion of the interests
of certain members of Memco management and the Memco board in the arrangement,
see "--Interests of Certain Persons in the Arrangement."

PLATINUM's Reasons for the Arrangement

PLATINUM's management believes the arrangement will make the combined
businesses a leader in providing security solutions for computing environments,
with the ability to provide a comprehensive solution for securing mission
critical applications. Management believes Memco's technology is highly
complementary to PLATINUM's systems and network management product line and
that Memco employees will add significant security related expertise.
Management also believes that the arrangement will position PLATINUM to take
advantage of the substantial opportunity to expand international sales.

Opinion of Memco's Financial Advisor

Lehman Brothers has acted as financial advisor to Memco in connection with
the arrangement. As part of its role as financial advisor to Memco, Lehman
Brothers rendered an opinion to the Memco shareholders as to the fairness, from
a financial point of view, of the exchange ratio to be offered to such Memco
shareholders pursuant to the agreement and the arrangement.

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<PAGE>

The full text of the Lehman Brothers opinion, dated as of August 12, 1998,
is attached as Appendix B and is incorporated herein by reference. Memco
shareholders should read the opinion for a discussion of assumptions made,
factors considered and limitations on the review undertaken by Lehman Brothers
in rendering its opinion. This summary of the Lehman Brothers opinion is
qualified by reference to the full text of the opinion.

Except as described below, no limitations were imposed by Memco on the scope
of Lehman Brothers' investigation or the procedures to be followed by Lehman
Brothers in rendering its opinion. Lehman Brothers was not requested to and did
not make any recommendation to the Memco board as to the form or amount of
consideration to be received by Memco shareholders in connection with the
arrangement, which was determined through arm's-length negotiations between
Memco and PLATINUM. In arriving at its opinion, Lehman Brothers did not ascribe
a specific range of value to Memco or PLATINUM, but made its determination as
to the fairness, from a financial point of view, to the Memco shareholders of
the exchange ratio to be offered to such stockholders, on the basis of the
financial and comparative analyses described below. The Lehman Brothers opinion
was for the use and benefit of the Memco board and was rendered in connection
with the Memco board's consideration of the arrangement. The Lehman Brothers
opinion is not intended to be, and does not constitute, a recommendation to any
Memco shareholder as to how such shareholder should vote with respect to the
arrangement. Lehman Brothers was not requested to opine as to, and its opinion
does not in any manner address, Memco's underlying business decision to proceed
with or effect the arrangement.

In arriving at its opinion, Lehman Brothers reviewed and analyzed:

. the agreement and the specific terms of the arrangement;

. publicly available information concerning PLATINUM and Memco, including
reports on Forms 10-K, 10-Q, 20-F and 6-K, press releases and other
relevant public documents;

. financial and operating information with respect to the business,
operations and prospects of Memco furnished to it by Memco;

. financial and operating information with respect to the business,
operations and prospects of PLATINUM furnished to it by PLATINUM;

. a trading history of Memco ordinary shares from November 1, 1996 to
August 10, 1998 and a comparison of the Memco trading history with those
of other companies that Lehman Brothers deemed relevant;

. a trading history of PLATINUM common stock from August 10, 1993 to
August 10, 1998 and a comparison of the PLATINUM trading history with
those of other companies that Lehman Brothers deemed relevant;

. a comparison of the historical financial results and present financial
condition of Memco with those of other companies that Lehman Brothers
deemed relevant;

. a comparison of the historical financial results and present financial
condition of PLATINUM with those of other companies that Lehman Brothers
deemed relevant;

. publicly available estimates of the future financial performance of
PLATINUM prepared by third-party research analysts;

. a comparison of the financial terms of the arrangement with the
financial terms of certain other recent transactions that Lehman
Brothers deemed relevant;

. the relative contribution of Memco and PLATINUM to the historical and
pro forma financial condition and operating results of the combined
businesses following consummation of the arrangement; and

. the results of Lehman Brothers' efforts to solicit indications of
interest and proposals from third parties with respect to an acquisition
of Memco.

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In addition, Lehman Brothers had discussions with the managements of
PLATINUM and Memco concerning their respective businesses, operations, assets,
financial conditions and prospects, including with respect to cost savings,
operating synergies, revenue enhancements and other strategic benefits expected
to result from a combination of the businesses of Memco and PLATINUM, and has
undertaken such other studies, analyses and investigations as it deemed
appropriate.

In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial information provided without
assuming any responsibility for independent verification of such information
and further relied upon the assurances of the managements of Memco and PLATINUM
that they were not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Memco prepared by the management of Memco, including, without limitation,
revenues projected to be received from distributors of Memco, Lehman Brothers
assumed that such projections had been reasonably prepared on a basis
reflecting the best currently available estimates and judgements of the
management of Memco as to the future financial performance of Memco, and Lehman
Brothers relied upon such projections in arriving at its opinion. In arriving
at its opinion, Lehman Brothers was not provided with, and did not have access
to, any financial forecasts or projections prepared by the management of
PLATINUM as to the future financial performance of PLATINUM, and accordingly,
in performing its analysis, based on advice from PLATINUM and with consent of
Memco, Lehman Brothers assumed that the publicly available estimates of third
party research analysts were a reasonable basis upon which to evaluate the
future financial performance of PLATINUM, and that PLATINUM will perform
substantially in accordance with such estimates.

Upon the advice of Memco and its legal and accounting advisors, Lehman
Brothers assumed that the arrangement will qualify for pooling-of-interests
accounting treatment and as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, and therefore as a
tax-free transaction to the U.S. Memco shareholders. In arriving at its
opinion, Lehman Brothers did not conduct a physical inspection of the
properties and facilities of Memco or PLATINUM, and Lehman Brothers did not
make or obtain any evaluations or appraisals of the assets or liabilities of
Memco or PLATINUM. The Lehman Brothers opinion necessarily was based upon
market, economic and other conditions as they existed on, and could be
evaluated as of, the date of its opinion.

In connection with its written opinion dated August 12, 1998, Lehman
Brothers performed a variety of financial and comparative analyses as
summarized below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant method of financial and
comparative analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its opinion, Lehman Brothers
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portions of
such analyses and factors without considering all analyses and factors could
create a misleading or incomplete view of the process underlying its opinion.
In its analysis, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Memco and PLATINUM. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be more or less
favorable than as set forth therein. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.

Transaction Terms. Memco shareholders are to receive 0.836 of a share of
PLATINUM common stock in exchange for each Memco ordinary share.

Comparable Transaction Analysis. Using publicly available information,
Lehman Brothers compared selected financial data for Memco to similar data for
selected transactions in the software industry. These comparable transactions
included: Network Associates Inc.'s acquisition of Dr. Solomon's plc;
PLATINUM's

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<PAGE>

acquisition of Logic Works, Inc.; Network Associates Inc.'s acquisition of
Trusted Information Systems, Inc.; PLATINUM's acquisition of Mastering, Inc.;
BMC Software, Inc.'s acquisition of BGS Systems, Inc.; Axent Technologies,
Inc.'s acquisition of Raptor Systems, Inc.; IBM's Tivoli Systems' acquisition
of Unison Software; Computer Associates International, Inc.'s acquisition of
Cheyenne Software, Inc.; Security Dynamic Technologies, Inc.'s acquisition of
RSA Data Security; IBM's acquisition of Tivoli Systems; and PLATINUM's
acquisition of Trinzic Corporation. Lehman Brothers reviewed the prices paid in
the comparable transactions in terms of the multiple of the Transaction Value
(defined as the total consideration paid) to the latest twelve months net
income or last twelve months earnings per share, where applicable (the "LTM Net
Income Multiple") and the estimated net income or estimated earnings per share,
where applicable, for the calendar year based on First Call and I/B/E/S
(service companies used widely by the investment community to gather earnings
estimates from various research analysts) data for the acquired entity (the
"Forward Net Income Multiple"). Lehman Brothers also reviewed the prices paid
in comparable transactions in terms of the multiple of the Transaction
Enterprise Value, defined as the total consideration paid including total debt
assumed less cash and cash equivalents transferred to the acquiror, to: the
last twelve months revenue (the "LTM Revenue Multiple"); the last twelve months
earnings before interest and tax (the "LTM EBIT Multiple"); and the last twelve
months earnings before interest, tax, depreciation and amortization (the "LTM
EBITDA Multiple").

Lehman Brothers noted that:

(a) the LTM Net Income Multiple associated with the arrangement was
44.0x as compared to 52.7x for the median of the comparable transactions;

(b) the Forward Net Income Multiple associated with the arrangement was
48.1x as compared to 36.9x for the median of the comparable transactions;

(c) the LTM Revenue Multiple associated with the arrangement was 11.27x
as compared to 5.85x for the median of the comparable transactions;

(d) the LTM EBIT Multiple associated with the arrangement was 55.0x as
compared to 44.7x for the median of the comparable transactions; and

(e) the LTM EBITDA Multiple associated with the arrangement was 52.2x as
compared to 27.5x for the median of the comparable transactions.

Lehman Brothers noted that the Transaction Value as a multiple of the
selected financial data described in this paragraph was above the median of
equivalent multiples for the comparable transactions in (b) through (e) and
below the median of the equivalent multiple for the comparable transactions in
(a).

Because the reasons for and the circumstances surrounding each of the
comparable transactions were specific to such transactions, and because of the
inherent differences among the businesses, operations and prospects of Memco
and the selected acquired companies analyzed, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the comparable transactions analysis and, accordingly, also made
qualitative judgments concerning differences between the terms and
characteristics of the arrangement and the comparable transactions that would
affect the transaction values of Memco and such acquired companies.

Comparable Company Analysis. Using publicly available information, Lehman
Brothers compared selected financial data of Memco and PLATINUM with similar
data of selected companies engaged in businesses considered by Lehman Brothers
to be comparable to that of Memco and PLATINUM. Lehman Brothers included in its
selected comparable companies for Memco, Axent Technologies, Inc., Check Point
Software Technologies Ltd., Cyberguard Corporation, Cylink Corporation, Network
Associates, Inc., Secure Computing Corporation and Security Dynamics
Technologies, Inc. (the "Security Software Companies") and for PLATINUM, BMC
Software, Inc., Boole & Babbage, Inc., Computer Associates International, Inc.,
Compuware Corporation and New Dimension Software Ltd. (the "System Management I
Companies"). For each of Memco, PLATINUM, the Security Software Companies and
the System Management I Companies,

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Lehman Brothers calculated the multiple of the current stock price to: the
latest twelve months earnings per share (the "LTM P/E Multiple"); the estimated
calendar year 1998 earnings per share (the "1998 P/E Multiple"), based on
management estimates for Memco and data from First Call for all other
companies; and the estimated calendar year 1999 earnings per share (the "1999
P/E Multiple"), also based on management estimates for Memco and data from
First Call for all other companies.

Lehman Brothers noted that as of August 11, 1998:

. the LTM P/E Multiple for Memco, based on the transaction terms, was
44.0x as compared to 41.9x for PLATINUM, 22.8x for the median of the
Security Software Companies and 25.3x for the median of the System
Management I Companies;

. the 1998 P/E Multiple for Memco, based on the transaction terms, was
48.1x as compared to 32.1x for PLATINUM, 28.6x for the median of the
Security Software Companies and 20.3x for the median of the System
Management I Companies; and

. the 1999 P/E Multiple for Memco, based on the transaction terms, was
23.9x as compared to 22.0x for PLATINUM, 16.3x for the median of the
Security Software Companies and 15.3x for the median of the System
Management I Companies.

In addition, Lehman Brothers calculated the Firm Value, defined as the
market value of the respective company's common equity plus total debt less
cash and cash equivalents, as a multiple of the latest twelve months revenues
(the "LTM Revenue Multiple"). Lehman Brothers noted that as of August 11, 1998,
the LTM Revenue Multiple for Memco, based on the transaction terms, was 11.27x
as compared to 3.10x for PLATINUM, 4.27x for the median of the Security
Software Companies and 4.52x for the median of the System Management I
Companies. In addition, Lehman Brothers calculated the Firm Value as a multiple
of the latest twelve months earnings before interest and tax (the "LTM EBIT
Multiple") and the Firm Value as a multiple of the latest twelve months
earnings before interest, tax, depreciation and amortization (the "LTM EBITDA
Multiple"). Lehman Brothers noted that as of August 11, 1998, the LTM EBIT
Multiple for Memco, based on the transaction terms, was 55.0x as compared to
35.9x for PLATINUM, 15.4x for the median of the Security Software Companies and
22.5x for the median of the System Management I Companies, and the LTM EBITDA
Multiple for Memco, based on the transaction terms, was 52.2x as compared to
17.3x for PLATINUM, 15.8x for the median of the Security Software Companies and
18.2x for the median of the System Management I Companies. Lehman Brothers
noted the implied price per share and the implied Enterprise Value, as the case
may be, in each case based on the transaction terms, as a multiple of the
selected financial data described in this paragraph was above the median of all
the equivalent multiples of the Security Software Companies and the System
Management I Companies.

Because of the inherent differences between the businesses, operations and
prospects of Memco and PLATINUM and the business, operations and prospects of
the companies included in the Security Software Companies and the System
Management I Companies, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the
comparable company analysis, and accordingly also made qualitative judgments
concerning differences between the financial and operating characteristics and
prospects of Memco, PLATINUM and the companies included in the Security
Software Companies and in the System Management I Companies that would affect
the public market valuations of such companies.

Stock Trading History. Lehman Brothers considered various historical data
concerning the trading prices for Memco ordinary shares for the period from
November 1, 1996 to August 10, 1998 and PLATINUM common stock for the period
from August 9, 1996 to August 10, 1998 and the relative stock price
performances during the respective periods for Memco and PLATINUM, and during
the period from August 9, 1996 to August 10, 1998 for the Standard & Poors 400
Index, the NASDAQ Composite Index and that of selected companies engaged in
businesses considered by Lehman Brothers to be comparable to that of Memco and
PLATINUM. Lehman Brothers included in its index of the comparable companies
Axent Technologies,

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Inc., Check Point Software Technologies Ltd., Cyberguard Corporation, Cylink
Corporation, Network Associates, Inc., Secure Computing Corporation and
Security Dynamics Technologies, Inc. (the "Security Software Companies") and
BMC Software, Inc., Boole & Babbage, Inc., Computer Associates International,
Inc., and Compuware Corporation (the "System Management II Companies"). During
this period, the closing price of Memco ordinary shares ranged from $10.50 to
$32.50 per share, the closing price of PLATINUM common stock ranged from $10.25
to $33.25 per share, the Security Software Companies' index rose 42.1% and the
System Management II Companies' index rose 35.1%. During the one year period
prior to the announcement of the arrangement, the closing price of Memco
ordinary shares ranged from $17.00 to $32.50 per share, the closing price of
PLATINUM common stock ranged from $17.50 to $33.25 per share, the Security
Software Companies' index rose 2.1% and the System Management II Companies'
index rose 12.5%.

Contribution Analysis. Lehman Brothers utilized publicly available
historical financial data regarding Memco and PLATINUM and estimates of future
financial performance of Memco and PLATINUM to calculate the relative
contributions of Memco and PLATINUM to the combined businesses upon
consummation of the arrangement, without giving effect to any cost savings or
operating synergies, with respect to reported revenues, EBIT, EBITDA and net
income for the calendar year 1997, the latest twelve months ended June 30, 1998
and estimates for 1998 and 1999. In 1997, Memco would have contributed 4.0%,
13.4%, 6.2% and 16.4% of revenues, operating income, EBITDA and net income,
respectively, to the combined businesses. For the latest twelve months ended
June 30, 1998, Memco would have contributed 4.5%, 10.0%, 5.4% and 13.3% of
revenues, operating income, EBITDA and net income, respectively, to the
combined businesses. In 1998, it was estimated based upon management estimates
for Memco and research analysts' estimates for PLATINUM that Memco would
contribute 5.7%, 9.8%, 5.6% and 11.3% of revenues, operating income, EBITDA and
net income, respectively, to the combined businesses. In 1999, it was estimated
based upon management estimates for Memco and research analysts' estimates for
PLATINUM that Memco would contribute 6.8%, 13.0%, 8.2% and 14.6% of revenues,
operating income, EBITDA and net income, respectively, to the combined
businesses. Lehman Brothers compared such contributions to the pro forma
ownership of the combined businesses by Memco shareholders. Such pro forma
ownership of the combined businesses by the stockholders of Memco would be
approximately 16.0% on a diluted basis, assuming all Memco options are
converted into PLATINUM options and are accounted for under the treasury stock
method.

Pro Forma Analysis. Based on the consideration and estimates of future
financial performance for Memco and PLATINUM on a stand-alone basis, Lehman
Brothers performed sensitivity analyses to calculate the estimated pro forma
financial results for the combined businesses for the calendar years 1999 and
2000. Lehman Brothers performed pro forma sensitivity analyses that examined,
among other items, the impact of cost savings and operating synergies of $0 to
$15 million. Based on these assumptions and certain other assumptions that
Lehman Brothers deemed appropriate, including the assumption that the
arrangement was effective as of January 1, 1999 and excluding all extraordinary
charges and nonrecurring items, the arrangement would be 1.0% to 7.7% accretive
to Memco's stand-alone earnings per share in calendar year 1999, and 0.8%
dilutive to 3.7% accretive to Memco's stand-alone earnings per share in
calendar year 2000. Lehman Brothers used management estimates for Memco and
research analysts' estimates for PLATINUM. In connection with its pro forma
analysis calculations, Lehman Brothers also relied upon information provided by
Memco regarding shares outstanding, options outstanding and weighted average
exercise price of options for Memco.

Engagement of Lehman Brothers. Lehman Brothers is an internationally
recognized investment banking firm and, as part of its investment banking
activities, is regularly engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.

Lehman Brothers has performed various financial advisory and capital raising
services for Memco in the past, including acting as Memco's underwriter for its
initial public offering and financial advisor in connection with the
acquisitions of AbirNet Ltd. and Network Information Technology Inc. in which
Lehman

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Brothers received customary fees for such services. The engagement of Lehman
Brothers in connection with the arrangement was formalized by an engagement
letter dated September 11, 1997 between Memco and Lehman Brothers pursuant to
which Memco has agreed to pay Lehman Brothers a fee of $400,000 for rendering
its opinion and a fee of up to 1.25% of the aggregate value of the
consideration received by Memco's stockholders, which fee is contingent upon
consummation of the arrangement, against which the $400,000 opinion fee would
be credited. Memco also has agreed to reimburse Lehman Brothers for reasonable
expenses incurred by Lehman Brothers and to indemnify Lehman Brothers and
certain related persons for certain liabilities that may arise out of its
engagement and the rendering of this opinion. Over the last two years Memco has
paid Lehman Brothers fees of $1.4 million, excluding the fees described above,
in connection with investment banking services rendered by Lehman Brothers.

In the ordinary course of its business, Lehman Brothers actively trades in
the securities of Memco and PLATINUM for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities.

Interests of Certain Persons in the Arrangement

In considering the recommendation of Memco's board with respect to the
agreement and the arrangement, Memco shareholders should be aware that members
of Memco's management and Memco's board of directors have certain interests in
the arrangement that are in addition to the interests of the Memco shareholders
generally.

Options. As of September 30, 1998, the total number of options held by the
current executive officers and directors of Memco as a group (9 persons) was
771,115, which are expected to vest immediately following the consummation of
the arrangement. See "The Agreement--Substitution of Options."

Indemnification. After the effective time, PLATINUM shall indemnify, defend
and hold harmless and advance expenses to all past and present officers,
directors and employees of Memco to the same extent such persons are so
indemnified as of the date of the agreement by Memco from and against all
claims, damages, losses, obligations or liabilities with respect to acts or
omissions occurring at or prior to the effective time. In the event of any
dispute regarding whether a director, officer or employee has met the required
standards of, such question shall be conclusively determined by the written
opinion of reputable disinterested legal counsel selected by Memco's board of
directors. The provisions of this section are for the benefit of the
indemnified persons, any of whom shall have all rights at law and in equity to
enforce the rights hereunder. PLATINUM shall maintain in effect for not less
than six years from the effective time of the arrangement the current policies
of directors' and officers' liability insurance maintained by Memco, provided
that, in the event that any claim is asserted or made within such six-year
period, such insurance shall be continued until final disposition of any and
all such claims. PLATINUM shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 200% of the
premiums paid as of the date of the agreement by Memco for such insurance.

Certain U.S. Federal Income Tax Consequences

The following is a summary of certain U.S. federal income tax consequences
of the arrangement. This summary is not a complete description of all the tax
consequences relevant to a decision whether to vote in favor of the agreement
and the arrangement. The discussion does not address the tax consequences that
may be relevant to particular categories of Memco shareholders subject to
special treatment under certain federal income tax laws, such as dealers in
securities, banks, insurance companies, tax-exempt organizations and holders of
Memco ordinary shares acquired upon the exercise of stock options or through
other compensatory

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transactions. Each shareholder's individual circumstances may affect the tax
consequences of the arrangement to him or her. No information is provided
herein with respect to the tax consequences of the arrangement under any
foreign, state or local laws or the tax consequences of transactions effected
prior to, concurrently with or after the arrangement, whether or not such
transactions are undertaken in connection with the arrangement, other than
Israeli tax consequences as provided below. The consequences set forth below
are based on the Internal Revenue Code of 1986, as amended, currently
applicable United States Treasury regulations promulgated thereunder, judicial
authority and administrative positions of the Internal Revenue Service, all of
which are subject to change either prospectively or retroactively. Any such
changes could affect the accuracy of the consequences and conclusions set forth
below.

Material U.S. Federal Income Tax Consequences of the Arrangement. Chadbourne
& Parke LLP, counsel to Memco, and Katten Muchin & Zavis, counsel to PLATINUM,
have given opinions regarding the material U.S. Federal income tax consequences
of the arrangement. An opinion of counsel is not binding on the Internal
Revenue Service or the courts. Further, such opinions are based on, among other
things, current law and certain factual representations made by, among others,
Memco and PLATINUM which, if incorrect in certain material respects, would
jeopardize the conclusions reached by counsel in their opinions. Neither Memco
nor PLATINUM are currently aware of any facts or circumstances that would cause
any such representations of such party to be untrue or incorrect in any
material respect. Subject to the limitations and qualifications referred to
herein, Memco and PLATINUM have been advised by Chadbourne & Parke LLP and
Katten Muchin & Zavis, respectively, that the material U.S. federal income tax
consequences of the arrangement are as follows:

. the arrangement will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Service Code, and Memco and
PLATINUM will each be a party to such reorganization within the meaning
of Section 368(b) of the Internal Revenue Service Code;

. no gain or loss will be recognized by PLATINUM or Memco as a result of
the arrangement;

. no gain or loss will be recognized by the Memco shareholders upon the
exchange of their Memco ordinary shares solely for shares of PLATINUM
common stock pursuant to the arrangement, except with respect to cash,
if any, received in lieu of fractional shares of PLATINUM common stock;

. the aggregate tax basis of the shares of PLATINUM common stock received
solely in exchange for Memco ordinary shares pursuant to the
arrangement, including fractional shares of PLATINUM common stock for
which cash is received, will be the same as the aggregate tax basis of
the Memco ordinary shares exchanged therefor;

. the holding period for shares of PLATINUM common stock received solely
in exchange for Memco ordinary shares pursuant to the arrangement will
include the holding period of the Memco ordinary shares exchanged
therefor, provided such Memco ordinary shares were held as a capital
asset by the shareholder at the effective time of the arrangement; and

. a Memco shareholder who receives cash in lieu of a fractional share of
PLATINUM common stock will recognize gain or loss equal to the
difference, if any, between such shareholder's tax basis in such
fractional share, as described above, and the amount of cash received.

The correctness of the consequences described above depends on the accuracy
as of the date hereof, and the continued accuracy as of the effective time, as
if made as of the effective time of the arrangement, of certain facts and of
certain representations of PLATINUM and Memco, including representations in
certain certificates dated on or about the date hereof delivered by PLATINUM
and Memco.

The consequences described above may not be applicable to Memco shareholders
who, for U.S. federal income tax purposes, are nonresident alien individuals,
foreign corporations, foreign partnerships, foreign trusts or foreign estates,
or who acquired their Memco ordinary shares pursuant to the exercise of
employee stock options or otherwise as compensation.

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<PAGE>

A successful Internal Revenue Service challenge to the status of the
arrangement as a reorganization under Section 368(a) of the Internal Revenue
Service Code would result in Memco shareholders recognizing taxable gain or
loss with respect to each Memco ordinary share surrendered equal to the
difference between the shareholder's tax basis in such Memco ordinary share and
the fair market value, as of the effective time of the arrangement, of PLATINUM
common stock received in exchange therefor. In such event, a shareholder's
aggregate tax basis in PLATINUM common stock so received would equal its fair
market value and the holding period for such stock would begin the day after
the arrangement.

Individual shareholders will be required to attach a statement to their tax
returns for the year of the arrangement that contains the information listed in
Treas. Reg. section 1.368-3(b). Such statement must include the shareholder's
tax basis in the shareholder's Memco ordinary shares and a description of the
PLATINUM common stock received. INDIVIDUAL SHAREHOLDERS ARE URGED TO CONSULT
THEIR PERSONAL TAX ADVISORS WITH RESPECT TO THIS STATEMENT.

Memco Ordinary Share Options. Holders of Memco options will receive
substitute options as described under "The Agreement--Substitution of Options."
The holder of a Memco option that is converted into a substitute option should
not recognize gain or loss solely as a result of such conversion. Such holder
would, however, generally recognize ordinary compensation income on the date
such substitute option is exercised in an amount equal to the excess of the
aggregate fair market value on such date of the shares of PLATINUM common stock
acquired upon such exercise, plus any cash received in lieu of a fractional
share, over the aggregate exercise price for such shares.

Backup Withholding and Information Reporting Relating to Ownership of
PLATINUM Common Stock. Under the U.S. backup withholding rules, a holder of
PLATINUM common stock may be subject to backup withholding at a rate of 31% on
dividends and on the proceeds from the sale, exchange or other disposition of
PLATINUM common stock, including fractional shares of PLATINUM common stock for
which cash is received in connection with the arrangement, unless such
stockholder is either a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or provides a correct
taxpayer identification number on Form W-9, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Any amount withheld under these
rules will be credited against such stockholder's U.S. federal income tax
liability.

Certain United States Tax Consequences to a Non-United States Holder Regarding
the Ownership and Disposition of PLATINUM Common Stock

General. The following is a general discussion of certain U.S. Federal
income and estate tax consequences of the acquisition, ownership and
disposition of PLATINUM common stock by a "Non-United States Holder" and does
not deal with tax consequences arising under the laws of any foreign, state or
local jurisdiction. As used herein, a "Non-United States Holder" is a person or
entity that, for United States federal income tax purposes, is not a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized under the laws of the United States or a political
subdivision thereof, or an estate or trust, the income of which is subject to
United States Federal income taxation regardless of its source. Memco
shareholders who are Non-United States Holders are urged to consult their tax
advisors regarding the United States federal tax consequences of ownership and
disposition of PLATINUM common stock, as well as any tax consequences that may
arise under the laws of any foreign, state, local or other taxing jurisdiction.

Dividends. Dividends paid to a Non-United States Holder of PLATINUM common
stock will be subject to withholding of United States Federal income tax at a
30% rate or such lower rate as may be specified by an

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applicable income tax treaty, 25% under the United States/Israel treaty, unless
the dividends are effectively connected with the conduct of a trade or business
within the United States, and are attributable to a United States permanent
establishment of such holder, if an applicable income tax treaty, such as the
United States/Israel treaty, so requires as a condition for the Non-United
States Holder to be subject to United States income tax on a net income basis
in respect of such dividends. Such "effectively connected" dividends are
subject to tax at rates applicable to United States citizens, resident aliens
and domestic United States corporations, and are not generally subject to
withholding. Any such effectively connected dividends received by a non-United
States corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Under currently effective United States Treasury regulations, dividends paid
to an address in a foreign country are presumed to be paid to a resident of
that country, unless the payor has knowledge to the contrary, for purposes of
the withholding discussed above and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under recently finalized United States Treasury regulations
that will generally be effective for distributions after December 31, 1999 (the
"Final Withholding Regulations"), however, a Non-United States Holder of
PLATINUM common stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification requirements. In
addition, under the Final Withholding Regulations, in the case of PLATINUM
common stock held by a foreign partnership, (x) the certification requirement
would generally be applied to the partners of the partnership and (y) the
partnership would be required to provide certain information, including a
United States taxpayer identification number. The Final Withholding Regulations
also provide look-through rules for tiered partnerships.

A Non-United States Holder of PLATINUM common stock that is eligible for a
reduced rate of United States withholding tax pursuant to a tax treaty may
obtain a refund of any excess amounts currently withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.

Sales, Exchanges or Redemption of PLATINUM Common Stock. Except as described
below and subject to the discussion concerning backup withholding, any gain
realized by a Non-United States Holder on the sale, exchange or redemption of
PLATINUM common stock generally will not be subject to U.S. federal income tax,
unless:

. such gain is effectively connected with a U.S. trade or business, or
attributable to a permanent establishment in the U.S. under applicable
treaties, including the U.S./Israel treaty;

. subject to certain exceptions, the Non-United States Holder is an
individual who holds the PLATINUM common stock as a capital asset and is
present in the United States for 183 days or more in the taxable year of
the disposition;

. the Non-United States Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain U.S. expatriates,
including certain former citizens or residents of the United States; or

. in the case of the disposition of PLATINUM common stock, the company is
a U.S. real property holding corporation. PLATINUM is not currently a
"United States real property holding corporation" and does not believe
that it will become one in the future.

Federal Estate Tax. PLATINUM common stock owned or treated as owned by an
individual who is not a citizen or resident of the United States, for federal
estate tax purposes, will be included in such individual's estate for U.S.
federal estate tax purposes unless an estate tax treaty otherwise applies.

Information Reporting and Backup Withholding. PLATINUM must report annually
to the United States Internal Revenue Service and to each Non-United States
Holder the amount of dividends paid to such holder, including the name and
address of such holder, and the tax withheld with respect to such dividends,
regardless of whether withholding was required. Copies of the information
returns reporting such dividends and withholding may also be made available to
the tax authorities in the country in which the Non-United States Holder
resides under the provisions of an applicable income tax treaty.

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Under current law and applicable United States Treasury Regulations, backup
withholding, which generally is a withholding tax imposed at the rate of 31% on
certain payments to persons that fail to furnish certain information under the
U.S. information reporting requirements, will generally not apply to dividends
paid to a Non-United States Holder at an address outside the United States
unless such Non-United States Holder is engaged in a trade or business in the
United States or unless the payer has knowledge that the payee is a United
States person. However, under the Final Withholding Regulations, which are
generally effective for dividends paid after December 31, 1999, dividend
payments may be subject to backup withholding unless applicable certification
requirements are satisfied. See the discussion above with respect to rules
applicable to foreign partnerships under the Final Withholding Regulations.

In general, United States information reporting and backup withholding
requirements also will not apply to the receipt of proceeds on a sale of
PLATINUM common stock through an office outside the United States of a non-
United States broker. However, United States information reporting, but not
backup withholding, requirements will apply to a payment made outside the
United States of the proceeds of a sale of PLATINUM common stock through an
office outside the United States of a broker:

. that is a United States person;

. that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States;

. that is a "controlled foreign corporation" as to the United States; or

. with respect to payments made after December 31, 1999, that is a foreign
partnership, if at any time during its tax year, one or more of its
partners are U.S. persons, as defined in United States Treasury
regulations, who in the aggregate hold more than 50% of the income or
capital interest in the partnership or if, at any time during its tax
year, such foreign partnership is engaged in a United States trade or
business, unless the broker has documentary evidence in its records that
the holder or the beneficial owner is a Non-United States Holder or the
holder or the beneficial owner otherwise establishes an exemption.

Payment of the proceeds of the sale of PLATINUM common stock to or through a
United States office of a broker is currently subject to both United States
backup withholding and information reporting unless the holder certifies its
non-United States status under penalties of perjury or otherwise establishes an
exemption.

A Non-United States Holder generally may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the United States Internal Revenue Service.

EACH MEMCO SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISER AS TO
PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE ARRANGEMENT, AND THE
OWNERSHIP AND DISPOSITION OF PLATINUM COMMON STOCK, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES
IN APPLICABLE LAWS.

Certain Israeli Tax Consequences

Memco shareholders who acquired their Memco ordinary shares at the time of
the initial public offering of Memco, or any time thereafter, shall not be
subject to Israeli capital gains tax in connection with the arrangement.

Memco shareholders who are residents of the State of Israel will be subject
to Israeli capital gains tax in connection with any disposition of PLATINUM
common stock acquired pursuant to the arrangement. Such tax will apply to the
excess, if any, of the sale price of such PLATINUM common stock over the
closing share price of PLATINUM common stock on the date of the arrangement
becoming effective. The rate of capital gains tax in Israel is 36% for
companies and 50% for individuals.

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EACH MEMCO SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE ARRANGEMENT TO HIM, HER OR IT.

Accounting Treatment

The arrangement is intended to qualify as a pooling of interests for
accounting purposes. Under this method of accounting, the assets and
liabilities of PLATINUM and Memco will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity, subject to the elimination of any intercompany balances. Results of
operations of the combined businesses will include revenues and expenses of
PLATINUM and Memco for the entire fiscal period in which the combination
occurs, and the historical results of operations of the separate companies for
fiscal years prior to the arrangement will be combined and reported as the
results of operations of the combined businesses, subject to the elimination of
any intercompany transactions.

Certain events, including certain transactions with respect to PLATINUM
common stock or Memco ordinary shares by affiliates of PLATINUM or Memco,
respectively, may prevent the arrangement from qualifying as a pooling of
interests for accounting and financial reporting purposes. To support the
treatment of the arrangement as a pooling of interests, the affiliates of Memco
and PLATINUM have entered into agreements imposing certain resale limitations
on their stock. See "--Certain Federal Securities Law Consequences; Affiliates
Agreements."

Regulatory Approvals

The arrangement is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
regulations thereunder, which provide that certain acquisition transactions,
including the arrangement, may not be consummated until certain information has
been furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission, and certain waiting period requirements have been
satisfied. We have been notified that the applicable waiting period
requirements for the arrangement were terminated under the HSR Act on December
28, 1998 and that the Antitrust Division did not intend to challenge the
arrangement.

The arrangement is also subject to several Israeli regulatory approvals:

. receipt by Memco of a Final Court Order by the Tel Aviv-Jaffa District
Court or any other competent court in Israel;

. approval of the Office of the Chief Scientist of the State of Israel;

. approval of the Investment Center of the State of Israel; and

. compliance with the prospectus requirements of the Israel Securities Law
of 1968.

Furthermore, prior to the consummation of the arrangement, PLATINUM shall be
required to comply with Israeli Securities Laws. Requests for approval have
been made with the Office of the Chief Scientist, the Investment Center and the
Israeli Scientists Authority. In addition, confirmation was requested from the
Restrictive Trade Practices Controller that the controller need not approve the
arrangement because it does not constitute a "merger" under Israeli law. Memco
has not yet received the approvals or confirmation.

Certain Federal Securities Law Consequences; Affiliates Agreements

The PLATINUM common stock to be issued in the arrangement has been
registered under the Securities Act of 1933, as amended, thereby allowing such
shares to be freely traded without restriction; provided, however, that shares
held by Memco shareholders or PLATINUM stockholders who are deemed to control,
be controlled by or be under common control with Memco or PLATINUM, will not be
freely tradeable under the Securities Act. Affiliates of Memco may not sell
their shares of PLATINUM common stock acquired in the arrangement except
pursuant to:

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. an effective registration statement under the Securities Act covering
such shares;

. the resale provisions of Rule 145 promulgated under the Securities Act;
or

. another applicable exemption from the registration requirements of the
Securities Act.

In general, Rule 145, as currently in effect, imposes restrictions on the
manner in which such affiliates may make resales of PLATINUM common stock and
also on the number of shares of PLATINUM common stock that such affiliates and
others, including persons with whom the affiliates act in concert, may sell
within any three-month period. These restrictions will generally apply for at
least a period of one year after the arrangement, or longer if the person is an
affiliate of PLATINUM.

Each affiliate has been informed that the treatment of the arrangement as a
pooling of interests for accounting purposes and as a tax-free reorganization
under the Internal Revenue Service Code is dependent upon the accuracy of
certain representations and warranties made by such affiliate and compliance
with the affiliates agreement. The pooling-of-interests method of accounting
generally will not be challenged on the basis of sales of shares by affiliates
of the acquiring or acquired company if the affiliates do not dispose of, or
otherwise reduce their risk with respect to, any of the shares of the acquiring
or acquired company that the affiliates own or shares of a corporation they
receive in connection with a transaction during the period beginning 30 days
before the consummation of the transaction and ending when financial results
covering at least 30 days of post-transaction operations of the combined
businesses have been published.

All affiliates of PLATINUM and Memco and certain other Memco shareholders
have delivered a written agreement pursuant to which they have agreed, among
other things, that, during the 30 days prior to the effective time of the
arrangement, they will not sell, transfer or otherwise dispose of or reduce
their risk with respect to any Memco ordinary shares or any shares of PLATINUM
common stock held by them and until such time as financial results covering at
least 30 days of post-arrangement combined operations of Memco and PLATINUM
have been published by PLATINUM, and they will not sell, transfer or otherwise
dispose of or reduce their risk with respect to any shares of PLATINUM common
stock received by them pursuant to the arrangement or any other shares of the
capital stock of PLATINUM. During the periods described above, subject to
providing written notice to PLATINUM and certain other restrictions, and to the
extent permitted under the pooling-of-interests accounting rules and applicable
securities laws, affiliates will be permitted to sell up to 10% of the PLATINUM
common stock received by them or Memco ordinary shares owned by them or make
charitable contributions or bona fide gifts of PLATINUM common stock received
by them or Memco ordinary shares owned by them, subject to the same
restrictions. Legends restricting the transfer of such shares of PLATINUM
common stock will be placed on all certificates representing such shares.

Nasdaq National Market Listing

The shares of PLATINUM common stock to be issued in the arrangement,
including the issuance of shares of PLATINUM common stock issuable upon
exercise of substitute options, as described below, will be listed on the
Nasdaq National Market.

If the arrangement is consummated, Memco ordinary shares will no longer be
traded on Nasdaq and will be deregistered under the Securities Exchange Act of
1934, as amended.

No Appraisal or Dissenters' Rights

Memco shareholders are not entitled to any dissenters' or appraisal rights
under Israeli corporation law in connection with the arrangement.

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THE AMENDED ARTICLES OF ASSOCIATION OF MEMCO

As part of the arrangement, the articles of association of Memco will be
amended and restated in their entirety to change the status of Memco under
Israeli law pursuant to the arrangement. The amended articles of association of
Memco will be substantially identical to the existing articles of association
of Memco except that:

. upon consummation of the arrangement, Memco will become a private
company. Under Israeli law, the number of the members of Memco will
therefore be limited. In addition, Memco will not be authorized to
invite the public to subscribe in shares of Memco. The right to transfer
shares of Memco will also be subject to certain restrictions;

. the registered share capital of Memco will be increased from NIS 800,000
divided into 80,000,000 ordinary shares to NIS 850,000 divided into
85,000,000 ordinary shares; and

. the highest number of directors that can make up the Memco board will be
decreased from 14 to 5.

The amended and restated articles of association of Memco, which incorporate
all of the proposed amendments, are attached hereto as Appendix C to this proxy
statement/prospectus.

THE AGREEMENT

The following is a summary of certain provisions of the agreement. The
summary does not purport to be complete and is qualified by reference to the
agreement, a copy of which is attached to this proxy statement/prospectus as
Appendix A and incorporated herein by reference. Memco shareholders are urged
to read the full text of the agreement.

Exchange of Shares in the Arrangement

At the effective time, by virtue of the filing of the Final Court Order with
the Israeli Registrar of Companies and without any further action on the part
of Memco or any holder of any Memco ordinary shares, each Memco ordinary share
issued and outstanding immediately prior to the effective time of the
arrangement, other than Memco ordinary shares owned by PLATINUM, will be
exchanged for 0.836 of an authorized, validly issued, fully paid and non-
assessable share of PLATINUM common stock.

Each holder of a Memco certificate representing any such Memco ordinary
shares will cease to have any rights with respect thereto, except the right to
receive, as hereinafter described:

. certificates representing the number of whole shares of PLATINUM common
stock into which such Memco ordinary shares have been converted;

. any cash in lieu of any fractional share of PLATINUM common stock; and

. certain dividends and other distributions.

See "--Exchange Agent; Procedures for Exchange of Memco Certificates."

Substitution of Options

At the effective time, each outstanding option to purchase Memco ordinary
shares, whether or not vested or exercisable, shall be assumed by PLATINUM and
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Memco option, the same number of
shares of

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PLATINUM common stock as the holder of such Memco option would have been
entitled to receive if such holder exercised such Memco option in full
immediately prior to the effective time (not taking into account whether such
Memco option was in fact exercisable at such time), at a per share exercise
price equal to the aggregate exercise price for the Memco ordinary shares
subject to such Memco option divided by the number of shares of PLATINUM common
stock rounded up to the next full share, purchasable pursuant to such Memco
option. If a Memco employee is terminated by PLATINUM without cause within six
months following the effective time of the arrangement, any unvested options
owned by such employee shall immediately vest. Notwithstanding, no options
shall vest if such vesting interferes with PLATINUM's ability to account for
the arrangement as a pooling of interests.

Fractional Shares

No certificates representing a fractional share of PLATINUM common stock
will be issued upon the surrender of Memco certificates for exchange. In lieu
of any such fractional share, each holder of Memco ordinary shares, after
aggregating all fractional shares of PLATINUM common stock to be received by
such holder, will be paid an amount in cash without interest, rounded to the
nearest whole cent, equal to the product of the fractional share to which such
holder would otherwise be entitled, multiplied by the average of the closing
(last) prices for a share of PLATINUM common stock on Nasdaq, as reported in
The Wall Street Journal, Midwest Edition, for the most recent five (5) days
that the shares of PLATINUM common stock have traded ending on the trading day
immediately prior to the effective time of the arrangement.

Adjustment of Exchange Ratio

Except in certain limited circumstances described below, the exchange ratio
is not subject to adjustment. As a result, if PLATINUM issues additional shares
of PLATINUM common stock prior to the effective time, no change to the exchange
ratio will be made. In the event of any reclassification, stock split or stock
dividend with respect to PLATINUM common stock, any change or conversion of
PLATINUM common stock into other securities or any other dividend or
distribution with respect to PLATINUM common stock, or of a record date with
respect to any of the foregoing should occur, prior to the effective time,
appropriate and proportionate adjustments, if any, will be made to the exchange
ratio. Memco shareholders will receive prompt written notice of any such
adjustment.

Exchange Agent; Procedures for Exchange of Memco Certificates

American Stock Transfer and Trust Company will act as exchange agent under
the agreement. Promptly after the effective time, PLATINUM will provide to the
exchange agent the shares of PLATINUM common stock issuable pursuant to the
agreement in exchange for the outstanding Memco ordinary shares, and cash
sufficient for payment in lieu of a fractional share of PLATINUM common stock.

Following the effective time, the exchange agent will cause to be mailed to
each holder of record of Memco ordinary shares a letter of transmittal in such
customary form and with such provisions as PLATINUM may reasonably specify, and
instructions for effecting the surrender of certificates representing Memco
ordinary shares in exchange for certificates representing shares of PLATINUM
common stock. Upon surrender of a certificate representing Memco ordinary
shares to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such Memco certificate will be entitled to receive
in exchange:

. a PLATINUM certificate representing the number of whole shares of
PLATINUM common stock represented by the surrendered Memco certificate;

. a cash payment in lieu of fractional shares; and

. any dividends and other distributions in accordance with the agreement.

Until surrendered, each outstanding Memco certificate will be deemed, after
the effective time, solely as evidence of ownership of PLATINUM common stock
and the right to receive cash in lieu of fractional shares of PLATINUM common
stock and any dividends or distributions.

43
<PAGE>

No dividends or distributions payable after the effective time will be paid
on shares of PLATINUM common stock to Memco shareholders until such persons
have surrendered their Memco certificates. When the Memco certificates have
been so surrendered, there shall be paid to the holders thereof, but without
any interest, except to the extent paid to all holders of PLATINUM common
stock, any dividends and other distributions payable subsequent to the
effective time and prior to the surrender of such Memco certificates.

All shares of PLATINUM common stock issued in accordance with the terms of
the agreement, including any cash paid in respect thereof, will be deemed in
full satisfaction of all rights pertaining to the Memco ordinary shares.

Representations and Covenants

Under the agreement, PLATINUM and Memco made certain representations and
warranties that each is duly organized and validly existing and that each has
authority to enter into the agreement. PLATINUM and Memco also made a number of
representations and warranties to each other, including those regarding:

. their respective capital structure;

. corporate power and authority;

. required SEC filings and financial statements;

. absence of certain changes or events;

. absence of undisclosed liabilities;

. pooling-of-interests accounting treatment;

. absence of litigation;

. the registration statement and proxy statement/prospectus;

. employee benefits;

. intellectual property;

. Board approval;

. absence of brokers' and finders' fees;

. receipt of a fairness opinion; and

. taxes.

Memco also made certain additional representations regarding, among other
things:

. obligations with respect to capital stock;

. environmental matters;

. restrictions on business activities;

. absence of liens and encumbrances;

. absence of certain agreements, contracts and commitments;

. governmental authorizations;

. insurance;

. labor matters;

. relationships with related persons;

. no defaults; and

. grants, incentives and subsidiaries.

All representations and warranties of Memco and PLATINUM will terminate as
of the effective time.

Under the agreement, the parties made certain agreements and covenants with
respect to actions to be taken in connection with the arrangement. Each of
Memco and PLATINUM agreed to use its reasonable commercial efforts in
accordance with the terms of the agreement, to:

44
<PAGE>

. cause the arrangement to be accounted for as a pooling of interests;

. comply with the requirements of the Israeli Securities Authority or the
Israeli Securities Law of 1968; and

. appoint representatives of PLATINUM to Memco's board of directors upon
satisfaction of all of PLATINUM's conditions to closing other than the
filing of the Final Court Order.

Conduct of Memco's Business Prior to the Arrangement

Under the agreement, Memco agreed, during the period from the date of the
agreement and continuing until the earlier of the termination of the agreement
and the effective time, except to the extent that PLATINUM otherwise consents
in writing, that Memco will carry on its business in the usual, regular and
ordinary course. Memco agreed that it would:

. pay its debts and taxes when due, subject to good faith disputes over
such debts or taxes;

. collect its receivables in the same manner and on the same terms such
receivables have historically been collected;

. pay or perform other material obligations when due, and use all
commercially reasonable efforts to preserve intact Memco's present
business organizations; and

. keep the services of its present officers and employees and preserve its
business relationships and Memco's goodwill and ongoing business.

Memco must promptly notify PLATINUM of any event or occurrence not in the
ordinary course of business of Memco. Among other things, Memco agreed that,
except as expressly provided for in the agreement, it would not, without the
prior written consent of PLATINUM, which consent would not be unreasonably
withheld or delayed:

. reprice, accelerate, amend or change the period of exercisability of
options or authorize cash payments in exchange for any options
outstanding, except as required by Memco's benefit plans and agreements;

. enter into any material partnership, joint development or strategic
alliance agreements;

. grant any severance or termination pay, except as required by Israeli
law or Memco's Benefit Plans, as defined in the agreement;

. transfer or license to any person or entity or otherwise extend, amend
or modify any rights to Memco's Intellectual Property Rights, as defined
in the agreement, other than in the ordinary course of business
consistent with past practices;

. commence any litigation other than for: the routine collection of bills;
software piracy; or such cases where Memco in good faith determines that
failure to commence suit would result in the material impairment of a
valuable aspect of Memco's business;

. declare or pay any dividends on its capital stock, or split, combine or
reclassify any of its capital stock or repurchase or otherwise acquire
any of its capital stock;

. issue, deliver, sell, authorize or propose the sale of any shares of
Memco capital stock or enter into any agreements obligating Memco to
issue any shares or other convertible securities, other than the
issuance of shares or options of Memco Stock in accordance with Memco's
standard policies consistent with past practice;

. amend the Memco articles of association or any material contract;

. encumber or otherwise dispose of any of Memco's material assets;

. incur any indebtedness, other than in the ordinary course of business
consistent with past practice;

45
<PAGE>

. adopt or amend any Memco benefit or option plan or increase the salaries
of any of its employees, except in the ordinary course of business
consistent with past practices or as required by law;

. revalue any of Memco's assets;

. pay, discharge or otherwise satisfy a liability or claim in an amount in
excess of $50,000 for any one case or $250,000 in the aggregate;

. change any material tax election or accounting method except as required
by applicable tax law;

. enter into any Listed Agreement, as defined in the agreement, other than
in the ordinary course of business consistent with past practices and
policies; or

. take, or agree in writing or otherwise to take, any of the actions
described above, or any action which would cause or would be reasonably
likely to cause any of the conditions to the arrangement not to be
satisfied.

Conduct of PLATINUM's Business Prior to the Arrangement

Under the agreement, PLATINUM, during the period from the date of the
agreement and continuing until the earlier of the termination of the agreement
pursuant to the terms and the effective time, except to the extent Memco
otherwise consents in writing, which consent will not be unreasonably withheld
or delayed, will not adopt any amendments to its certificate of incorporation,
or take any other action requiring a vote of the holders of PLATINUM common
stock which, in either case, would materially adversely affect the terms and
provisions of PLATINUM common stock.

No Solicitation

The agreement provides that from the date of the agreement until the
effective time or the earlier termination of the agreement, Memco and its
subsidiaries will not, and will not permit their respective directors,
officers, investment bankers and affiliates to directly or indirectly:

. solicit, initiate or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, any acquisition
proposal, as defined below;

. engage in negotiations or discussions concerning, or provide any non-
public information to any person or entity in connection with, any
acquisition proposal; or

. agree to, or otherwise endorse, any acquisition proposal.

Under the agreement, an "acquisition proposal" means any proposal, offer or
expression of intent relating to a possible:

. merger, consolidation or similar transaction involving Memco;

. sale, lease, license or other disposition, directly or indirectly, of
any assets of Memco representing 20% or more of the assets of Memco on a
consolidated basis;

. issuance, sale or other disposition of securities, or rights to purchase
securities, representing 20% or more of the outstanding securities of
Memco;

. transaction in which any person or entity shall acquire beneficial
ownership as defined in Rule 13d-3 under the Securities Exchange Act of
1934, or has the right to acquire beneficial ownership of, 20% or more
of the outstanding Memco capital stock;

. liquidation or dissolution of Memco; or

. transaction which is similar in form, substance or purpose to any of the
foregoing transactions, provided, however, acquisition proposal does not
include the arrangement and the transactions contemplated thereby.

46
<PAGE>

Conditions to the Agreement and the Arrangement

In addition to the approval of the agreement and arrangement by the Memco
shareholders, the obligations of PLATINUM and Memco to consummate the
arrangement will be subject to the satisfaction of a number of other
conditions including, among others:

. effectiveness of the registration statement;

. the absence of any stop order suspending the effectiveness of the
registration statement;

. the absence of any temporary restraining order, preliminary or permanent
injunction or other court order or other legal or regulatory restraint
preventing the consummation of the arrangement;

. the termination of the applicable HSR Act waiting period;

. the authorization for listing on Nasdaq of the shares of PLATINUM common
stock issuable to Memco shareholders pursuant to the arrangement; and

. the receipt of all necessary material governmental consents or
authorizations, including the Final Court Order from an appropriate
Israeli Court and approvals from the Office of the Chief Scientist of
the State of Israel and the Investment Center of the State of Israel.

Additionally, the obligations of PLATINUM and Memco will also be
conditioned upon, among others:

. the accuracy as of the date of the agreement of the representations and
warranties made by the other party in all material respects, with
certain exceptions and qualifications; and

. performance in all material respects by the other party of its
agreements and covenants.

Termination

The agreement may be terminated at any time prior to the effective time,
notwithstanding that approval by the Memco shareholders may have been
obtained, under any of the following circumstances: by mutual consent of Memco
and PLATINUM or by mutual action of their respective board of directors; in
addition, the agreement may be terminated by Memco or PLATINUM if:

. the effective time has not occurred on or before June 30, 1999, unless
such delay shall have been caused by the breach of the party seeking to
terminate;

. any court of competent jurisdiction or other governmental body shall
have issued an order, decree, or ruling, or taken any other action
permanently restraining, enjoining, or otherwise prohibiting the
arrangement and/or the agreement and such order, license, ruling or
other action shall have become final and non-appealable;

. the Memco shareholders do not approve the arrangement or the agreement,
or if the proper court does not issue the Final Court Order by June 15,
1999; or

. there has been a material breach of any representation, warranty,
covenant or agreement contained in the agreement on the part of either
party and such breach has not been cured within ten (10) business days
after written notice, provided, that the other party is not in material
breach of the terms of the agreement.

Expenses and Break-Up Fee

Each party will bear its own costs and expenses in connection with the
negotiation and preparation of the agreement and the transactions contemplated
thereby except as described below.

If the agreement is terminated due to a failure to close by June 30, 1999
caused by a material breach by Memco, or Memco failed to convene the meeting
prior to June 30, 1999 and such failure was not caused by a

47
<PAGE>

PLATINUM breach or an Israeli court, Memco shall pay to PLATINUM the aggregate
sum of $15,000,000 U.S. plus expenses, as hereinafter described. In addition,
if within twelve months after termination of the agreement for any reason other
than a breach by PLATINUM, there shall be consummated a transaction in which a
shareholder or group other than Memco's current principal shareholders acquire
50.1% of Memco ordinary shares or its assets, Memco shall either, at the sole
option of PLATINUM, pay PLATINUM $30,000,000 U.S. minus the $15,000,000 to the
extent previously paid or provide a non-exclusive, royalty-free license and pay
PLATINUM $5,000,000, provided that if the $15,000,000 was previously paid,
PLATINUM shall pay Memco $10,000,000. "Expenses" shall mean all reasonable out-
of-pocket expenses of PLATINUM, including, but not limited to, attorneys' fees,
accounting fees, financial printing fees, filing fees and fees and expenses of
financial advisors up to a maximum of $3,000,000.

If the agreement is terminated pursuant to a breach by PLATINUM and Memco is
not then in material breach of the agreement, or pursuant to the failure to
close by June 30, 1999 and such failure was due to PLATINUM's material breach,
PLATINUM shall pay Memco within five (5) business days following Memco's
written request $15,000,000 plus expenses.

Employee Benefits

PLATINUM agrees that it will honor, from and after the effective time, all
Benefit Plans, as defined in the agreement, and all employment agreements
entered into by Memco prior to the date of the agreement; provided, however,
that PLATINUM is not prohibited from amending or terminating any Benefit Plan
or any other individual employee benefit plan, program, agreement or policy or,
other than as required by its terms, any written employment contract. As soon
as administratively practicable following the effective time, PLATINUM shall
cause all employees of Memco then actually at work to be covered under employee
benefit plans, programs, policies and arrangements that are substantially the
same as the employee benefit plans, programs, policies and arrangements that
PLATINUM maintains for similarly situated employees of PLATINUM.

If a Memco employee is terminated by PLATINUM for reasons other than such
employee's failure to perform his or her duties or responsibilities to the
reasonable satisfaction of PLATINUM within six (6) months following the
effective time and such employee's options are unvested, such options shall
vest upon such termination. Notwithstanding the foregoing, no options shall
vest if in the opinion of PLATINUM's accountants or the SEC, such vesting will
interfere with PLATINUM's ability to account for the acquisition of Memco as a
"pooling of interests."

Modifications

The agreement may be amended or modified at any time by a written instrument
executed by Memco and PLATINUM. However, after the extraordinary general
meeting of Memco shareholders, the agreement may not be amended to change the
terms of the arrangement.

Supplemental Agreements

In addition to the affiliate agreements and the shareholder agreements
signed by various significant Memco shareholders, each of Israel Mazin and
Eliahu Mashiah signed a Noncompetition/Nonsolicitation Agreement with PLATINUM,
restricting the ability of each to compete against PLATINUM or solicit
employees and customers for a period of three years. See "The Meeting--Vote
Required" and "The Arrangement--Certain Federal Securities Law Consequences;
Affiliates Agreements."

Memco and Tivoli Systems, Inc. entered into a private label distribution
agreement on August 16, 1996, as amended, under which Memco gives Tivoli the
right to distribute certain Memco products under a Tivoli private label and
provides for the payment of fees to Memco for this right. On September 30,
1998, Memco and Tivoli entered into the fourth amendment to the Tivoli
distribution agreement. Under the amendment:

. Memco granted Tivoli the right to continue to distribute certain Memco
products;

48
<PAGE>

. Tivoli agreed to purchase a minimum amount of Memco products over the
next four years;

. Tivoli and Memco agreed on a new pricing structure; and

. in light of the pending arrangement between Memco and PLATINUM, Tivoli
consented to the appointment of PLATINUM as collection agent for any
moneys owed by Tivoli to Memco under the distribution agreement.

Concurrent with the execution of the fourth amendment to the Tivoli
distribution agreement, Memco and PLATINUM entered into a subdistribution
agreement of Memco products under which Memco appoints PLATINUM as:

. the distributor of certain products to Tivoli;

. the provider of related support services to Tivoli; and

. the collector of fees from Tivoli with a portion of such fees sent to
Memco after collection.

If the subdistribution agreement is terminated by Memco because the
arrangement is not consummated, PLATINUM has agreed to purchase $60 million of
Memco's current SeOS Access Control and SeOS Security Administrator Products.

On August 18, 1998, PLATINUM entered into system integrator agreements, or
the "SI agreements," with Memco pursuant to which, the terms and conditions of
the OEM agreement between Memco and PLATINUM, dated July 13, 1995 are
superseded by the SI agreements for the period between August 18, 1998, and the
earlier of the termination of the agreement or the effective time. The SI
agreements expand the Memco products which PLATINUM may sublicense and increase
the sublicense fee due to Memco upon the sublicense of Memco products by
PLATINUM. On September 30, 1998, Memco and PLATINUM entered into an amendment
to the SI agreements which provides that PLATINUM will purchase a minimum
amount of Memco products by December 15, 1998. If the arrangement is
terminated, the SI agreements shall terminate, and the OEM agreement will be
reinstated. On December 31, 1998, Memco and PLATINUM entered into a subsequent
amendment to the SI Agreement. Such amendment provides for a reduction in
sublicensing fees payable by PLATINUM to Memco up to the consummation of the
arrangement in exchange for a commitment to purchase a minimum amount of Memco
products and an increase in the sublicensing fees payable by PLATINUM to Memco
under the reinstated OEM agreement in the event that the arrangement is
terminated.

On August 18, 1998, PLATINUM entered into a system integrator agreement with
AbirNet, under which AbirNet gives PLATINUM the right to sublicense AbirNet
products for sublicense fees.

49
<PAGE>

PLATINUM SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below has been derived
from the historical financial statements of PLATINUM. The selected consolidated
financial data should be read in conjunction with "PLATINUM Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes on pages 73 to 95 and
F-3 to F-40, respectively.

<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- --------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $235,393 $304,182 $ 408,425 $ 553,484 $ 738,880 $496,182 $653,479
Operating income
(loss)................. 2,073 (1) (2,975)(2) (125,863)(3) (101,609)(4) (102,141)(5) (90,510)(6) (30,132)(7)
Net loss from continuing
operations............. (881)(1) (4,408)(2) (110,426)(3) (83,782)(4) (105,103)(5) (84,821)(6) (35,157)(7)
Net loss from continuing
operations per share--
Basic.................. $ (0.02)(1) $ (0.09)(2) $ (2.03)(3) $ (1.16)(4) $ (1.35)(5) $ (1.10)(6) $ (0.42)(7)
Shares used in per share
calculation--Basic..... 46,835 48,832 54,349 71,919 78,072 77,457 82,965
</TABLE>

<TABLE>
<CAPTION>
As of
As of December 31, September 30,
----------------------------------------------------- -------------
1993 1994 1995 1996 1997 1998
----------- ----------- ----------- -------- -------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and investments........ $ 73,883 $133,084 $180,138 $256,623 $358,204 $ 283,666
Working capital......... 49,461 95,375 171,443 282,549 352,663 317,800
Total assets............ 198,122 301,892 529,615 736,668 972,907 1,017,134
Long-term obligations
and acquisition-related
payables, less current
portion................ 3,884 12,277 13,418 119,700 285,559 276,712
Total stockholders'
equity................. 101,688 163,574 340,490 375,744 342,876 377,251
</TABLE>
- --------
(1) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to PLATINUM's acquisition of Datura Corporation and a
pre-tax charge of $4,659,000 relating to Trinzic Corporation and Locus
Computing Corporation restructuring costs.
(2) Reflects a pre-tax charge for acquired in-process technology of $24,594,000
relating primarily to PLATINUM's acquisitions of Dimeric Development, Inc.
and the net assets of Aston Brooke Software, Inc. and AutoSystems
Corporation, and a pre-tax charge of $4,418,000 for restructuring costs
relating to Learmonth and Burchett Management Systems Plc.
(3) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating primarily to PLATINUM's acquisitions of Advanced Software
Concepts, Inc., SQL Software Corporation, RELTECH Group, Inc., Protellicess
Software, Inc., AIB Software Corporation and BMS Computer, Inc. and the net
assets of ViaTech Development, Inc., BrownStone Solutions, Inc. and
ProtoSoft, Inc. and to certain product acquisitions. Reflects a pre-tax
charge for merger costs of $31,287,000 relating to PLATINUM's acquisitions
of Software Interfaces, Inc., Answer Systems, Inc., Locus, Altai, Inc.,
Trinzic and Softool Corporation.
(4) Reflects a pre-tax charge for acquired in-process technology of $49,451,000
relating to PLATINUM's acquisitions of Advanced Systems Technologies, Inc.,
Software Alternatives, Inc. (d/b/a System Software Alternatives), Grateful
Data, Inc. (d/b/a Trans Century Data Systems) and VREAM, Inc.;
substantially all of the assets of Access Manager business unit of the High
Performance Systems division of International Computers Limited; and
certain product technologies. Also reflects a pre-tax charge for merger
costs of $5,782,000 relating primarily to PLATINUM's acquisitions of Prodea
Software Corporation, Paradigm Systems Corporation and Axis Systems
International, Inc.; and a pre-tax charge of $16,312,000 relating to
Learmonth and Burchett and Logic Works restructuring costs.

50
<PAGE>

(5) Reflects a pre-tax charge for acquired in-process technology of $67,904,000
relating to PLATINUM's acquisitions of GEJAC, Inc. and ProMetrics Group
Limited, the purchase of certain product technologies and other intangible
assets from Intel Corporation and the purchase of certain other product
technologies. Also reflects a pre-tax charge for merger costs of $8,927,000
relating to PLATINUM's acquisitions of Australian Technology Resources Pty
Limited, I&S Informationstechnik and Services GmbH and Vayda Consulting,
Inc.; and a pre-tax charge of $55,829,000 for restructuring costs.
(6) Reflects a pre-tax charge for acquired in-process technology of $17,164,000
relating to PLATINUM's purchase of GEJAC and the purchase of certain
product technologies. Also reflects a pre-tax charge for merger costs of
$3,706,000 relating to PLATINUM's acquisitions of Australian Technology
Resources and I&S Informationstechnik; and a pre-tax charge of $56,063,000
for restructuring costs.
(7) Reflects a pre-tax charge for acquired in-process technology of $32,615,000
relating to PLATINUM's acquisitions of Geneva Software, Inc. and certain
other software businesses and product technologies. Also reflects a pre-tax
charge for merger costs of $39,965,000 relating primarily to PLATINUM's
acquisitions of Mastering, Inc., Learmonth and Burchett and Logic Works.

51
<PAGE>

MEMCO SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected historical financial data for Memco,
which data has been derived from Memco's audited consolidated financial
statements. Such Memco selected historical financial data should be read in
conjunction with "Memco Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
and related notes thereto on pages 116 to 124 and F-41 to F-85, respectively.

<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
--------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------- ------- ------- --------- ----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 372 $ 440 $ 1,549 $15,312 $30,591 $ 18,457 $ 33,892
Cost of revenues........ 96 185 242 1,603 3,087 1,983 4,114
------ ------ ------- ------- ------- --------- ----------
Gross profit........... 276 255 1,307 13,709 27,504 16,474 29,778
Operating expenses:
Research and
development, net...... 60 331 872 2,254 4,066 2,854 4,357
Marketing and
selling............... 76 186 2,361 7,417 13,628 7,858 16,273
General and
administrative........ 115 246 535 1,506 2,995 1,994 3,496
Amortization of excess
of cost over net
assets acquired,
net................... -- -- -- -- -- -- 1,286
Acquired in-process
technology............ -- -- -- -- -- -- 31,553
------ ------ ------- ------- ------- --------- ----------
Total operating
expenses............ 251 763 3,768 11,177 20,689 12,706 56,965 (1)
Operating income
(loss)................. 25 (508) (2,461) 2,532 6,815 3,768 (27,187)(1)
Financing income, net... 9 25 298 1,282 3,196 2,342 2,218
------ ------ ------- ------- ------- --------- ----------
Income (loss) before
taxes on income........ 34 (483) (2,163) 3,814 10,011 6,110 (24,969)(1)
Taxes on income......... 26 -- 300 430 935 705 1,700
------ ------ ------- ------- ------- --------- ----------
Net income (loss).... $ 8 $ (483) $(2,463) $ 3,384 $ 9,076 $ 5,405 $ (26,669)(1)
====== ====== ======= ======= ======= ========= ==========
Net income (loss) per
share--Basic........... $ -- $(0.09) $ (0.23) $ 0.27 $ 0.58 $ 0.35 $ (1.59)(1)
Net income (loss) per
share--Diluted......... $ -- $(0.09) $ (0.23) $ 0.25 $ 0.55 $ 0.33 $ (1.59)
Weighted average number
of shares--Basic....... 2,181 5,117 10,769 12,722 15,574 15,527 16,825
Weighted average number
of shares-- Diluted.... 2,181 5,117 10,769 13,469 16,648 16,551 16,825
</TABLE>

52
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL DATA

The following unaudited pro forma condensed combined financial data are
qualified in their entirety by reference to, and should be read in conjunction
with, the historical consolidated financial statements of PLATINUM and Memco
and notes thereto on pages F-3 to F-85.

UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
September 30, 1998
(In thousands)

<TABLE>
<CAPTION>
PLATINUM Memco
Historical Historical Pro Forma
September 30, September 30, Pro Forma September 30,
ASSETS 1998 1998 Adjustments 1998
------ ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ 110,809 $ 18,786 $ -- $ 129,595
Short-term investment
securities........... 144,567 31,290 (15,202)(B1) 160,655
Trade accounts
receivable, net...... 248,753 15,110 (11,733)(B2) 252,130
Installment accounts
receivable, net...... 31,685 -- -- 31,685
Other current assets.. 52,052 4,202 (1,400)(B3) 54,854
---------- -------- -------- ----------
Total current
assets............. 587,866 69,388 (28,335) 628,919
---------- -------- -------- ----------
Non-current investment
securities............. 28,290 875 -- 29,165
Property and equipment,
net.................... 90,179 3,917 -- 94,096
Purchased and developed
software, net.......... 152,258 1,604 -- 153,862
Excess of cost over net
assets acquired, net... 62,338 21,897 -- 84,235
Non-current installment
receivables, net....... 66,419 -- -- 66,419
Other assets............ 29,784 1,365 2,805 (B3) 33,954
---------- -------- -------- ----------
Total assets........ $1,017,134 $ 99,046 $(25,530) $1,090,650
========== ======== ======== ==========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
Current liabilities:
Acquisition-related
payables............. $ 20,470 $ -- $ -- $ 20,470
Accounts payable...... 22,547 1,338 -- 23,885
Accrued restructuring
costs................ 3,761 -- -- 3,761
Other accrued
liabilities.......... 93,219 11,358 52 (B4) 104,629
Current maturities of
long-term
obligations.......... 1,489 233 -- 1,722
Deferred revenue...... 128,580 3,551 (33)(B5) 132,098
---------- -------- -------- ----------
Total current
liabilities........ 270,066 16,480 19 286,565
---------- -------- -------- ----------
Acquisition-related
payables............... 8,044 -- -- 8,044
Deferred revenue........ 76,089 -- -- 76,089
Deferred rent........... 6,553 -- -- 6,553
Accrued restructuring
costs.................. 10,463 -- -- 10,463
Long-term obligations,
net of current
maturities............. 268,668 1,120 -- 269,788
---------- -------- -------- ----------
Total liabilities... 639,883 17,600 19 657,502
---------- -------- -------- ----------
Stockholders' equity:
Class II preferred
stock, $.01 par
value................ 18 -- -- 18
Common stock, $.001
par value............ 86 15 -- 101
Paid-in capital....... 777,069 98,622 15,941 (B6) 891,632
Accumulated deficit... (391,514) (17,191) (44,534)(B7) (453,239)
Accumulated other
comprehensive income:
Unrealized holding
losses on
marketable
securities......... (3,315) -- 3,044 (B8) (271)
Foreign currency
translation
adjustment......... (5,093) -- -- (5,093)
---------- -------- -------- ----------
Total
stockholders'
equity........... 377,251 81,446 (25,549) 433,148
---------- -------- -------- ----------
Total liabilities
and stockholders'
equity........... $1,017,134 $ 99,046 $(25,530) $1,090,650
========== ======== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.

53
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1995

<TABLE>
<CAPTION>
PLATINUM Memco
Historical Historical Pro Forma
Year Ended Year Ended Year Ended
December 31, December 31, Pro Forma December 31,
1995 1995 Adjustments 1995
------------ ------------ ----------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Software products..... $ 208,929 $ 1,354 $(652)(B9) $ 209,631
Maintenance........... 88,602 9 (11)(B9) 88,600
Professional
services............. 110,894 186 -- 111,080
--------- ------- ----- ---------
Total revenues...... 408,425 1,549 (663) 409,311
--------- ------- ----- ---------
Costs and expenses:
Professional
services............. 111,658 -- -- 111,658
Product development
and support.......... 107,739 1,114 -- 108,853
Sales and marketing... 152,384 2,361 (237)(B10) 154,508
General and
administrative....... 42,727 535 -- 43,262
Merger costs.......... 31,287 -- -- 31,287
Acquired in-process
technology........... 88,493 -- -- 88,493
--------- ------- ----- ---------
Total costs and
expenses........... 534,288 4,010 (237) 538,061
--------- ------- ----- ---------
Operating loss.......... (125,863) (2,461) (426) (128,750)
Other income, net....... 4,623 298 -- 4,921
--------- ------- ----- ---------
Loss from continuing
operations before
income taxes........... (121,240) (2,163) (426) (123,829)
Income taxes............ (10,814) 300 (358)(B12) (10,872)
--------- ------- ----- ---------
Net loss from continuing
operations............. $(110,426) $(2,463) $ (68) $(112,957)
========= ======= ===== =========
Net loss from continuing
operations per share--
Basic.................. $ (2.03) $ (0.23) $ (1.78)
========= ======= =========
Shares used in computing
per share amounts--
Basic.................. 54,349 10,769 63,351
</TABLE>

See accompanying notes to unaudited pro forma condensed combining financial
statements.

54
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1996

<TABLE>
<CAPTION>
PLATINUM Memco
Historical Historical Pro Forma
Year Ended Year Ended Year Ended
December 31, December 31, Pro Forma December 31,
1996 1996 Adjustments 1996
------------ ------------ ----------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Software products..... $289,125 $14,126 $(4,820)(B9) $298,431
Maintenance........... 114,579 782 (147)(B9) 115,214
Professional
services............. 149,780 404 -- 150,184
-------- ------- ------- --------
Total revenues...... 553,484 15,312 (4,967) 563,829
-------- ------- ------- --------
Costs and expenses:
Professional
services............. 145,445 -- -- 145,445
Product development
and support.......... 170,153 3,857 -- 174,010
Sales and marketing... 218,435 7,417 (3,142)(B10) 222,710
General and
administrative....... 49,515 1,506 -- 51,021
Restructuring
charges.............. 16,312 -- -- 16,312
Merger costs.......... 5,782 -- -- 5,782
Acquired in-process
technology........... 49,451 -- -- 49,451
-------- ------- ------- --------
Total costs and
expenses........... 655,093 12,780 (3,142) 664,731
-------- ------- ------- --------
Operating income
(loss)................. (101,609) 2,532 (1,825) (100,902)
Other income (expense),
net.................... 8,075 1,282 (1,000)(B11) 8,357
-------- ------- ------- --------
Income (loss) from
continuing operations
before income taxes.... (93,534) 3,814 (2,825) (92,545)
Income taxes............ (9,752) 430 328 (B12) (8,994)
-------- ------- ------- --------
Net income (loss) from
continuing operations.. $(83,782) $ 3,384 $(3,153) $(83,551)
======== ======= ======= ========
Net income (loss) from
continuing operations
per share--Basic....... $ (1.16) $ 0.27 $ (1.01)
======== ======= ========
Shares used in computing
per share amounts--
Basic.................. 71,919 12,722 82,554
</TABLE>

See accompanying notes to unaudited pro forma condensed combining financial
statements.

55
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1997

<TABLE>
<CAPTION>
PLATINUM Memco
Historical Historical Pro Forma
Year Ended Year Ended Year Ended
December 31, December 31, Pro Forma December 31,
1997 1997 Adjustments 1997
------------ ------------ ----------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Software products..... $ 410,369 $27,782 $ (5,020)(B9) $ 433,131
Maintenance........... 139,912 2,254 (296)(B9) 141,870
Professional
services............. 188,599 555 -- 189,154
--------- ------- -------- ---------
Total revenues...... 738,880 30,591 (5,316) 764,155
--------- ------- -------- ---------
Costs and expenses:
Professional
services............. 170,851 -- -- 170,851
Product development
and support.......... 203,499 7,153 -- 210,652
Sales and marketing... 263,989 13,628 (3,364)(B10) 274,253
General and
administrative....... 56,509 2,995 -- 59,504
Special general and
administrative
charges.............. 13,513 -- -- 13,513
Restructuring
charges.............. 55,829 -- -- 55,829
Merger costs.......... 8,927 -- -- 8,927
Acquired in-process
technology........... 67,904 -- -- 67,904
--------- ------- -------- ---------
Total costs and
expenses........... 841,021 23,776 (3,364) 861,433
--------- ------- -------- ---------
Operating income
(loss)................. (102,141) 6,815 (1,952) (97,278)
Other income (expense),
net.................... 20,497 3,196 (21,390)(B11) 2,303
--------- ------- -------- ---------
Income (loss) from
continuing operations
before income taxes.... (81,644) 10,011 (23,342) (94,975)
Income taxes............ 23,459 935 (5,510)(B12) 18,884
--------- ------- -------- ---------
Net income (loss) from
continuing operations.. $(105,103) $ 9,076 $(17,832) $(113,859)
========= ======= ======== =========
Net income (loss) from
continuing operations
per share--Basic....... $ (1.35) $ 0.58 $ (1.25)
========= ======= =========
Shares used in computing
per share amounts--
Basic.................. 78,072 15,574 91,092
</TABLE>

See accompanying notes to unaudited pro forma condensed combining financial
statements.

56
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1997

<TABLE>
<CAPTION>
PLATINUM Memco
Historical Historical Pro Forma
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, Pro Forma September 30,
1997 1997 Adjustments 1997
------------- ------------- ----------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Software products..... $260,419 $16,716 $ (2,520)(B9) $274,615
Maintenance........... 102,159 1,397 (170)(B9) 103,386
Professional
services............. 133,604 344 -- 133,948
-------- ------- -------- --------
Total revenues...... 496,182 18,457 (2,690) 511,949
-------- ------- -------- --------
Costs and expenses:
Professional
services............. 122,019 -- -- 122,019
Product development
and support.......... 150,439 4,837 -- 155,276
Sales and marketing... 184,805 7,858 (2,004)(B10) 190,659
General and
administrative....... 38,983 1,994 -- 40,977
Special general and
administrative
charges.............. 13,513 -- -- 13,513
Restructuring
charges.............. 56,063 -- -- 56,063
Merger costs.......... 3,706 -- -- 3,706
Acquired in-process
technology........... 17,164 -- -- 17,164
-------- ------- -------- --------
Total costs and
expenses........... 586,692 14,689 (2,004) 599,377
-------- ------- -------- --------
Operating income
(loss)................. (90,510) 3,768 (686) (87,428)
Other income (expense),
net.................... 14,721 2,342 (15,699)(B11) 1,364
-------- ------- -------- --------
Income (loss) from
continuing operations
before income taxes.... (75,789) 6,110 (16,385) (86,064)
Income taxes............ 9,032 705 (3,998)(B12) 5,739
-------- ------- -------- --------
Net income (loss) from
continuing operations.. $(84,821) $ 5,405 $(12,387) $(91,803)
======== ======= ======== ========
Net income (loss) from
continuing operations
per share--Basic....... $ (1.10) $ 0.35 $ (1.02)
======== ======= ========
Shares used in computing
per share amounts--
Basic.................. 77,457 15,527 90,438
</TABLE>

See accompanying notes to unaudited pro forma condensed combining financial
statements.

57
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1998

<TABLE>
<CAPTION>
PLATINUM Memco
Historical Historical Pro Forma
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, Pro Forma September 30,
1998 1998 Adjustments 1998
------------- ------------- ----------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Software products..... $343,654 $ 29,815 $(13,500)(B13) $359,969
Maintenance........... 124,782 3,483 (417)(B9) 127,848
Professional
services............. 185,043 594 -- 185,637
-------- -------- -------- --------
Total revenues...... 653,479 33,892 (13,917) 673,454
-------- -------- -------- --------
Costs and expenses:
Professional
services............. 166,529 -- -- 166,529
Product development
and support.......... 178,018 8,471 -- 186,489
Sales and marketing... 217,054 16,273 (1,668)(B10) 231,659
General and
administrative....... 49,430 4,782 -- 54,212
Special general and
administrative
charges.............. 6,525 -- -- 6,525
Restructuring
charges.............. (6,525) -- -- (6,525)
Merger costs.......... 39,965 -- -- 39,965
Acquired in-process
technology........... 32,615 31,553 -- 64,168
-------- -------- -------- --------
Total costs and
expenses........... 683,611 61,079 (1,668) 743,022
-------- -------- -------- --------
Operating loss.......... (30,132) (27,187) (12,249) (69,568)
Other income (expense),
net.................... 11,729 2,218 (13,780)(B11) 167
-------- -------- -------- --------
Loss before income
taxes.................. (18,403) (24,969) (26,029) (69,401)
Income taxes............ 16,754 1,700 (4,636)(B12) 13,818
-------- -------- -------- --------
Net loss................ $(35,157) $(26,669) $(21,393) $(83,219)
======== ======== ======== ========
Net loss per share--
Basic.................. $ (0.42) $ (1.59) $ (0.86)
======== ======== ========
Shares used in computing
per share amounts--
Basic.................. 82,965 16,825 97,031
</TABLE>

See accompanying notes to unaudited pro forma condensed combining financial
statements.

58
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS

Note A--Description of Agreement

On August 13, 1998, PLATINUM and Memco entered into an agreement, pursuant
to which PLATINUM has agreed to acquire Memco, a leading provider of
information security software. Under the terms of the agreement, Memco will
become a wholly-owned subsidiary of PLATINUM. As of January 15, 1999, PLATINUM
held 1,085,907 ordinary shares of Memco constituting approximately 6% of the
outstanding Memco ordinary shares.

PLATINUM has agreed to exchange approximately 13,700,000 shares of PLATINUM
common stock for all of the outstanding Memco ordinary shares, other than
ordinary shares owned by PLATINUM, at a rate of 0.836 of a share of PLATINUM
common stock for each Memco ordinary share. In addition, PLATINUM has agreed to
assume Memco stock options, which will convert into options to purchase
approximately 3,050,000 shares of PLATINUM common stock. The agreement, which
is expected to be consummated in the first quarter of 1999, is subject to
approval of the Memco shareholders and customary legal and regulatory
conditions. The agreement is expected to be accounted for as a pooling of
interests.

The unaudited pro forma combined financial data are not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect as of the beginning of the periods presented and
should not be construed as representative of future operations.

PLATINUM and Memco estimate that they will incur expenses related to the
agreement of approximately $15 million, consisting primarily of transaction
costs for financial advisory fees, attorneys, accountants, financial printing
and one-time charges related to the transaction. These nonrecurring expenses
will be charged to operations in the quarter in which the arrangement is
consummated. Such charges have not been reflected in the pro forma financial
statements.

The following table summarizes the assumed average shares outstanding used
in computing pro forma net loss from continuing operations per share, using the
exchange ratio of 0.836, for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1997 and 1998:

<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, September 30,
-------------------- -------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
PLATINUM average shares outstanding..... 54,349 71,919 78,072 77,457 82,965
Memco assumed average shares
outstanding............................ 9,002 10,635 13,020 12,981 14,066
------ ------ ------ ------ ------
Pro forma average shares outstanding.... 63,351 82,554 91,092 90,438 97,031
====== ====== ====== ====== ======
</TABLE>

Note B--Pro Forma Adjustments

As discussed under "The Arrangement--Background of the Arrangement,"
PLATINUM entered into the OEM agreement with Memco and acquired Memco ordinary
shares pursuant to the PLATINUM purchase agreement in July 1995. PLATINUM also
purchased Memco ordinary shares in July 1995 and October 1996 pursuant to a
stock purchase agreement with third parties. PLATINUM sold Memco ordinary
shares at various dates from October 1996 through June 1998 on Nasdaq. Pursuant
to the OEM agreement, Memco granted PLATINUM a perpetual, world-wide, non-
exclusive and non-transferable license to sublicense specified Memco products
in exchange for an initial fee of $6 million and subsequent annual license fees
based on a percentage of the sublicense fees collected by PLATINUM.
Intercompany assets, liabilities, equity, revenues and expenses recorded by
Memco and PLATINUM, pursuant to the OEM agreement, have been eliminated in the
pro forma condensed combining balance sheet and the pro forma condensed
combining statements of operations in order to properly reflect pro forma
financial statements as if PLATINUM and Memco had been consolidated for all
periods presented.

59
<PAGE>

Subsequent to Memco's initial public offering in October 1996, PLATINUM
recorded its investment in Memco as available-for-sale securities. During 1997
and the first nine months of 1998, PLATINUM reclassified a portion of its Memco
available-for-sale securities to trading securities. PLATINUM recorded
unrealized holding gains and losses as a separate component of stockholders'
equity, net of taxes, for available-for-sale securities and as a component of
pre-tax earnings for trading securities. PLATINUM reclassified a portion of its
Memco available-for-sale securities to trading securities because PLATINUM
intended to sell the securities at various dates in the near future to benefit
from increases in market price. PLATINUM sold a portion of its Memco trading
securities during 1997 and the first nine months of 1998 and consequently,
reclassified the corresponding unrealized gains to realized gains. PLATINUM
eliminated the effects of the unrealized holding gains and losses resulting
from market valuations, as well as realized gains from sales of Memco ordinary
shares, in the pro forma condensed combining balance sheet and the pro forma
condensed combining statements of operations because such activity would not
have occurred if PLATINUM and Memco had been consolidated for all periods
presented.

In connection with the SI agreements discussed under "The Agreement--
Supplemental Agreements," PLATINUM agreed to purchase $12 million of Memco's
products on or before December 15, 1998. Memco recognized the revenues in
connection with the SI agreements in the quarter ended September 30, 1998.
Inter-company assets, equity and revenues recorded by Memco pursuant to the SI
agreements have been eliminated in the pro forma condensed combining balance
sheet and the pro forma condensed combining statements of operations in order
to properly reflect pro forma financial statements as if PLATINUM and Memco had
been consolidated for all periods presented.

The pro forma condensed combining balance sheet and pro forma condensed
combining statements of operations reflect adjustments to eliminate the effects
of the transactions discussed above. These adjustments are presented under the
columns headed "Pro Forma Adjustments."

(1) Short-term Investment Securities

The pro forma condensed combining balance sheet reflects a pro forma
adjustment to eliminate PLATINUM's investment in Memco.

(2) Trade Accounts Receivable

The pro forma condensed combining balance sheet reflects a pro forma
adjustment to eliminate Memco's receivable balance resulting from transactions
under the OEM agreement.

(3) Other Assets

The pro forma condensed combining balance sheet reflects pro forma
adjustments to eliminate: current and non-current portions of PLATINUM's
prepaid royalty in conjunction with the OEM agreement; and PLATINUM's deferred
tax asset relating to PLATINUM's investment in Memco and the income tax
adjustments discussed in B(12) below. The non-current adjustments to other
assets are summarized below:

<TABLE>
<CAPTION>
As of
September 30, 1998
------------------
<S> <C>
Adjustments to non-current prepaid royalty............. $(3,300)
Adjustments to deferred tax asset...................... 6,105
-------
$ 2,805
=======
</TABLE>

(4) Other Accrued Liabilities

The pro forma condensed combining balance sheet reflects a pro forma
adjustment to eliminate the accrued royalty expense by PLATINUM in conjunction
with the OEM agreement.

60
<PAGE>

(5) Deferred Revenue

The pro forma condensed combining balance sheet reflects a pro forma
adjustment to eliminate deferred revenue recorded by Memco in conjunction with
the OEM agreement.

(6) Paid-in Capital

The pro forma condensed combining balance sheet reflects pro forma
adjustments to eliminate the following:

<TABLE>
<CAPTION>
As of
September 30, 1998
------------------
<S> <C>
PLATINUM's payments to third parties in connection
with its purchase of Memco ordinary shares pursuant
to a stock purchase agreement........................ $(4,765)
Proceeds received by PLATINUM for sales of Memco
ordinary shares on the Nasdaq........................ 24,706
Memco's share capital and share premium resulting from
PLATINUM's investment in Memco....................... (4,000)
-------
$15,941
=======
</TABLE>

(7) Accumulated Deficit

The pro forma condensed combining balance sheet reflects pro forma
adjustments to eliminate the net effect of adjustments to the pro forma
condensed combining statement of operations. These adjustments are summarized
as follows:

<TABLE>
<CAPTION>
As of
September 30, 1998
--------------------
<S> <C> <C>
PLATINUM adjustments related to unrealized and
realized gains on marketable securities, net of
taxes............................................ $ (25,609)
PLATINUM adjustments related to royalty expenses
recognized in conjunction with the OEM agreement,
net of taxes:
Amortization of prepaid asset................... 1,905
On-going royalty expenses as incurred........... 4,033 5,938
--------
Memco adjustments related to software products and
maintenance revenues recognized in conjunction
with the OEM agreement, net of taxes:
Recognition of deferred revenue................. (6,000)
On-going royalty revenues as earned............. (6,863) (12,863)
--------
Memco adjustment related to software products and
maintenance revenues recognized in conjunction
with SI agreements, net of taxes-on-going royalty
revenues as earned............................... (12,000)
----------
$ (44,534)
==========
</TABLE>

PLATINUM's pro forma adjustment to accumulated deficit for the amortization
of prepaid license fees does not agree to Memco's pro forma adjustment to
accumulated deficit for the recognition of deferred revenues on such prepaid
license fees due primarily to differences in the recognition periods used by
Memco and the amortization periods used by PLATINUM. Additionally, Memco's pro
forma adjustment to accumulated deficit for on-going royalty revenues does not
match PLATINUM's pro forma adjustment to accumulated deficit for on-going
royalty expenses due primarily to PLATINUM's treatment of certain royalty
payments as prepaid assets, to be amortized in future periods, whereby Memco
recognized such royalty payments as revenues in the periods in which they were
earned.

61
<PAGE>

(8) Unrealized Holding Gains on Marketable Securities

The pro forma condensed combining balance sheet reflects a pro forma
adjustment to eliminate PLATINUM's unrealized holding gains, net of taxes, for
its investment in Memco classified as available-for-sale securities.

(9) Software Products and Maintenance Revenues

The pro forma condensed combining statements of operations include
adjustments to eliminate software products and maintenance revenues recognized
by Memco in conjunction with the OEM agreement.

(10) Sales and Marketing Expenses

The pro forma condensed combining statements of operations include
adjustments to eliminate royalty expenses recognized by PLATINUM in conjunction
with the OEM agreement.

(11) Other Income

The pro forma condensed combining statements of operations include
adjustments to eliminate unrealized and realized gains recorded by PLATINUM
involving Memco ordinary shares.

(12) Income Taxes

The pro forma condensed combining statements of operations include
adjustments for the income tax effects of the revenue, expense and other income
adjustments discussed above, based upon the effective tax rates of the
respective companies.

(13) Software Products Revenues for the Nine Months Ended September 30, 1998

The pro forma condensed combining statement of operations for the nine
months ended September 30, 1998 includes adjustments to eliminate software
product revenues recognized by Memco in conjunction with the OEM agreement and
the SI agreements.

Note C--Reclassifications

Certain Memco historical amounts have been reclassified to conform to
PLATINUM's historical presentation for the pro forma financial statements.

62
<PAGE>

PRO FORMA COMBINED COMPARATIVE PER SHARE DATA

The following table sets forth certain historical per share data of PLATINUM
and Memco and combined per share data on an unaudited pro forma basis after
giving effect to the agreement on a pooling-of-interests basis utilizing the
exchange ratio, as if the agreement had been effective for all periods
presented. This data should be read in conjunction with the selected financial
data, the unaudited pro forma condensed combining financial statements and the
separate historical financial statements of PLATINUM and Memco and notes
thereto, included elsewhere in this proxy statement/prospectus. The unaudited
pro forma combined financial data are not necessarily indicative of the
operating results that would have been achieved had the transactions been in
effect as of the beginning of the periods presented and should not be construed
as representative of future operations.

<TABLE>
<CAPTION>
Equivalent
Pro Memco
Historical Historical Forma Pro Forma
PLATINUM Memco Combined Combined
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss) from Continuing
Operations Per Share
Years ended December 31:
1995............................ $(2.03) $(0.23) $(1.78) $(1.49)
1996............................ (1.16) 0.27 (1.01) (0.84)
1997............................ (1.35) 0.58 (1.25) (1.05)
Nine months ended September 30,
1997........................... (1.10) 0.35 (1.02) (0.85)
Nine months ended September 30,
1998........................... (0.42) (1.59) (0.86) (0.72)
Book Value Per Share:
December 31, 1997................. 4.27 4.01 4.10 3.43
September 30, 1998................ 4.37 4.65 4.33 3.62
</TABLE>

63
<PAGE>

BUSINESS OF PLATINUM

Overview

PLATINUM develops, markets and supports software products, and provides
related professional services that help organizations manage and improve their
information technology infrastructures, which consist of data, systems and
applications. PLATINUM's products and services help information technology
departments, primarily in large and data intensive organizations, minimize risk
and improve service levels and leverage information to make better business
decisions. PLATINUM's products typically perform fundamental functions, such as
automating operations, maintaining the operating efficiency of systems and
applications, and ensuring data access and integrity. PLATINUM currently
develops software products through its four business units: database
management, systems management, application lifecycle and data warehousing and
decision support. Addressing businesses' increasing demand for simplified
vendor relationships and complete solutions to information technology problems,
PLATINUM's goal is to become the leading provider of information technology
infrastructure management solutions by offering a comprehensive set of "best in
class" point products, product bundles and integrated product suites. PLATINUM
also offers a wide array of professional services, including consulting,
systems integration and educational programs, both in conjunction with and
independent of software product sales.

To achieve its goal, PLATINUM identified key technologies and skill sets
required to better manage the information technology infrastructure. Through a
combination of an aggressive acquisition program and vigorous internal product
development efforts, PLATINUM assembled the competencies to create complete
infrastructure management solutions. Devoting substantial resources to
integrating its products and technologies, PLATINUM is now leveraging the
breadth of its product lines and its professional services capabilities to
provide complete, customized solutions for information technology
infrastructure problems. These solutions include single products; product
suites, which are sets of integrated products drawn together from multiple
business units of PLATINUM; 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 PLATINUM'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
PLATINUM's customers for comprehensive solutions, PLATINUM completed 92
transactions of over $1 million during the first nine months of 1998, as
compared to 62 such transactions during the same period in 1997. PLATINUM
completed 102 transactions of over $1 million during 1997, as compared to 55
such transactions during 1996 and only two such transactions during 1995. Each
of these large transactions included licenses for software product bundles or
suites, along with future upgrades and maintenance; software consulting
services; or both product licenses and related consulting services.

PLATINUM is focusing on the development of products and services that offer
its customers maximum flexibility and functionality. PLATINUM's products are
designed to permit a customer to either purchase prepackaged integrated suites
or to choose individual products and later add other products as needed. The
cornerstone of PLATINUM's integration efforts is POEMS, PLATINUM Open
Enterprise Management Services, an internally developed set of shared
components that give PLATINUM's products a common look and feel, common
installation and distribution, and common communication, data and events
handling. POEMS integration is built into individual products so that, as
customers purchase additional PLATINUM products, the newly acquired and
previously installed products can begin working together immediately. In
February 1998, PLATINUM released for general availability its ProVision suite
of integrated systems and database management tools, which is PLATINUM's most
significant POEMS-enabled integrated offering of products to date. ProVision
initially includes nine tools within the following key information technology
management disciplines: job management, performance management and analysis,
software distribution, problem resolution, security, database utilities and
database administration.

PLATINUM is also creating solutions for the needs of specific industries, as
well as general business needs. For example, during 1996, PLATINUM released
PLATINUM RiskAdvisor, a data warehouse decision

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support application developed specifically for the insurance industry. PLATINUM
also is enabling its products and suites for application with intranets, the
internet and the web and offers a broad set of solutions for the Year 2000
problem. Additionally, in late 1996, PLATINUM formed specialty consulting
practice groups within its professional services business unit, including
groups dedicated to Year 2000 solutions and internet/intranet technologies.

Market Overview

Companies today rely on their information technology infrastructures to keep
their businesses operating efficiently. As organizations have moved from host-
based computing systems to open systems environments, the deployment,
management, maintenance and productive use of information technology has become
increasingly complex. These open computing environments service numerous end-
users spread across various locations and consist of a diverse set of
applications, computing platforms, including mainframes, minicomputers,
workstations and desktop PCs/LANs, relational database management systems,
operating systems, including UNIX, Windows, Windows NT, OS/400, OS/2, MVS and
VMS, and media, including intranets and the internet. 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. PLATINUM believes that, due to
the complexities of these new computing environments, organizations are
increasingly seeking to purchase information technology management products and
services from a smaller number of vendors that can provide complete, flexible
and integrated solutions for managing and improving the information technology
infrastructures that run their businesses.

Products

PLATINUM provides software solutions that help organizations efficiently
operate and manage their complex information technology infrastructures and
related environments, which contain multiple computing platforms, database
management systems, applications and operating systems. These tools increase
the efficiency and interoperability of these systems and applications in
distributed environments of any size. PLATINUM'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 database management systems, such as the DB2 family,
Oracle, Sybase, Microsoft SQL Service and Informix. In addition, PLATINUM's
solutions provide support for packaged applications such as SAP, PeopleSoft and
Oracle Financials.

PLATINUM now offers over 160 robust and adaptable point products. While
point products are initially developed and supported through one of PLATINUM's
four business units described below, PLATINUM continues to build integrated
suites of products drawn from different business units, such as ProVision, in
order to provide comprehensive solutions to organizations' information
technology needs.

Database Management Products. PLATINUM provides a leading set of tools and
utilities for centralized or distributed database administration, performance
analysis and monitoring and database backup and recovery for heterogeneous
database management systems. 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 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 direct access storage device and database
monitoring, analysis, validation, forecasting and tuning tool. It
provides extensive statistical reporting capabilities, automated
maintenance and 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.

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

Systems Management Products. PLATINUM offers products that enable
organizations to automate routine systems maintenance tasks and processes,
thereby streamlining enterprise management, enhancing system reliability and
reducing costs. These products also simplify the management of disparate
systems and enterprise-wide applications, and increase end-user productivity.
Systems management product offerings span many disciplines, including job and
process management, enterprise automation, desktop management, output
management, problem resolution, security management, distribution management,
performance management, enterprise-wide resource management, storage management
and networking and connectivity. PLATINUM offers over 20 products that 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 job scheduling and management tool that simplifies the task
of managing and monitoring multiple jobs in distributed environments. It
provides centralized control of job execution across heterogeneous
platforms and offers flexible features, such as self-correcting job
control and automated restart and recovery capabilities.

. DBVision--a scaleable tool for continuous monitoring and centralized
management of heterogeneous 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 set that enables organizations to secure and manage
large, heterogeneous computing environments. It protects information by
preventing unauthorized access to data and system resources in
distributed environments; provides single sign-on for users to
applications and services they are authorized to use, whether they are
on mainframes, distributed systems or PCs; and provides a single point
for user registration in other security systems.

Application Lifecycle Products. PLATINUM offers products that enable
organizations to establish an application development process that is
systematic, error-resistant and flexible to adapt to changing business needs.
These products include tools for integrated project and process management,
component modeling, construction, testing, application deployment and software
distribution, integrated change and configuration management, help desk support
and decision support. These products facilitate the development of
sophisticated, high-performance applications and improve the overall
productivity and quality of development efforts. Principal application
lifecycle products include the following:

. ADvantage--an integrated set of tools for managing the application
development infrastructure. ADvantage helps organizations automate and
improve the processes for building, managing and delivering applications
through solutions for component modeling, Paradigm Plus, integrated
project and process management, Process Continuum, integrated change and
configuration management, CCC/Harvest, rule-based application
development, AionDS, and decision support, ADvisor.

. ADvisor--a decision-support tool, and key component of ADvantage, that
helps information technology executives and development managers
minimize the risks and costs associated with the applications that run
their businesses by providing the information needed to ensure on-time,
on-budget delivery of applications. ADvisor delivers the critical
project information organizations need to manage application development
as a core business process.

Data Warehousing and Decision Support Products. PLATINUM offers an
integrated set of solutions for all major data warehousing functions, including
data transformation and movement, data warehouse management, metadata
management and repository, and decision support. These comprehensive solutions
help

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organizations build, manage and maintain data warehouses. A data warehouse is a
data store that gives end-users full access to periodically consolidated,
historical data for making business decisions and analyzing trends without
jeopardizing the performance of mission-critical operations. Warehousing tools
can capture data in many forms on numerous platforms, transfer it to multiple
database platforms and provide users with the means to access and manage such
information. Repository tools play a key role in data warehouses as places for
centralized control and as collection points for status information concerning
the warehouses and their activities.

PLATINUM's products enable organizations to better leverage their corporate
data investments by allowing end-users to derive maximum value and insight from
information. These products ensure enterprise-wide data access and enable
complex data analysis and reporting so that users can effectively identify
business trends and make informed decisions. Principal data warehouse products
include the following:

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

. Repository--serves as a central point of control, enabling organizations
to easily manage, maintain and access vast amounts of corporate data,
applications and systems in a heterogeneous environment. Repository
provides information such as where data is located, who created and who
maintains data, what application processes the data drives and what
relationship the data has with other data.

. Forest & Trees--a rapid decision-support system development tool which
enables information technology departments to deliver customized desktop
applications that provide the necessary components for intuitive
navigation and data investigation. Forest & Trees applications can
simultaneously access multiple data sources and combine data into
information that makes sense to the knowledgeable worker. Forest & Trees
applications can monitor key strategic, tactical and operational
indicators for the business and automatically alert users to specific
conditions via the corporate network or via the web.

. InfoBeacon--a decision support tool that provides advanced online
analytical processing capabilities for data warehouse environments. This
product creates a virtual, multidimensional view on top of the
relational database. It provides end-users with advanced analysis
capabilities--such as drill down, pivoting, ranking, ratios and
exception- and date-handling--without requiring the organization to
redundantly store and manage data in a proprietary multidimensional
database.

. Perspectives--an environment for rapidly developing custom, server-
centric, online analytical processing enabled decision-support systems.
Combining the power of tools with the speed of packaged applications,
Perspectives provides the benefits of rapid time to market without
sacrificing flexibility for future growth. Perspectives for Market
Analysis helps profit/loss managers, such as brand managers, product
managers and VPs of marketing, view and analyze complex relationships
between multiple product dimensions and measures so that they can
understand and respond to emerging trends.

New Product Suites. In the past, businesses licensed products on a stand-
alone basis to address each of their needs as they arose. By combining tools
and technologies within and across its business units, PLATINUM now provides
product suites that are complete solutions to businesses' information
technology infrastructure problems. These integrated product offerings allow
businesses to experience comprehensive benefits without having to deal with
multiple products or multiple vendors. PLATINUM has designed product suites
that address information technology infrastructure problems that are shared by
businesses from various industries, as well as product suites that target
information technology infrastructure problems that are unique to specific
industries. The following provides a brief description of some of PLATINUM's
recent product suite offerings:

. ProVision--this integrated product suite, a combination of database
management and systems management tools, enables companies to reduce the
costs and risks associated with managing their information technology
infrastructures, while improving service levels, availability and
productivity.

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ProVision initially includes nine tools within the following key
information technology management disciplines: job management,
performance management and analysis, software distribution, problem
resolution, security, database utilities and database administration.
Because integration is built into each ProVision tool, organizations can
implement one or more tools, and add more tools as needed, to solve
their most immediate information technology problems. ProVision became
generally available in February 1998.

. 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. TransCentury applies a "find-it, fix-it, test-it"
approach that enables businesses to analyze, plan, implement and test
century date changes in an integrated manner. It helps organizations
ensure business continuity and compliance by minimizing exposure,
helping them more effectively plan resources and reducing costs and time
devoted to the Year 2000 problem.

Product Licenses

PLATINUM 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, PLATINUM does not sell or transfer
title to its software products to customers. Under PLATINUM'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 PLATINUM'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. PLATINUM's published list prices
include discounts for suite, enterprise and multi-site licenses. Licenses
generally include more than one product. Under PLATINUM'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

PLATINUM is pursuing its strategy by continuing its emphasis on internally
developing new software products and product enhancements, acquiring products,
technologies and businesses complementary to PLATINUM's existing product lines
and forming alliances with leading technology companies. PLATINUM has formed
separate in-house development teams to efficiently integrate acquired products
and technologies into existing product lines. During 1995, 1996, 1997 and the
first nine months of 1997 and 1998, product development and support expenses
of PLATINUM were $107,739,000, $170,153,000, $203,499,000, $150,439,000 and
$178,018,000, respectively. As of November 30, 1998, PLATINUM employed
approximately 2,260 persons in product development and support.

Internal Development. PLATINUM will continue to rely on the internal
development of products to expand its product lines. PLATINUM believes its
relational database management systems 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,
PLATINUM has established approximately 36 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 PLATINUM 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.

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Acquisitions. PLATINUM continually reviews acquisition candidates with
leading-edge products and technologies that could enhance PLATINUM's product
portfolio. The technologies associated with the products of the acquired
businesses are being incorporated into PLATINUM's existing internally developed
products and are being used in developing new products. In addition to
providing PLATINUM with new products and technologies, these acquisitions have
provided PLATINUM with experienced teams of product developers who now staff
PLATINUM's independent development laboratories. PLATINUM plans to continue to
pursue acquisition opportunities because it believes that acquisitions are an
essential part of PLATINUM's strategy to compete effectively in its rapidly
evolving marketplace. See "PLATINUM Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Costs and
Expenses" and "--Merger Costs" and "--Recent Developments."

Technology Relationships. To reinforce its commitment to providing
interoperable solutions for managing information technology infrastructures,
PLATINUM has implemented its PLATINUM Partners Program, whereby PLATINUM has
established strategic and technology relationships with other leading
information technology vendors. PLATINUM 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.
PLATINUM's current partners include Intel, IBM, Hewlett-Packard, Oracle,
Microsoft, SAP and Lucent Technologies. These technical and marketing alliances
provide PLATINUM early access to product information and pre-release software.

Professional Services

As part of its strategy to provide complete solutions for Global 10,000
information technology organizations, PLATINUM offers a range of professional
services, including consulting services, systems integration and educational
programs, in support of and independent of its products. These services help
businesses plan, construct and manage infrastructures in which complex software
products can be used. These services can improve and accelerate customization,
implementation and deployment of PLATINUM's software products. PLATINUM
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, PLATINUM is now packaging professional services as a standard
feature of its product sales. As of November 30, 1998, PLATINUM employed
approximately 1,946 persons in professional services.

Consulting Services. PLATINUM 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 that help Global 10,000 companies manage risks, manage the
implementation of new technologies and products and optimize their current
computing environments. Areas of expertise span systems and database
management, information management, security, Year 2000 reengineering,
application lifecycle management, internet/intranet development and electronic
commerce. PLATINUM's consultants provide flexible, customizable solutions as
well as prepackaged solutions. They can serve all of an organization's software
consulting needs, from strategy and organization to implementation.

Educational Programs. PLATINUM believes that its training and education
services play an important role in increasing market awareness of its software
products among information technology personnel, including application
developers, database administrators and end-users. Offering a comprehensive
curriculum that supports leading technologies, PLATINUM conducts a set of
training courses designed to deal with the critical issue of skills management.
These courses cover several key technology areas of information technology
infrastructure management and are held at various training centers in the
United States and throughout PLATINUM's international operations. PLATINUM 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.

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Sales and Marketing

PLATINUM employs a multi-faceted sales strategy. For software products,
PLATINUM utilizes telemarketers, an inside sales force, an outside sales force,
product seminars, user group participation, direct mail, print and web-based
advertising, and web promotions. PLATINUM also utilizes certain indirect sales
channels, such as distributors, value added resellers, or VAR, and original
equipment manufacturer, or OEM, relationships for selected products.

Domestic (U.S.) Software Sales. Since January 1, 1997, PLATINUM has
organized its domestic direct sales force by regions throughout the United
States. PLATINUM formerly combined the domestic and Canadian sales forces to
represent the North American sales force. As of November 30, 1998, PLATINUM had
approximately 475 domestic direct sales representatives.

Generally, for domestic software product licenses, PLATINUM'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, demonstrate product features and close 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. PLATINUM generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by PLATINUM domestically. As
of November 30, 1998, PLATINUM had approximately 254 international direct sales
representatives and had subsidiaries in Australia, Austria, Belgium, Brazil,
Canada, China, Denmark, Finland, France, Germany, Greece, Hong Kong, Indonesia,
Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Norway, the
Philippines, Portugal, Saudi Arabia, Singapore, South Africa, Spain, Sweden,
Switzerland, Taiwan, Thailand, United Arab Emirates and the United Kingdom.
PLATINUM 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, PLATINUM markets its products through independent
distributors.

Global Accounts. PLATINUM 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. PLATINUM's consulting services and educational
programs are marketed by a specialized direct sales force.

User Group Leadership. PLATINUM believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. PLATINUM plays a major role in the activities of the
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

PLATINUM'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 PLATINUM's products. The technical
support group also offers seven-day, 24-hour toll-free telephone service for an
additional fee. PLATINUM 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.

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PLATINUM 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 PLATINUM's license agreements. Under PLATINUM'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.

Competition

PLATINUM operates in highly competitive markets and expects competition to
increase. PLATINUM encountered substantially intensified competition as it
moved from the relational database tools market to the much larger information
technology infrastructure products market and as it entered the consulting
services business. PLATINUM also encountered many new competitors, including
relational database vendors and systems software companies. Many of PLATINUM's
current and prospective competitors have significantly greater financial,
technical and marketing resources than PLATINUM. In addition, many prospective
customers may have the internal capability to implement solutions to their
information technology infrastructure problems.

The competitive factors affecting the market for PLATINUM'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.

PLATINUM believes that it has competed effectively to date and that its
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, PLATINUM 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 PLATINUM's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. PLATINUM also expects to continue its strategy of
identifying and acquiring information technology infrastructure products and
technologies and businesses which have developed such products and
technologies.

PLATINUM also encounters competition from a broad range of firms in the
market for professional services. Many of PLATINUM's current and prospective
competitors in the professional services business have significantly greater
financial, technical and marketing resources than PLATINUM. The competitive
factors affecting the market for PLATINUM'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

PLATINUM 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. PLATINUM also holds some patents and
believes that patents are becoming increasingly important to the software
industry. Consequently, PLATINUM is taking actions to further protect its
proprietary rights through software patents. PLATINUM's license agreements
restrict a customer's use of PLATINUM's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of PLATINUM's software products. PLATINUM
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 PLATINUM's success than the knowledge, ability and experience of
PLATINUM's employees, the frequency of product enhancements and the timeliness
and quality of support services provided by PLATINUM. PLATINUM registers its
product names and other trademarks in the United States and certain foreign
countries. PLATINUM sells its products in foreign countries that may afford
less intellectual property rights protection than currently afforded in the
United States.

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Employees

As of November 30, 1998, PLATINUM employed approximately 6,365 persons,
including 1,728 in sales, marketing and related activities, 2,260 in product
development and support, 1,946 in professional services and 431 in management,
administration and finance. PLATINUM'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 PLATINUM's employees is represented
by a labor union or is the subject of a collective bargaining agreement.
PLATINUM has never experienced a work stoppage and believes that its employee
relations are good.

Properties

PLATINUM's principal administrative, marketing, training and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where PLATINUM leases approximately 334,000 square feet under leases
terminating in April 2003, with plans to lease additional space in the near
future. PLATINUM also leases approximately 164,000 square feet of
administrative, marketing, sales and product development space in Lisle,
Illinois, near PLATINUM's headquarters, under leases terminating in January and
October 2003. In addition, PLATINUM 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,
PLATINUM closed certain sales offices and product development laboratories in
the United States and certain foreign countries. See "PLATINUM Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--Restructuring Charges."

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 PLATINUM, 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. in the United States. 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 Computer Associates' claim of copyright
infringement. Computer Associates' subsequently appealed this decision to a
French appellate court. In May 1998, the U.S. Supreme Court denied Altai's
petition for certiorari on motions that the U.S. court decisions are binding
with respect to the French case. On October 23, 1998, the French appellate
court upheld in all pertinent parts the decision of the French lower court.

PLATINUM 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 PLATINUM's
results of operations or financial position.

Material Contracts Between PLATINUM and Memco

On July 13, 1995, Memco and PLATINUM entered into an OEM agreement pursuant
to which Memco granted PLATINUM a perpetual, world-wide, non-exclusive and non-
transferable license to sublicense certain Memco products, including all
updates and enhancements thereof and receive certain support and training in
the marketing of such products. Pursuant to the OEM agreement, PLATINUM paid
Memco $1.3 million, $3.5 million, and $2.3 million respectively, in 1996, 1997
and the first nine months of 1998. The OEM agreement has been temporarily
superseded by the SI agreements, under which PLATINUM is given expanded rights
to sublicense Memco products and Memco receives higher sublicense fees. The SI
agreement was subsequently amended to provide for lower sublicensing fees
payable by PLATINUM to Memco up to the consummation of the arrangement in
exchange for a commitment to purchase a minimum amount of Memco products and an
increase in sublicensing fees payable by PLATINUM to Memco under the reinstated
OEM agreement in the event that the arrangement is terminated. See "The
Arrangement--Background of the Arrangement" and "The Agreement--Supplemental
Agreements."

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

The discussion and analysis below contains certain forward-looking
statements, as such term is defined in Section 21E of the Exchange Act of 1934,
that are based on the beliefs of the management of PLATINUM, as well as
assumptions made by, and information currently available to, PLATINUM's
management. PLATINUM's actual growth, results, performance and business
prospects and opportunities in 1998 and beyond could differ materially from
those expressed in, or implied by, such forward-looking statements. See
"Uncertainties Relating to Forward-Looking Statements."

Overview

PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve their
information technology infrastructures, which consist of data, systems and
applications. PLATINUM's products and services help information technology
infrastructure departments, primarily in large and data-intensive
organizations, minimize risk, improve service levels and leverage information
to make better business decisions. As an integral part of PLATINUM's growth
strategy, it has consummated a number of significant business combinations,
including acquisitions of SII, Answer, Locus, Altai, Trinzic, Softool, Prodea,
Paradigm, Axis, Australian Technology, I&S, Mastering, Learmonth and Burchett
and Logic Works, each of which has been accounted for using the pooling-of-
interests method. As a result, PLATINUM's supplemental consolidated financial
statements are presented as if PLATINUM and such acquired companies had been
consolidated for all periods presented. Information regarding PLATINUM in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations gives retroactive effect to these acquisitions. In addition,
PLATINUM has consummated a number of acquisitions accounted for as purchases,
in which cases the acquired businesses have been included in PLATINUM's results
of operations beginning with the effective dates of the acquisitions.

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<PAGE>

Nine Months Ended September 30, 1998 Compared with Nine Months Ended
September 30, 1997

The following is based on text included in PLATINUM's Quarterly Report on Form
10-Q filed in respect for the period ended September 30, 1998 and speaks of
that date.

Results of Operations

The following table sets forth the percentages that selected items in the
Consolidated Statements of Operations bear to total revenues.

<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
----------------
1998 1997
------ ------
<S> <C> <C>
Statements of Operations Data:
Revenues:
Software products................................ 53% 52%
Maintenance...................................... 19 21
Professional services............................ 28 27
------ ------
Total revenues................................. 100 100
Costs and expenses:
Professional services............................ 26 25
Product development and support.................. 27 30
Sales and marketing.............................. 33 37
General and administrative....................... 8 8
Special general and administrative charge........ 1 3
Restructuring charges............................ (1) 11
Merger costs..................................... 6 1
Acquired in-process technology................... 5 3
------ ------
Total costs and expenses....................... 105 118
------ ------
Operating loss..................................... (5) (18)
Other income, net.................................. 2 3
------ ------
Loss from continuing operations before income
taxes............................................. (3) (15)
Income taxes....................................... 2 2
------ ------
Net loss from continuing operations................ (5) (17)
------ ------
Loss from discontinued operations, net of taxes.... -- *
------ ------
Net loss........................................... (5)% (17)%
====== ======
</TABLE>
- --------
* Less than 1%

Revenues

PLATINUM's revenues are derived from three sources: (1) license and upgrade
fees for licensing PLATINUM'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) fees from PLATINUM's professional
services business. Total revenues for the first nine months of 1998 were
$653,479,000, an increase of $157,297,000, or 32%, as compared to $496,182,000
for the same period in 1997. PLATINUM's database management, principally
products relating to IBM's DB2 relational database management software,
systems management, application lifecycle, and data warehousing and decision
support business units experienced growth of 32%, 69%, 3% and 5%,
respectively, in total software products and maintenance revenues during the
first nine months of 1998, as compared to the same period in 1997. Revenues
from international customers, principally in Western Europe, represented 28%
and 26% for the first nine months of 1998 and 1997, respectively.

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<PAGE>

PLATINUM recognizes revenues from its software sales using the criteria
specified in the American Institute of Certified Public Accountants Statement
of Position 97-2, Software Revenue Recognition, which was adopted on January 1,
1998. The adoption of Statement of Position 97-2 has not had a material impact
on PLATINUM's financial position or results of operations for the nine months
ended September 30, 1998.

PLATINUM has continued to enter into an increasing number of higher dollar
value sales transactions with customers, primarily attributable to sales of
product bundles and integrated product suites. These transactions are typically
completed pursuant to multi-year contracts and include product licenses, future
upgrades and maintenance, sometimes also bundled with professional services. In
the first nine months of 1998, PLATINUM entered into 92 sales transactions
having a total value of at least $1,000,000, of which 22 had a total value of
at least $3,000,000 and two had a total value of at least $10,000,000. In the
first nine months of 1997, PLATINUM entered into 62 sales transactions having a
total value of at least $1,000,000, of which 13 had a total value of at least
$3,000,000 and none had a total value of at least $10,000,000.

The table below sets forth, for the periods indicated, PLATINUM's primary
sources of revenues expressed as a percentage of total revenues.

<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
---------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Software products:
Licenses............................................ 38% 41%
Upgrades............................................ 15 11
------ ------
Total software products........................... 53 52
------ ------
Maintenance......................................... 19 21
Professional services............................... 28 27
------ ------
Total revenues.................................... 100% 100%
====== ======
</TABLE>

Software Products. Software products revenues for the first nine months of
1998 were $343,654,000, an increase of $83,235,000, or 32%, as compared to
$260,419,000 for the first nine months of 1997. The substantial majority of the
increase in software products revenues in the first nine months of 1998, as
compared to the same period in 1997, resulted from increases in the volume of
sales of existing products. A smaller, but still significant, portion of the
increase related to sales of newly introduced products, while only a small
percentage was attributable to price increases. In the first nine months of
1998, PLATINUM's database management, systems management, application
lifecycle, and data warehousing and decision support business units represented
35%, 34%, 17% and 14%, respectively, of total software products revenues.

Maintenance. Maintenance revenues for the first nine months of 1998 were
$124,782,000, an increase of $22,623,000, or 22%, as compared to $102,159,000
for the same period in 1997. The increase in maintenance revenues in the first
nine months of 1998, as compared to the same period in 1997, was primarily
attributable to the expansion of PLATINUM's installed customer base, from which
maintenance fees are derived. Because maintenance fees are implicit in certain
new software product licenses, the increase in software licensing transactions
also contributed to the increase in maintenance revenues. In the first nine
months of 1998, PLATINUM's database management, systems management, application
lifecycle, and data warehousing and decision support business units represented
39%, 22%, 21% and 18%, respectively, of total maintenance revenues.

Professional Services. Professional services revenues for the first nine
months of 1998 were $185,043,000, an increase of $51,439,000, or 39%, as
compared to $133,604,000 for the same period in 1997. The growth in
professional services revenues during the first nine months of 1998 was
primarily attributable to

75
<PAGE>

an increase in billable consultants, as well as a higher ratio of billable
hours to total hours worked. To a lesser extent, increases in rates charged per
billable hour, as well as revenues associated with recently acquired consulting
businesses, contributed to this growth. For the first nine months of 1998,
educational program revenues increased slightly over the first nine months of
1997.

Costs and Expenses

Total expenses for the first nine months of 1998 were $683,611,000, an
increase of $96,919,000, or 17%, as compared to $586,692,000 for the same
period in 1997. Excluding restructuring charges, merger costs, acquired in-
process technology charges and special general and administrative charges
(collectively, "Special Charges"), total expenses for the first nine months of
1998 of $611,031,000 represented an increase of $114,785,000, or 23%, as
compared to $496,246,000 for the same prior-year period. Total expenses,
excluding Special Charges, represented 94% of total revenues for the first nine
months of 1998, as compared to 100% for the same periods in 1997.

Professional Services. Costs of professional services for the first nine
months of 1998 were $166,529,000, an increase of $44,510,000, or 36%, as
compared to $122,019,000 for the first nine months of 1997. The increase in
professional services expenses in the first nine months of 1998, as compared to
the same period in 1997, was primarily attributable to an increase in the
number of consultants resulting from PLATINUM's continued hiring to support
this business, as well as recent acquisitions. Greater commission and bonus
expenses associated with higher professional services revenues during this
period also contributed to the increase. Professional services expenses
represented 90% of professional services revenues for first nine months of
1998, as compared to 91% for the same periods in 1997.

Product Development and Support. Product development and support expenses
for the first nine months of 1998 were $178,018,000, an increase of
$27,579,000, or 18%, as compared to $150,439,000 for the same period in 1997.
The increase in these expenses during the first nine months of 1998, as
compared to the same period in 1997, was primarily attributable to higher
employee-related expenses and internal information technology support costs
associated with expanded product offerings and recent acquisitions of
businesses and technologies. Additionally, PLATINUM incurred higher performance
bonus expenses during this period. Product development and support expenses
represented 27% of total revenues in the first nine months of 1998, as compared
to 30% for the same period in 1997. The decrease in product development and
support expenses as a percentage of total revenues for the first nine months of
1998 resulted from PLATINUM's continued cost containment efforts and the
spreading of facility-related and other fixed costs over a greater revenue
base.

For the first nine months of 1998 and 1997, PLATINUM capitalized $39,009,000
and $28,791,000, respectively, of software development costs, net of related
amortization expense, in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed."

Sales and Marketing. Sales and marketing expenses for the first nine months
of 1998 were $217,054,000, an increase of $32,249,000, or 17%, as compared to
$184,805,000 for the first nine months of 1997. The increase in these expenses
during the first nine months of 1998, as compared to the same prior-year
period, was primarily attributable to costs associated with the significant
expansion of the domestic and international outside sales forces, as well as
higher commission and bonus expenses related to the increase in software
products revenues. Sales and marketing expenses represented 33% of total
revenues in the first nine months of 1998 as compared to 37% for the same
period in 1997. The decrease in sales and marketing expenses as a percentage of
total revenues during the first nine months of 1998, as compared to the same
period in 1997, was attributable in part to the spreading of facility-related
and other fixed costs over a greater revenue base. Additionally, commission
expenses represented a lower percentage of total revenues in the first nine
months of 1998, because PLATINUM had greater revenues associated with software
licensing transactions in the third quarter of 1998 that were not attributable
to PLATINUM's direct sales force.

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<PAGE>

General and Administrative. General and administrative expenses for the
first nine months of 1998 were $49,430,000, an increase of $10,447,000, or 27%,
as compared to $38,983,000 for the first nine months in 1997. The increase for
the first nine months of 1998 was attributable primarily to higher employee-
related expenses resulting from recent acquisitions. Additionally, in the first
nine months of 1998, PLATINUM incurred higher legal expenses related to certain
on-going legal proceedings, as well as greater amortization expense of excess
of cost over net assets acquired and greater amortization expense of intangible
assets relating to PLATINUM's convertible debt offering executed in December
1997. General and administrative expenses represented 8% of total revenues for
the first nine months of 1998 as compared to 8% for the first nine months of
1997. See "--Liquidity and Capital Resources."

Special General and Administrative Charges. Special general and
administrative charges for write-offs of certain assets in connection with
integration procedures were $6,525,000 for the first nine months of 1998, as
compared to $13,513,000 for the first nine months of 1997. In the second
quarter of 1997, PLATINUM performed integration procedures related to past
acquisition activity in conjunction with, but not specifically as part of, the
restructuring plan executed during that period. Accordingly, PLATINUM 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. PLATINUM also expensed severance and other employee
benefits for certain employees of acquired companies who were terminated as a
result of the integration efforts. PLATINUM recorded total charges of
$13,513,000 in the quarter ended June 30, 1997 in connection with the
integration procedures discussed above. In the third quarter of 1998, the
company re-evaluated the fair value of certain assets acquired from prior
acquisitions in conjunction with the integration procedures initiated in the
second quarter of 1997. Specific assets were deemed to have no future value as
of September 30, 1998 were written off during the third quarter of 1998.

Restructuring Charges. During the third quarter of 1998, PLATINUM recognized
a restructuring benefit of $6,525,000 related to PLATINUM's occupation of
previously vacated facilities and the relief of obligations under cancelled
lease agreements, as well as sublease rental activity. This restructuring
benefit represents a recovery of certain restructuring charges recorded by
PLATINUM in the second quarter of 1997, as discussed below.

During the second quarter of 1997, PLATINUM 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 acquired businesses.
PLATINUM 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, PLATINUM 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.

PLATINUM 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: $24,032,000 for facility-related costs, including a reserve for
estimated lease obligations associated with the closing of office facilities;
$3,510,000 for write-offs of excess equipment, furniture and fixtures;
$19,413,000 for write-offs of capitalized software costs and other intangible
assets related to the termination of development efforts for certain
discontinued products, as well as penalties for the cancellation of
distributorship agreements for such products; and $10,364,000 for severance and
other employee-related costs of terminated staff.

During the first nine months of 1997, Learmonth and Burchett recorded a
restructuring benefit of $1,256,000 related to sublease rental activity. This
benefit was offset against PLATINUM's restructuring charge discussed above.

77
<PAGE>

As of September 30, 1998, PLATINUM had $14,224,000 of accrued restructuring
costs recorded. PLATINUM anticipates that approximately $2,500,000 of these
costs will be paid out during the last quarter of 1998. PLATINUM estimates that
annual restructuring payments will range from approximately $1,700,000 to
approximately $2,000,000 for the years 1999 through 2002 and will be
approximately $1,000,000 for the year 2003. PLATINUM expects to pay out
approximately $300,000 annually in the years 2004 through 2014.

Merger Costs. PLATINUM incurred merger costs of $39,965,000 and $3,706,000
during the first nine months of 1998 and 1997, respectively. Merger costs
relate to acquisitions accounted for as poolings of interests and include
investment banking and other professional fees, employee severance payments,
costs of closing excess office facilities and various other expenses. The
significant merger costs incurred in the first nine months of 1998 related
primarily to PLATINUM's acquisitions of Mastering, Learmonth and Burchett and
Logic Works. PLATINUM from time to time engages in discussions relating to
acquisitions that may be material in size and/or scope and may involve
issuances by PLATINUM of a significant number of shares of PLATINUM common
stock. PLATINUM continues to pursue merger and acquisition opportunities,
because it believes that acquisitions are an essential part of PLATINUM's
strategy to compete effectively in its rapidly evolving marketplace. PLATINUM
expects to incur 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, which will reduce operating and net
income for these periods. See "--Recent Developments."

Acquired In-Process Technology. Acquired in-process technology costs were
$32,615,000 and $17,164,000 for the first nine months of 1998 and 1997,
respectively. These acquired in-process technology charges related to
acquisitions of software companies and product technologies accounted for under
the purchase method. In these cases, portions of the purchase prices were
allocated to acquired in-process technology.

In June 1998, PLATINUM acquired network monitoring technology from Geneva
Software Inc. A portion of the purchase price was attributed to acquired in-
process technology, as the development work associated with the project had not
reached technological feasibility and is believed to have no alternative future
use other than as a network monitoring device. The in-process technology
involved new major monitoring capabilities for hubs, routers and switches along
with several performance capabilities.

PLATINUM carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows were projected over five
years and discounted to present value using a discount rate of approximately
20%. PLATINUM believes the discount rate is appropriate given the level of risk
of unsuccessful completion of the technology considering it was estimated to be
73% complete as of the acquisition date. PLATINUM anticipates incurring
approximately $1,000,000 of additional research and development costs over a
short time frame with an anticipated completion date of June 1999. In
projecting the future revenue streams from the project, PLATINUM considered
many factors including competition, network management growth estimates, time
to market, and additional sales and marketing leverage, as well as the impact
of larger transactions upon global enterprises to which Geneva Software was not
accustomed.

In June 1998, PLATINUM acquired mainframe asset management and cost modeling
capabilities from Systems Management Solutions, Inc. A portion of the purchase
price was attributed to acquired in-process technology, as the development work
associated with the project had not reached technological feasibility and is
believed to have no alternative future use other than for asset management and
cost modeling. The in-process technology involved implementing the mainframe
technology design onto additional mid range platforms such as UNIX and NT.

78
<PAGE>

research and development costs. In projecting the future revenue streams from
the project, PLATINUM considered many factors including competition, asset
management growth estimates, time to market and additional sales and marketing
leverage, as well as the impact of larger transactions upon global enterprises
to which Systems Management Solutions was not accustomed.

In June 1998, PLATINUM acquired modeling technologies from ICON Computing,
Inc. A portion of the purchase price was attributed to acquired in-process
technology, as the development work associated with the projects had not
reached technological feasibility and were believed to have no alternative
future use other than as modeling tools.

PLATINUM carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows were projected over five
years discounted to present value using a discount rate of 20%. PLATINUM
believes the discount rate is appropriate given the level of risk of
unsuccessful completion of the technologies as they were estimated to be over
fifty percent complete as of the acquisition date. PLATINUM anticipates
incurring approximately $1,200,000 of additional research and development costs
over a short time frame with an anticipated completion date of December 1999.
In projecting the future revenue streams from the project, PLATINUM considered
many factors including competition, market growth estimates, time to market and
additional sales and marketing leverage, as well as the impact of larger
transactions upon global enterprises to which ICON was not accustomed.

During the first nine months of 1998, PLATINUM also acquired certain other
software businesses and product technologies. Portions of the purchase prices
were attributed to acquired in-process technology, as the development work
associated with the projects had not reached technological feasibility and were
believed to have no alternative future use. PLATINUM anticipates incurring
approximately $6,000,000 of additional research and development costs over a
short time frame and expects these projects to be completed within the next 12-
18 months.

The following summary presents information concerning the purchase price
allocations for the acquisitions accounted for under the purchase method for
the nine months ended September 30, 1998.

<TABLE>
<CAPTION>
Acquired
Purchased In-process Purchase
Company Name Software Technology Goodwill Other Price (1)
------------ --------- ---------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Geneva Software.................. $1,303 $18,816 $2,165 $(276) $22,008
SMS.............................. 327 4,379 826 207 5,739
ICON............................. -- 5,300 630 150 6,080
Brazil Acquisitions.............. -- -- 4,592 33 4,625
Others........................... 2,274 4,120 95 (757) 5,732
------ ------- ------ ----- -------
$3,904 $32,615 $8,308 $(643) $44,184
====== ======= ====== ===== =======
</TABLE>
- --------
(1) Purchase price includes costs associated with the acquisition.

The forecasts used in valuing the acquired in-process technologies were
based upon assumptions PLATINUM believed to be reasonable but which were
inherently uncertain and unpredictable. For this reason, actual results may
vary from projected results. PLATINUM did not assume in its valuation model any
material change in its profit margins or any material increases in selling,
general administrative expenses as a result of the acquisitions.

Without successful completion of the remaining research and development
efforts on the acquired in-process technologies including integration with
PLATINUM's existing products, the end result would be to fail to fulfill the
products' design specifications and, in turn fail to meet market requirements.
As a result, PLATINUM would not realize the future revenues and profits
attributed to the acquired in-process research and development. Ultimately,
PLATINUM would fail to realize the expected return on such investments.

79
<PAGE>

PLATINUM has not planned any significant expense reductions nor synergies as a
result of the acquisitions and thus does not believe that failure to achieve
the projected results from the acquired in-process technologies will have a
material impact on PLATINUM as a whole.

PLATINUM believes that it will complete the projects in a timely manner and
within original cost estimates. Significant efforts are necessary to develop
the acquired in-process technology into commercially viable products,
principally related to the completion of all designing, prototyping, coding,
scalability verification and testing activities that are required to establish
that the proposed technologies would meet their design specifications. The
acquired in-process technology projects are expected to begin to result in
material positive cash flows in 12-24 months subsequent to their completion,
assuming their successful completion.

PLATINUM has reviewed its projections of revenues and estimated costs of
completion for acquisitions involving acquired-in-process R&D consummated from
1993 through 1997. PLATINUM has compared these projections with actual revenues
and costs and determined that, in aggregate, the average margin of error
between the estimated and actual results was 5-10%.

PLATINUM 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. See
"--Recent Developments."

Operating Income (Loss)

PLATINUM incurred an operating loss of $30,132,000 and $90,510,000 in the
first nine months of 1998 and 1997, respectively. PLATINUM had operating
margins of (5)% in the first nine months of 1998 as compared to operating
margins of (18)% for the same period in 1997. Excluding Special Charges,
PLATINUM had operating income of $42,448,000 for first nine months of 1998 as
compared to an operating loss of $64,000 for the first nine months of 1997.
Excluding Special Charges, PLATINUM had operating margins of 7% for the first
nine months of 1998 as compared to a negative operating margin of less than one
percent for the same period in 1997.

Other Income, Net

Other income, net, for the first nine months of 1998 was $11,729,000, a
decrease of $2,992,000, or 20%, as compared to $14,721,000 for the first nine
months of 1997. The decrease in other income, net, during the first nine months
of 1998, as compared to the first nine months of 1997, was primarily
attributable to a decrease in unrealized holding gains on trading securities
and the increase in interest expense resulting from PLATINUM's issuance of
convertible subordinated notes in December 1997. See "--Liquidity and Capital
Resources." This decrease was partially offset by an increase in realized gains
on sales of investment securities, as well as the increase in interest income
due to higher cash and investment balances during the first nine months of
1998, as compared to the same period in 1997. 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.
When these securities are ultimately sold, PLATINUM reclassifies the respective
unrealized holding gains to realized gains. During the third quarter of 1998,
PLATINUM reclassified its investment in Memco from trading securities to
available-for-sale securities. This reclassification resulted from PLATINUM's
execution on August 13, 1998 of an agreement to acquire Memco. PLATINUM's
holdings in Memco represented a substantial majority of its trading securities
portfolio. See "--Recent Developments."

Income Taxes

PLATINUM's effective tax rate for first nine months of 1998, excluding the
Federal tax effect of Special Charges, was 31%. This compares to effective tax
rate, excluding the Federal tax effect of Special Charges, of 27% for the same
period in 1997. PLATINUM reported income tax expense of $16,754,000, on a pre-
tax loss

80
<PAGE>

of $18,403,000, for the first nine months of 1998, as compared to income tax
expense of $9,032,000, on a pre-tax loss of $75,789,000, for the first nine
months of 1997. For the nine months ended September 30, 1997, PLATINUM's total
income tax expense included an additional $5,070,000 to reduce the deferred tax
asset balance.

Net Loss

For the reasons discussed above, PLATINUM incurred a net loss of $35,157,000
and $85,846,000 for the first nine months of 1998 and 1997, respectively.
During the first nine months of both 1998 and 1997, PLATINUM incurred Special
Charges, as well as expenses related to the integration of acquired businesses,
which had a significant impact on PLATINUM's net losses for the nine-month
periods ended September 30, 1998 and 1997. Because acquisitions remain an
integral part of PLATINUM's growth strategy, PLATINUM expects to continue to
incur acquisition-related Special Charges, as well as expenses related to the
integration of acquired businesses, in future periods, which would materially
adversely affect operating results in the periods in which such acquisitions
are consummated and in subsequent periods. See "--Recent Developments."

Liquidity and Capital Resources

As of September 30, 1998, PLATINUM held approximately $283,666,000 of cash,
cash equivalents and investments, as compared to $358,204,000 as of December
31, 1997.

For the nine months ended September 30, 1998, cash and cash equivalents
decreased $122,215,000, from $233,024,000 at the beginning of the period to
$110,809,000 at the end of the period. This decrease was primarily attributable
to cash used in investing activities of $190,468,000. The principal components
of investing activities were purchases of investments, net of maturities and
sales, of $66,730,000; purchased and developed software costs of $60,489,000;
and payments for acquisitions of $36,050,000. The cash used in investing
activities was partially offset by cash provided by financing and operating
activities of $50,619,000 and $18,019,000, respectively. Cash flows from
operating activities for the first nine months of 1998 included proceeds from
sales of trading securities of $13,918,000. For the first nine months of 1997,
cash and cash equivalents decreased $61,793,000, from $178,661,000 at the
beginning of the period to $116,868,000 at the end of the period. Cash used in
investing activities of $75,323,000 was partially offset by cash provided by
financing and operating activities of $10,614,000 and $2,662,000, respectively.

In recent years, PLATINUM's sources of liquidity have primarily been funds
from capital markets and sales of installment receivables. PLATINUM believes
the funding available to it from these sources, as well as cash flows from
operations, will be sufficient to satisfy its working capital and debt service
requirements for the foreseeable future. PLATINUM'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 PLATINUM's strategic opportunities, developments
in PLATINUM's markets, the timing of closing and integrating acquisitions and
the condition of financial markets.

PLATINUM had trade and installment accounts receivable, net of allowances,
of $346,857,000 and $279,919,000 at September 30, 1998 and December 31, 1997,
respectively. PLATINUM sells software products and services to customers in
diversified industries and geographic regions and, therefore, has no
significant concentration of credit risk. Historically, a majority of
PLATINUM'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.

Installment receivables represent amounts collectible on long-term financing
arrangements and include fees for product licenses, future upgrades and
maintenance, sometimes also bundled with professional services

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<PAGE>

contracts. Installment receivables are generally financed over three to five
years, with interest payable on the license and upgrade portions only.
PLATINUM's installment receivables are recorded net of unamortized discounts
and deferred maintenance fees.

PLATINUM sells a significant portion of its installment receivables to third
parties. When these receivables are sold, PLATINUM reduces the gross
installment receivable balance. Additionally, PLATINUM 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.

PLATINUM has continued to execute an increasingly greater number and higher
dollar value of sales transactions having long-term financing arrangements.
Consequently, PLATINUM's volume of installment receivable sales has continued
to increase since 1995. PLATINUM receives proceeds equal to the entire
installment receivable balance sold to a third party finance company, net of an
amount representing the interest to be earned by the finance company. The
finance company collects customer remittances over the term of the agreement.
Proceeds from the sale of installment receivables were approximately
$63,000,000 and $193,000,000 for the third quarter and first nine months of
1998, respectively, as compared to $52,000,000 and $145,000,000 for the same
periods in 1997. The proceeds received in the first nine months of 1998 related
to transactions for which a substantial portion of the associated revenues were
recognized in the first nine months of 1998 and prior periods, while the
remaining portion related to deferred maintenance and services revenues.
PLATINUM also recognized deferred maintenance and services revenues in the
first nine months of 1998 for which PLATINUM had previously received proceeds
from sales of the related installment receivables.

There were no accounts receivable sold with specific recourse during the
first nine months of 1998 or 1997, and as of September 30, 1998, there were no
remaining potential recourse obligations for accounts receivable sold with
specific recourse. However, PLATINUM has an agreement with a third party that
provides for potential recourse obligations in the form of a loss pool based on
the performance of the related accounts receivable portfolio. Under the terms
of that agreement, potential recourse obligations at September 30, 1998 were
approximately $18,800,000. Based on the credit ratings of the underlying
obligors to the accounts receivable and the performance history of the accounts
receivable portfolio, PLATINUM has assessed the exposure related to these
recourse obligations and does not expect the potential liability to have a
material adverse effect on PLATINUM's future results of operations.

PLATINUM had long-term acquisition-related payables of $8,044,000 and
$18,320,000 and other long-term obligations of $268,668,000 and $267,239,000 as
of September 30, 1998 and December 31, 1997, respectively. The convertible
subordinated notes issued by PLATINUM in November 1996 and December 1997
constituted the majority of the balances in long-term obligations at September
30, 1998 and December 31, 1997.

PLATINUM completed an offering of convertible subordinated notes due
December 15, 2002 in December 1997. The 1997 notes bear interest at 6.25%
annually, and the holders of the 1997 notes have the option to convert them
into shares of PLATINUM common stock, at any time prior to maturity, at a
conversion price of $36.05 per share. The 1997 notes are redeemable at the
option of PLATINUM, in whole or in part, at any time during the 12-month period
commencing December 15, 2000 at 102.5% of their principal amount and PLATINUM
received proceeds, net of issuance costs, of $144,967,000 from the offering of
the 1997 notes.

PLATINUM completed an offering of convertible subordinated notes due
November 15, 2001 in November 1996. The 1996 notes bear interest at 6.75%
annually, and the holders of the 1996 notes have the option to convert them
into shares of PLATINUM common stock, at any time prior to maturity, at a
conversion price of $13.95 per share. The 1996 notes are redeemable at the
option of PLATINUM, in whole or in part, at any time during the 12-month period
commencing November 15, 1999 at 102.7% of their principal amount and during the
12-month period commencing November 15, 2000 at 101.35% of their principal
amount. PLATINUM received proceeds, net of issuance costs, of $110,783,000 from
the offering of the 1996 notes.

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<PAGE>

PLATINUM currently has total debt service obligations of approximately
$35,000,000 for 1998, consisting primarily of obligations to pay interest on
the 1996 notes and the 1997 notes, as well as acquisition-related payables.
Based on current outstanding indebtedness, PLATINUM estimates its debt service
requirements to be approximately $36,000,000, $18,000,000, $132,000,000 and
$160,000,000 for 1999, 2000, 2001 and 2002, respectively. These amounts include
the outstanding principal balance of the 1996 notes in 2001 and the outstanding
principal balance of the 1997 notes in 2002.

PLATINUM currently has an unsecured bank line of credit of $55,000,000 with
American National Bank and Trust Company of Chicago, under which borrowings
bear interest at rates ranging from approximately LIBOR plus 1% to the bank's
prime rate. As of November 11, 1998, PLATINUM had no outstanding borrowings
under this line of credit, but had aggregate letters of credit outstanding for
approximately $4,436,000, with expiration dates ranging from February 1999 to
December 1999. These letters of credit reduce the balance available under this
line of credit. Under the credit agreement, PLATINUM has agreed to:

. maintain a ratio of current assets to current liabilities of at least
1.0 to 1.0;

. maintain a tangible net worth of not less than $100,000,000; and

. maintain a ratio of total liabilities to tangible net worth of not more
than 1.0 to 1.0.

Additionally, PLATINUM has a line of credit with Fuji Bank for approximately
$2,152,000, based upon current exchange rates, under which borrowings bear
interest at a rate of 2.125%. As of November 11, 1998, PLATINUM had outstanding
borrowings of approximately $1,333,000 under this line of credit.

Recent Developments

On October 2, 1998, PLATINUM acquired the business and certain assets of
OpenDirectory Pty Limited and OpenDirectory Inc., together a leading provider
of enterprise-wide directory service and software solutions, for approximately
$20,000,000. PLATINUM may be required to make additional payments of up to
$15,000,000 over a period of less than two years, contingent upon the operating
results of OpenDirectory during this period. This acquisition will be accounted
for under the purchase method, and a portion of the purchase price will be
charged to acquired in-process technology in the fourth quarter of 1998.

On January 14, 1999, PLATINUM announced that it expected revenues for the
fourth quarter to be approximately $315 million, including approximately $200
million of new license revenue. This will bring revenues to approximately $970
million for the year ended December 31, 1998. Earnings before Special Charges
are estimated to be approximately $0.40 per share. This will bring earnings
before Special Charges to an estimated $0.82 per share for the year ended
December 31, 1998, as compared to $0.56 per share for 1997, an increase of more
than 45 percent. Earnings per share will be lower than analyst expectations for
the fourth quarter of 1998 primarily due to shortfalls in the Global Consulting
Organization. Final results for 1998 are subject to completion of PLATINUM's
year-end audit.

Product revenue grew more than 30 percent for the year, exceeding consensus
analyst expectations. Overall profitability also grew, with estimated operating
margins increasing to approximately 10 percent for 1998 versus 6 percent in
1997. Net income before Special Charges is expected to be approximately $75
million for 1998, a 60 percent increase over 1997. The fourth quarter services
shortfall was due to poor performance in Germany and the United Kingdom, lower
than anticipated demand for PLATINUM'S training offerings and flat growth in
Year 2000 services.

On January 27, 1999, PLATINUM announced a suspension of any new acquisition
activity, for at least the next six months, to focus solely on strengthening
its core operations.

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<PAGE>

Year Ended December 31, 1997 Compared with Year Ended December 31, 1996 and
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

The following is based on text included in PLATINUM's Form 8-K filed in respect
of the year ended December 31, 1997 and speaks as of that date.

Results Of Operations

The table below sets forth for the periods indicated: (1) line items from
PLATINUM's consolidated statements of operations expressed as a percentage of
revenues; and (2) the percentage changes in these line items from the prior
period.

<TABLE>
<CAPTION>
Percentage of Year-to-Year
Total Revenues Percentage Change
------------------ -----------------
Years Ended
December 31, 1997 1996
------------------ Compared Compared
1997 1996 1995 to 1996 to 1995
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software products.................... 56% 52% 52% 42% 38%
Maintenance.......................... 19 21 22 22 29
Professional services................ 25 27 27 26 35
--- --- ---
Total revenues..................... 100 100 100 34 36
--- --- ---
Costs and expenses:
Professional services................ 23 26 27 17 30
Product development and support...... 28 31 26 20 58
Sales and marketing.................. 36 39 37 21 43
General and administrative........... 9 9 11 41 16
Restructuring charges................ 8 3 -- 242 *
Merger costs......................... 1 1 8 54 (82)
Acquired in-process technology....... 9 9 22 37 (44)
--- --- ---
Total costs and expenses........... 114 118 131 28 23
--- --- ---
Operating loss......................... (14) (18) (31) ** (19)
Other income, net...................... 3 1 1 154 75
--- --- ---
Loss from continuing operations before
income taxes.......................... (11) (17) (30) (13) (23)
Income taxes........................... 3 (2) (3) * (10)
--- --- ---
Net loss from continuing operations.... (14) (15) (27) 25 (24)
Loss from discontinued operations, net
of taxes.............................. ** (1) (1) (49) 5
Gain (loss) on disposal, net of taxes.. ** ** ** 321 *
--- --- ---
Net loss............................... (14)% (16)% (28)% 22% (24)%
=== === ===
</TABLE>
- --------
*Not meaningful.
**Less than 1%.

Revenues

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<PAGE>

revenues for 1997 were $738,880,000, an increase of $185,396,000, or 34%, over
1996 total revenues of $553,484,000. Total revenues in 1996 increased
$145,059,000, or 36%, over 1995 revenues of $408,425,000.

PLATINUM has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in 1997, 1996 or
1995. PLATINUM estimates that sales to repeat customers represented over 90% of
its revenues generated in 1997.

Revenues from domestic (U.S.) customers represented 74%, 72% and 69% of
PLATINUM's total revenues in 1997, 1996 and 1995, respectively. Domestic
revenues are generated primarily by PLATINUM's direct sales force, which visits
customer sites to assist with trials, demonstrate product features and 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, PLATINUM has
organized its domestic direct sales force by regions throughout the United
States. PLATINUM formerly combined the domestic and Canadian sales forces to
represent the North American sales force. The Canadian sales team is now part
of PLATINUM's international sales force.

Revenues from international customers, principally in Western Europe,
represented 26%, 28% and 31% of PLATINUM's total revenues in 1997, 1996 and
1995, respectively. PLATINUM generates the majority of its international
revenues through a network of wholly-owned subsidiaries, primarily utilizing a
direct sales force. Over the past two years, PLATINUM has invested
significantly in the global marketplace, increasing its focus on international
sales efforts and expanding its international operations.

The table below sets forth, for the periods indicated, PLATINUM's primary
sources of revenues expressed as a percentage of total revenues.

<TABLE>
<CAPTION>
Percentage of
Total Revenues
----------------
Years Ended
December 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Software products:
Licenses............................................ 42% 41% 49%
Upgrades............................................ 14 11 2
--- --- ---
Total software products........................... 56 52 51
--- --- ---
Maintenance........................................... 19 21 22
Professional services................................. 25 27 27
--- --- ---
Total revenues.................................... 100% 100% 100%
=== === ===
</TABLE>

Software Products. Software products revenues represented 56%, 52% and 51%
of total revenues in 1997, 1996 and 1995, respectively. In 1997, software
products revenues increased 42% to $410,369,000 from $289,125,000 in 1996, as a
result of increases of 56%, 51%, 13% and 45%, respectively, experienced by
PLATINUM's database management, systems management, application infrastructure
management, and data warehousing and decision support business units. From 1995
to 1996, software product revenues increased 38% from $208,929,000. PLATINUM
believes the growth in software products revenues over the past three years has
resulted from the continued marketplace acceptance of PLATINUM's products
across all business units and PLATINUM's aggressive expansion of its sales and
marketing efforts. PLATINUM has continuously increased its product offerings
over the past three years, in part through the acquisitions of businesses and
technologies, which also contributed to the growth in software products
revenues. The substantial majority of the increases in software products
revenues in 1997 and 1996 resulted from increases in the volume of sales of
existing products. A smaller, but still significant, portion of the increases
related to sales of newly introduced products, while only a small percentage
was attributable to price increases. During 1996 and 1997, PLATINUM expanded
its customer base, increased sales of product bundles and integrated product
suites, and executed increasingly larger sales transactions. Additionally,
TransCentury, PLATINUM's Year 2000 product suite,

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<PAGE>

which was first introduced in the third quarter of 1996, contributed
significantly to the growth in revenues of the data warehousing and decision
support business unit during 1997. PLATINUM's database management, principally
products relating to IBM's DB2 relational database management software, systems
management, application infrastructure management and data warehousing and
decision support business units represented 37%, 26%, 20% and 17%,
respectively, of total software products revenues in 1997; 34%, 24%, 25% and
17%, respectively, of total software products revenues in 1996; and 29%, 22%,
32% and 17%, respectively, of total software products revenues in 1995.

Maintenance. Maintenance revenues in 1997 increased 22% over 1996 to
$139,912,000, and 1996 maintenance revenues of $114,579,000 represented an
increase of 29% over 1995 maintenance revenues of $88,602,000. 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. PLATINUM 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 1997 and 1996 were
primarily attributable to the expansion of PLATINUM's installed customer base,
from which maintenance fees are derived. Because maintenance fees are implicit
in certain new software product licenses, the increase in software licensing
transactions also contributed to the increase in maintenance revenues. In 1997,
PLATINUM's database management, systems management, application infrastructure
management, and data warehousing and decision support business units
represented 41%, 20%, 22% and 17%, respectively, of total maintenance revenues.

Professional Services. Professional services revenues are associated with
PLATINUM's consulting services business and educational programs. In 1997,
professional services revenues increased 26% over 1996 to $188,599,000 from
$149,780,000. From 1995 to 1996, professional services revenues increased 35%
from $110,894,000. The growth in professional services revenues during 1997 was
primarily attributable to an increase in billable consultants, as well as a
higher ratio of billable hours to total hours worked. To a much lesser extent,
increases in rates charged per billable hour contributed to this growth.
Additionally, the revenues generated by PLATINUM's new specialty consulting
services practices, established near the end of 1996, contributed to the
increase in professional services revenues during 1997. The increase in
professional services revenues during 1996 was primarily due to the addition of
established consulting practices through various acquisitions, as well as the
growth experienced within these acquired businesses.

Costs and Expenses

Total expenses for 1997 were $841,021,000, an increase of 28% over 1996
expenses of $655,093,000, which represented an increase of 23% over 1995
expenses of $534,288,000. Total expenses increased in 1997 due to greater
variable expenses related to higher revenue results, as well as increased
costs, including training and system-support expenses, associated with the
integration of recently acquired companies. Additionally, a restructuring
charge recorded in the second quarter of 1997 contributed to the increase in
total expenses. See "--Restructuring Charges." Excluding restructuring charges,
merger costs, acquired in-process technology charges and the integration-
related charges in 1997 discussed under "--General and Administrative," total
expenses for 1997 were $694,848,000 an increase of $111,300,000, or 19%,
compared to $583,548,000 for 1996. Total expenses, excluding merger costs and
acquired in-process technology charges, increased 41% in 1996 as compared to
$414,508,000 in 1995. Total expenses, excluding restructuring charges, merger
costs, acquired in-process technology charges and the integration-related
charges, represented 94%, 105% and 101% of total revenues for 1997, 1996 and
1995, respectively. As a percentage of total revenues, total expenses,
excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges, decreased in 1997, as compared to
1996, primarily due to overall cost containment efforts and the savings
realized from the restructuring plan.

During 1996 and 1995, PLATINUM incurred significant costs in supporting its
development laboratories and in building the infrastructure to support the
significantly larger combined company that resulted from

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<PAGE>

PLATINUM's acquisitions in those years. 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 information technology infrastructure systems issues and new
products, providing additional financial and technical support to the
international subsidiaries established in those years, translating product
materials into numerous foreign languages, and augmenting internal support
systems. Greater commission and bonus expenses associated with the increase in
revenues during 1996, as compared to 1995, also contributed to the increase in
total expenses in 1996.

Professional Services. Costs of professional services increased to
$170,851,000 in 1997, from $145,445,000 in 1996 and $111,658,000 in 1995. The
increases in these expenses during 1997 and 1996 were related to salaries and
other direct employment expenses resulting from PLATINUM's continued hiring to
support this business, as well as the costs incurred to integrate the numerous
consulting practices acquired over the past three years. Greater commission and
bonus expenses associated with higher professional services revenues in each
year also contributed to the increases. Costs of professional services
represented 91%, 97% and 101% of professional services revenues in 1997, 1996
and 1995, respectively. During 1997, as part of PLATINUM's overall
restructuring plan, PLATINUM realigned its professional services business
through the consolidation of redundant functions. The savings realized from the
restructuring plan, as well as the increased productivity of the consulting
staff, contributed to the decrease in professional services expenses as a
percentage of professional services revenues in 1997.

Product Development and Support. Product development and support expenses
increased to $203,499,000 in 1997, from $170,153,000 in 1996 and $107,739,000
in 1995. The increases in these expenses in 1997 and 1996 were primarily
attributable to an increase in the number of product development and support
personnel, excluding acquisitions executed in 1998, from approximately 1,215
persons at December 31, 1995 to approximately 1,400 persons at December 31,
1996 and approximately 1,625 persons at December 31, 1997, and to other higher
employee-related expenses associated with expanded product offerings in each
year, as well as continued product integration and internationalization efforts
in 1997 and, to a lesser extent, 1996; increased allocated charges for office
space and overhead; an increase in information technology costs to support the
expanded development efforts and product offerings; higher bonuses and royalty
expenses related to greater revenues; and higher travel expenses in 1997 and
1996 associated with PLATINUM's product integration efforts and expanded
product offerings. Product development and support expenses represented 28%,
31% and 26%, of total revenues in 1997, 1996 and 1995, respectively. During
1997, PLATINUM began consolidating certain product development and support
efforts to coincide with its product integration focus. As a result of these
consolidation efforts, PLATINUM reduced product development and support
expenses as a percentage of total revenues during 1997.

In 1997, 1996 and 1995, PLATINUM capitalized $41,143,000, $27,246,000 and
$13,591,000, respectively, of internal software development costs, net of
related amortization expense, in accordance with Statement of Financial
Accounting Standards 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 $244,642,000 in 1997, $197,399,000 in 1996 and
$121,330,000 in 1995, which amounted to 44%, 49% and 41%, respectively, of
software product and maintenance revenues for these years.

Sales and Marketing. Sales and marketing expenses increased to $263,989,000
in 1997, from $218,435,000 in 1996 and $152,384,000 in 1995. The increase in
sales and marketing expenses during 1997 was primarily attributable to the
significant expansion of the domestic and international outside sales force and
higher commission expenses relating to the increase in software products
revenues. During 1996, as compared to 1995, PLATINUM incurred higher commission
expenses associated with the increase in software products revenues and greater
marketing costs associated with PLATINUM's expanded product line. Sales and
marketing expenses represented 36%, 39% and 37% of total revenues in 1997, 1996
and 1995, respectively. During the second quarter of 1997, PLATINUM realigned
its inside sales force to be more compatible with its strategy of providing
complete information technology infrastructure solutions and to correspond with
the

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<PAGE>

restructuring plan. This realignment resulted in a significant reduction in the
inside sales force. PLATINUM also consolidated certain remote sales facilities.
Consequently, sales and marketing expenses as a percentage of total revenues
decreased during 1997. The increase in sales and marketing expenses as a
percentage of total revenues in 1996, as compared to 1995, was primarily
attributable to costs associated with the significant expansion of the domestic
and international outside and inside sales forces and the telemarketing
organization.

General and Administrative. General and administrative expenses increased to
$70,022,000 in 1997, from $49,515,000 in 1996 and $42,727,000 in 1995. General
and administrative expenses represented 9%, 9% and 11% of total revenues in
1997, 1996 and 1995, respectively. The increase in general and administrative
expenses during 1997 was primarily due 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, PLATINUM performed additional integration
procedures related to past acquisition activity. PLATINUM evaluated the fair
value of assets recorded through prior acquisitions and identified certain
trade receivables, prepaid expenses and intangible assets that had no future
value. The respective balances of these assets were written-off during the
second quarter of 1997. Additionally, PLATINUM 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 increase in general
and administrative expenses in 1997 was also attributable to the costs
associated with integrating recently acquired businesses and maintaining the
infrastructure to support the restructured company, including administrative
system upgrade expenses and associated consulting fees, as well as the
amortization of intangible assets relating to PLATINUM's convertible debt
offerings. See "--Liquidity and Capital Resources" below. Total general and
administrative expenses in 1997, excluding the charges related to the
integration efforts, were $56,509,000, representing 8% of total revenues.
PLATINUM believes the decrease in general and administrative expenses as a
percentage of total revenues, excluding the integration charges, was the result
of PLATINUM's overall cost containment efforts, as well as the savings realized
by the restructuring plan.

The increase in general and administrative expenses in 1996 was primarily
related to salaries and other direct employment expenses attributable to an
expanded administrative staff both in the U.S. and in international
subsidiaries, amortization of excess of cost over net assets acquired related
to PLATINUM's acquisitions accounted for as purchases, and increased
professional fees. During 1996, a concerted effort to consolidate redundant
administrative functions at PLATINUM's various domestic locations resulted in a
reduction in these expenses as a percentage of total revenues.

Restructuring Charges. In August 1996, PLATINUM's wholly-owned subsidiary,
Learmonth and Burchett, acquired as of May 12, 1998, executed a plan to
restructure its operations. During the second half of 1996, Learmonth and
Burchett recorded a restructuring charge of $14,109,000, net of $3,512,000 in
sublease rentals and recoveries from the sale of a product line. The
restructuring charge consisted primarily of abandoned lease costs, severance
and other personnel costs and write-offs of excess equipment and other assets.
During 1997, Learmonth and Burchett recorded a restructuring benefit of
$1,490,000 related to sublease rental activity. This benefit was offset against
PLATINUM's restructuring charge recorded in 1997, as discussed below. As of
December 31, 1997, Learmonth and Burchett had $6,764,000 of accrued
restructuring costs recorded.

In the fourth quarter of 1996, PLATINUM's wholly-owned subsidiary, Logic
Works, acquired as of May 28, 1998, implemented a restructuring plan to
streamline its operations by reducing its workforce, consolidating and
reorganizing certain operations and writing off certain fixed assets and other
impaired assets. The plan included the closing and moving of several offices
and the termination of approximately 25 employees across all departments. Logic
Works recorded a charge of $2,203,000 relating to this restructuring. As of
December 31, 1997, Logic Works had $247,000 of accrued restructuring costs
recorded.

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<PAGE>

elimination of redundant functions. These redundancies resulted primarily from
businesses acquired over the previous three years. PLATINUM 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, PLATINUM 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.

PLATINUM 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: $24,032,000 for facility-related costs, including a
reserve for estimated lease obligations associated with the closing of office
facilities; $3,510,000 for write-offs of excess equipment, furniture and
fixtures; $19,413,000 for write-offs of capitalized software costs and other
intangible assets related to the termination of development efforts for certain
discontinued products, as well as penalties for the cancellation of
distributorship agreements for such products; and $10,364,000 for severance and
other employee-related costs of the terminated staff. Of the $57,319,000
restructuring charge, PLATINUM paid out approximately $15,322,000 and wrote off
$19,687,000 of non-cash charges during 1997. Consequently, including the
Learmonth and Burchett and Logic Works restructuring costs described above,
PLATINUM had $29,321,000 of accrued restructuring costs recorded as of December
31, 1997. PLATINUM anticipates that approximately $7,000,000 of these costs
will be paid out during 1998. PLATINUM estimates that annual restructuring
payments will be approximately $4,000,000 to $4,500,000 for the years 1999
through 2002 and approximately $2,000,000 for the year 2003. PLATINUM expects
to pay out approximately $300,000 annually in the years 2004 through 2014
related to the Learmonth and Burchett restructuring plan.

PLATINUM currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in 1998 and subsequent years as a result
of the restructuring, without an adverse impact on revenues. However, there can
be no assurance as to the ultimate effects of the restructuring on PLATINUM's
operating results.

Merger Costs. Merger costs were $8,927,000, $5,782,000 and $31,287,000 in
1997, 1996 and 1995, respectively. Merger costs relate to acquisitions
accounted for as poolings of interests and include investment banking and other
professional fees, employee severance payments, costs of closing excess office
facilities and various other expenses. PLATINUM from time to time engages in,
and is currently engaged in, discussions relating to acquisitions that may be
material in size and/or scope and may involve issuances by PLATINUM of a
significant number of shares of PLATINUM common stock. PLATINUM continues to
pursue merger and acquisition opportunities, because it believes that
acquisitions are an essential part of PLATINUM's strategy to compete
effectively in its rapidly evolving marketplace. PLATINUM expects to incur
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. See "--Recent Developments."

Acquired In-Process Technology. Acquired in-process technology charges were
$67,904,000, $49,451,000 and $89,493,000 in 1997, 1996 and 1995, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method. In
these cases, portions of the purchase prices were allocated to acquired in-
process technology.

Prior to completing these acquisitions, PLATINUM 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 R&D represents
unique and emerging technologies, the application of which is limited to
PLATINUM's information technology infrastructure strategy. Accordingly, these
acquired technologies have no alternative future use. PLATINUM believes it has
budgeted adequate research and development resources to complete the
contemplated projects over time periods generally ranging from six to 18 months
from the dates of acquisition.

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<PAGE>

PLATINUM has already devoted substantial resources to the development of
products from R&D purchased in 1997. PLATINUM estimates that up to an
additional 12 months and approximately $9,000,000 in cash expenditures will be
required to develop commercially viable products from this acquired R&D. With
respect to R&D acquired prior to 1997, PLATINUM has either completed the
development of commercially viable products or discontinued the product
development efforts.

Operating Loss

For the reasons discussed above, PLATINUM incurred an operating loss of
$102,141,000 in 1997, as compared to an operating loss of $101,609,000 in 1996
and an operating loss of $125,863,000 in 1995. PLATINUM had operating margins
of (14)%, (18)% and (31)% in 1997, 1996 and 1995, respectively. The significant
restructuring charges, merger costs, acquired in-process technology charges and
integration-related charges incurred in these years contributed significantly
to the operating losses and negative operating margins experienced by PLATINUM.
Excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges in 1997 discussed under "--General
and Administrative," PLATINUM would have reported operating income of
$44,032,000 in 1997, an operating loss of $30,064,000 in 1996 and an operating
loss of $6,083,000 in 1995. Excluding such charges, PLATINUM would have
reported operating margins of 6%, (5)% and (1)% in 1997, 1996 and 1995,
respectively. During 1997, PLATINUM improved its operating margin, excluding
restructuring charges, merger costs, acquired in-process technology charges and
the integration-related charges, through cost containment efforts and the
savings realized from the restructuring plan. PLATINUM's operating margin,
excluding merger costs and acquired in-process technology charges, decreased in
1996, as compared to 1995, due primarily to the significant costs incurred to
integrate the numerous acquisitions consummated during 1996 and 1995. Because
acquisitions remain an important part of PLATINUM's growth strategy, PLATINUM
expects to continue to incur acquisition-related charges, as well as expenses
related to the integration of acquired businesses, which could materially
adversely affect operating results in the periods in which such acquisitions
are consummated and in subsequent periods.

Other Income

Other income was $20,497,000 in 1997 as compared to $8,075,000 in 1996 and
$4,623,000 in 1995. The increase in other income in 1997, as compared to 1996,
was primarily attributable to unrealized holding gains that resulted from the
reclassification of certain available-for-sale securities into the trading
classification; unrealized holding gains on trading securities, the market
values of which increased during 1997; and realized gains on the sales of
investment securities. The increase in other income during 1996, as compared to
1995, was primarily attributable to greater interest income related to higher
cash and investment balances during 1996, realized gains on the sales of
investment securities and unrealized holding gains on trading securities.
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 increase in other income during 1997,
as compared to 1996, was partially offset by interest expense on PLATINUM's
convertible subordinated notes issued in November 1996 and December 1997. To a
lesser extent, the interest expense on the convertible subordinated notes
issued in November 1996 reduced the increase in other income in 1996, as
compared to 1995. See "--Liquidity and Capital Resources."

Income Taxes

PLATINUM recognized income tax expense of $23,459,000 in 1997, and income
tax benefits of $9,752,000 in 1996 and $10,814,000 in 1995. The income tax
expense recorded in 1997 included an amount of

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$18,389,000 based on PLATINUM's 28% effective tax rate, plus an additional
$5,070,000 recorded in the second quarter of 1997 to reduce PLATINUM's deferred
tax asset balance. PLATINUM reduced its deferred tax asset balance so that it
would reflect an asset amount that will, more likely than not, be realized in
future periods.

PLATINUM has available approximately $308,900,000 of net operating loss
carryforwards and $14,600,000 of tax credit carryforwards, which are available
to reduce future Federal income taxes, if any, through the year 2012. Some of
PLATINUM's tax carryforwards are subject to limitations as to the amounts that
may be used in any particular future year.

Net Loss

For the reasons discussed above, PLATINUM incurred a net loss of
$106,128,000 in 1997, as compared to $87,194,000 in 1996 and $114,217,000 in
1995. The significant restructuring charges, merger costs and acquired in-
process technology charges incurred in these years contributed significantly to
the net losses experienced by PLATINUM. See "--Operating Loss."

Foreign Currency Exchange Rates

To date, fluctuations in foreign currency exchange rates have not had a
material effect on PLATINUM's results of operations or liquidity. However,
PLATINUM closely monitors its foreign operations and net asset position to
ascertain the need for hedging foreign currency exchange risk. Since 1997, the
only exposure related to foreign currency exchange for which PLATINUM has
considered hedging appropriate has been related to short-term intercompany
balances. These non-functional currency balances are hedged by purchases and
sales of forward exchange contracts to reduce this exchange rate exposure. At
September 30, 1998, PLATINUM held an aggregate of approximately $14,500,000 in
notional amount of forward exchange contracts. As PLATINUM's operations expand
in international regions outside Western Europe, where PLATINUM's international
operations are currently concentrated, PLATINUM may increasingly hedge foreign
currency exchange risk.

Year 2000 Considerations

Demand for PLATINUM's Products and Services

PLATINUM sells certain software products, and provides related consulting
services, which assist customers in solving their own Year 2000 problems. For
obvious reasons, the demand for these products has been created by the
impending arrival of the Year 2000. Demand for certain of PLATINUM's other
products may also be generated by customers who are replacing or upgrading
software to accommodate the Year 2000 date change. As a result, demand for some
of PLATINUM's products and services may diminish as the Year 2000 arrives,
which could negatively impact PLATINUM's revenue growth rate. Additionally,
because PLATINUM believes that some of its customers are allocating a
substantial portion of their 1998 and 1999 information technology budgets to
Year 2000 compliance, sales of certain of PLATINUM's traditional product
offerings may be adversely affected through the end of 1999.

Compliance of PLATINUM's Products

PLATINUM believes that substantially all of the products that it currently
sells or maintains are now Year 2000 compliant. These products have met
rigorous compliance criteria and have undergone extensive testing to detect any
Year 2000 failures. In general, these Year 2000 compliance efforts have been
part of PLATINUM's ongoing software development process, and PLATINUM estimates
that the associated incremental costs have totaled less than $15,000,000.
Despite these efforts, certain of PLATINUM's products may contain undetected
Year 2000 problems, and customers of PLATINUM who have discontinued maintenance
may be running old product versions that are not compliant.

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PLATINUM licenses a small percentage of the products that it sells from
third parties. Although these products have generally been warranted to
PLATINUM as Year 2000 compliant, they have generally not been subject to the
same extensive company testing as those products developed or acquired by
PLATINUM. PLATINUM has therefore initiated an aggressive effort to work with
its third party product suppliers to obtain a very high level of assurance of
Year 2000 compliance.

As discussed above, acquisitions are a critical part of PLATINUM's growth
strategy. Under certain circumstances, PLATINUM may decide to acquire software
products that are not currently Year 2000 compliant. There can be no assurance
that PLATINUM will be successful in bringing such products into compliance
prior to January 1, 2000, particularly any products acquired in late 1999.
PLATINUM is developing contingency plans to inform customers if any Year 2000
problems remain.

Because PLATINUM's products are typically used in high volume information
systems that are critical to its customers' operations, business interruptions,
loss or corruption of data or other major problems resulting from a failure of
a product to process data correctly could have significant adverse consequences
to its customers. Although PLATINUM believes that its software license
agreements provide it with substantial protection against liability, PLATINUM
cannot predict whether or to what extent any legal claims will be brought
against PLATINUM, or whether PLATINUM will otherwise be adversely affected, as
a result of any such adverse consequence to its customers. Similarly, PLATINUM
may face legal claims or suffer other adverse consequences as a result of any
information system failures of companies for which PLATINUM has provided
consulting services.

Internal Systems and Technical Infrastructure

PLATINUM has implemented a comprehensive program, with a dedicated project
manager, to address Year 2000 issues in PLATINUM's internal systems, including
information technology and non-information technology systems, and technical
infrastructure. As part of this program, PLATINUM is analyzing Year 2000
compliance with respect to the services, building systems and equipment at the
properties at which PLATINUM operates. It is also verifying that other third
parties upon which PLATINUM relies, including payroll and employee benefit-
related service providers and financial institutions, are or will be compliant.

PLATINUM believes that its Year 2000 internal systems and technical
infrastructure compliance program is approximately 75% complete and that the
remainder will be completed well in advance of January 1, 2000. This program
includes eight phases: (1) inventorying of all of PLATINUM's software and
hardware--completed; (2) identifying and testing all internal mission critical
business applications and correcting any Year 2000 problems in these
applications--expected to be completed by November 1998; (3) identifying the
interfaces from the mission critical business applications to third party
systems and confirming the compliance of these third party systems--all of
these systems are expected to be compliant by the first quarter of 1999; (4)
identifying critical vendors in purchasing and travel--vendor questionnaire
responses are now being reviewed; (5) informing PLATINUM's internal user
community about this Year 2000 program--an intranet site has been established
and is regularly updated; (6) educating PLATINUM's internal user community
about Year 2000 issues and monitoring user compliance--planned for November and
December of 1998; (7) identifying noncritical vendors and confirming their Year
2000 compliance--planned for the first quarter of 1999; (8) preparing
contingency plans for mission critical business applications, technical
infrastructure and critical vendors--planned for the fourth quarter of 1998 and
first quarter of 1999.

PLATINUM expects that it will not incur any significant incremental costs
for replacement or upgrading of systems that are not Year 2000 compliant, and
it estimates that total personnel expenses relating to PLATINUM's remediation
program will be approximately $2,000,000. Therefore, PLATINUM does not believe
that the costs associated with the program will have a material effect on
PLATINUM's financial condition or results of operations.

PLATINUM believes that, although its risk of operational disruption from
systems failures due to Year 2000 problems is minimal, PLATINUM could suffer
adverse consequences as a result of interruptions in

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electrical power, telecommunications or other critical third party
infrastructure services. In a worst case scenario, Company computer systems
could be rendered inoperable, and PLATINUM could be unable to develop or
support its products. PLATINUM is currently developing a specific contingency
plan to deal with these issues. This plan, which is expected to be completed by
May 1999, is expected to provide for relocation of employees and reliance on
Company owned electrical generators and cellular telephones. See "Risk
Factors--Risks Associated with the Year 2000."

Liquidity and Capital Resources

The Company's cash, cash equivalents and investments were $358,204,000 and
$256,623,000 as of December 31, 1997 and 1996, respectively. For the year ended
December 31, 1997, cash and cash equivalents increased $54,363,000, from
$178,661,000 at the beginning of the year to $233,024,000 at the end of the
year. This increase was attributable primarily to net proceeds of $144,967,000
from the sale of $150,000,000 principal amount of 6.25% convertible
subordinated notes due 2002 (the "1997 Notes") and net cash provided by
operating activities of $49,242,000. The positive cash flow from operating
activities was reduced by an increase in trade and installment receivables, net
of proceeds from the sale of installment receivables. Previously, the Company
reported trade and installment receivables on a gross basis and the sale of
installment receivables as a financing activity. Of the $211,729,000 of cash
provided by financing and operating activities, $156,292,000 was used in
investing activities. The principal components of investing activities were
purchases of marketable securities and the investment of resources in purchased
and developed software. For 1996, cash and cash equivalents increased from
$148,992,000 at the beginning of the year to $178,661,000 at the end of the
year, with the primary sources of cash being sales of installment receivables
and the net proceeds from the sale of $115,000,000 principal amount of 6.75%
convertible subordinated notes due 2001 (the "1996 Notes"). For 1995, cash and
cash equivalents increased from $86,979,000 at the beginning of the year to
$148,992,000 at the end of the year, with the principal source of cash being
the net proceeds from a public offering of Common Stock.

In recent years, the Company's sources of liquidity have primarily been
funds from capital markets and sales of installment receivables. The Company
believes the funding available to it from these sources, as well as cash flows
from operations, will be sufficient to satisfy its working capital and debt
service requirements for the foreseeable future. The Company's capital
requirements are primarily dependent on management's business plans 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 had trade and installment accounts receivable, net of
allowances, of $279,919,000 and $216,069,000 as of December 31, 1997 and 1996,
respectively. The Company sells software products and services to customers in
diversified industries and geographic regions and, therefore, has no
significant concentration of credit risk. Historically, a substantial amount of
the Company's revenues have been recorded in the third month of any given
quarter, with a concentration of such revenues in the last week of the third
month. This trend results in a high balance of accounts receivable relative to
reported revenues at the end of any quarterly reporting period.

The Company 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 to five years, with
interest payable on the license and upgrade portions only. Over the past two
years, the Company 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 increased
significantly over the past two year.

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The Company receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of an amount representing
the interest to be earned by the finance company. The finance company collects
customer remittances over the term of the agreement. Proceeds from the sale of
receivables were $206,916,000, $129,328,000 and $2,903,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accounts receivable sold with
recourse were $19,373,000 for the year ended December 31, 1996. There were no
accounts receivable sold with recourse for the year ended December 31, 1997,
and as of December 31, 1997, there were no remaining potential recourse
obligations for accounts receivable sold with recourse. The Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Under the terms of that agreement, potential recourse
obligations at December 31, 1997 were $14,632,000. Based on the credit ratings
of the underlying obligors to the accounts receivable and the performance
history of the accounts receivable portfolio, the Company has assessed the
exposure related to these recourse obligations and determined the potential
liability to be minimal.

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 $18,320,000 and
$2,502,000 and other long-term obligations of $267,239,000 and $117,198,000 as
of December 31, 1997 and 1996, respectively. The significant increase in long-
term obligations from December 31, 1996 to December 31, 1997 was attributable
to the 1997 Notes issued by the Company in December 1997. The 1997 Notes bear
interest at 6.25% annually and mature on December 15, 2002. The holders of the
1997 Notes have the option to convert them into shares of Common Stock, at any
time prior to maturity, at a conversion price of $36.05 per share. The Company
received proceeds, net of issuance costs, of $144,967,000 from the offering of
the 1997 Notes. The Company completed an offering of convertible subordinated
notes due November 15, 2001 in November 1996 (the "1996 Notes"). The 1996 Notes
bear interest at 6.75% annually and the holders of the 1996 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 the 1996
Notes. The Company currently has total debt service obligations of
approximately $35,000,000 for 1998, consisting primarily of obligations to pay
interest on the 1996 Notes and the 1997 Notes, as well as acquisition-related
payables. Based on current outstanding indebtedness, the Company estimates its
debt service requirements to be approximately $36,000,000, $18,000,000,
$132,000,000 and $160,000,000 for 1999, 2000, 2001 and 2002, respectively,
which amounts include the outstanding principal balance of the 1996 Notes in
2001 and the outstanding principal balance of the 1997 Notes in 2002.

The Company currently has unsecured bank lines of credit for an aggregate of
$57,500,000, under which borrowings bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate plus 0.75%. As of June 30,
1998, the Company had no outstanding borrowings under these lines of credit,
but had aggregate letters of credit outstanding for approximately $3,766,000,
with expiration dates ranging from December 1998 to September 1999. These
letters of credit reduce the balance available under its lines of credit. Under
the credit agreement, the Company has agreed: (i) to maintain a ratio of
current assets to current liabilities of at least 1.0 to 1.0; (ii) to maintain
a tangible net worth of not less than $100,000,000; and (iii) to maintain a
ratio of total liabilities to tangible net worth of not more than 1.0 to 1.0.

Recently Issued Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
PLATINUM is required to adopt Statement of Financial Accounting Standards No.
130 for periods beginning after December 15, 1997. This statement

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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
does not have a material impact on PLATINUM's current presentation of income.

In June 1997, the Financial Accounting Standards Board also issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." PLATINUM is required to adopt the
disclosures of Statement of Financial Accounting Standards No. 131 beginning
with its 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. PLATINUM is
currently evaluating the impact of this standard on its financial statements.

In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition." PLATINUM is
required to adopt Statement of Position 97-2 on January 1, 1998. Statement of
Position 97-2 is intended to reduce diversity in current revenue recognition
practices within the software industry. The statement does not have a material
effect on PLATINUM's operations.

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DESCRIPTION OF PLATINUM'S CAPITAL STOCK

The authorized capital stock of PLATINUM consists of 180,000,000 shares of
PLATINUM common stock and 10,000,000 shares of Class II preferred stock, $0.01
par value per share 1,800,000 shares of which, subject to adjustment upward or
downward by PLATINUM's board of directors, have been designated as Series A
Junior Participating preferred stock, and 1,775,000 of which, subject to
adjustment upward or downward in accordance with PLATINUM's restated
certificate of incorporation, as amended, have been designated as Series B
preferred stock. As of January 15, 1999, 86,858,000 shares of PLATINUM common
stock were issued and outstanding; 1,768,000 shares of Class II preferred stock
were issued and outstanding; no shares of Series A Junior Participating
preferred stock were issued and outstanding; and no shares of Series B
preferred stock were issued and outstanding. The following description is a
summary and is qualified by reference to the provisions of the PLATINUM
charter, the PLATINUM bylaws and the rights agreement, each of which are
available from the SEC and PLATINUM upon request.

Common Stock

Holders of PLATINUM 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 PLATINUM common stock represented at a meeting
can elect all of the directors to be elected at that meeting. Holders of
PLATINUM 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 PLATINUM common stock are entitled to receive ratably such dividends
as may be declared by the PLATINUM board of directors out of funds legally
available therefor. See "Pro Forma Combined Comparative Per Share Data." In the
event of a liquidation, dissolution or winding up of PLATINUM, holders of
PLATINUM 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 PLATINUM common stock have no
preemptive rights and have no right to convert their PLATINUM common stock into
any other securities. There are no redemption or sinking fund provisions
applicable to PLATINUM common stock. All outstanding shares of PLATINUM common
stock are, and any shares of PLATINUM common stock which are issued in
connection with the arrangement, when so issued, will be, fully paid and
nonassessable.

Preferred Stock

The PLATINUM board of directors has the authority, without further action by
the stockholders, to issue up to 8,232,000 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 PLATINUM 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 PLATINUM common stock, which could adversely affect the
rights of holders of PLATINUM common stock and could have the effect of
delaying, deferring or preventing a change in control of PLATINUM. As of
January 15, 1999, 1,768,000 shares of preferred stock were issued and
outstanding.

Series B Preferred Stock

Holders of shares of Series B preferred stock have voting rights only with
respect to actions by PLATINUM which will materially and adversely change any
of the rights, privileges and preferences of the Series B preferred stock.
Shares of Series B preferred stock may only be transferred to PLATINUM, or any
person or entity that, directly or indirectly, controls, is controlled by, or
is under common control, with the holder of such shares. Shares of Series B
preferred stock are convertible, at any time, into shares of PLATINUM common
stock at the rate of one-for-one, subject to certain adjustments. Furthermore,
each share

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of Series B preferred stock will automatically be converted into shares of
PLATINUM common stock at the rate of one-for-one, subject to certain
adjustments, upon the improper transfer of any shares of Series B preferred
stock by any holder thereof. In the event of any liquidation, dissolution, or
winding up of PLATINUM, holders of Series B preferred stock are entitled to
receive up to an amount equal to $23.75 per share for each share of Series B
preferred stock then held by them, plus the amount of declared but unpaid
dividends thereon.

Preferred Stock Purchase Rights

The registered holders of PLATINUM common stock have the right to purchase
from PLATINUM, for each share of PLATINUM common stock owned, one-hundredth of
a share of Class II Series A Junior Participating preferred stock, par value
$.01 per share, of PLATINUM at a price of $125.00 per one one-hundredth of a
preferred rights share, 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 PLATINUM common stock, and a liquidation payment
equal to the liquidation payment per share paid on PLATINUM common stock. The
description and terms of the rights are set forth in a rights agreement between
PLATINUM and Harris Trust and Savings Bank, as rights agent.

The rights are not exercisable until the earlier of 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 PLATINUM common stock, or the close of
business on the tenth business day (or such later date as may be determined by
action of the PLATINUM board of directors prior to such time as any person
becomes an acquiring person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by such person or group of 15%
or more of the outstanding shares of PLATINUM 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 PLATINUM common stock, and
will be transferable only by the transfer of the shares of PLATINUM common
stock, including a transfer to PLATINUM, which will constitute a transfer of
the rights. As described below, after such person or group becomes an acquiring
person, the rights may not be redeemed or amended. The rights will expire on
January 5, 2006, unless such date is extended or unless the rights are redeemed
earlier by PLATINUM, in each case, as described below. Until a right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
PLATINUM 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 PLATINUM common stock issued upon the transfer or new
issuance of shares of PLATINUM 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 PLATINUM common stock will also constitute the
transfer of rights associated with the shares of PLATINUM common stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the rights will be mailed
to the holders of record of shares of PLATINUM 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
PLATINUM common stock, or, in certain circumstances, cash, property or other
securities of PLATINUM, having a value equal to two times the rights purchase
price. All rights that are or were (under certain circumstances specified in
the rights agreement) beneficially owned by any acquiring person will be void.

At any time after the first date of public announcement by PLATINUM or an
acquiring person that an acquiring person has become such (a "Shares
Acquisition Date"), if PLATINUM is the surviving corporation in a merger with
any other company or entity, PLATINUM is acquired in a merger or other business

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combination transaction, or 50% or more of PLATINUM'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 PLATINUM common stock, the board of directors of PLATINUM 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 PLATINUM common stock at an exchange ratio equal to one share of PLATINUM
common stock, or a share of a class or series of PLATINUM'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 PLATINUM, 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
PLATINUM may redeem all, but not less than all, of the rights at a price of
$.01 per right. The redemption of the rights may be made effective at such
time, on such basis and with such conditions as the PLATINUM board of directors
in its sole discretion may establish. Immediately upon any redemption of the
rights, the right to exercise the rights will terminate and the only right of
the holders of rights will be to receive the redemption price.

Any provisions of the rights may be amended by the board of directors of
PLATINUM 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 PLATINUM 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.

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 PLATINUM because the rights may be redeemed by PLATINUM 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 PLATINUM
common stock. However, by causing substantial dilution to a person or group
that attempts to acquire PLATINUM on terms not approved by PLATINUM'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
PLATINUM's stockholders. The PLATINUM board of directors has stated that the
rights are not intended to prevent an acquisition of PLATINUM on terms that are
favorable and fair to all stockholders.

Certain PLATINUM Charter and Bylaws Provisions

The PLATINUM charter and the bylaws contain a number of provisions relating
to corporate governance and to the rights of PLATINUM 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
PLATINUM. These provisions include:

. the classification of PLATINUM's board of directors into three classes,
each class serving for staggered three year terms;

. restrictions on the removal of directors;

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. a requirement that special meetings of PLATINUM stockholders may be
called only by the board of directors of PLATINUM and that PLATINUM
stockholder action may be taken only at PLATINUM stockholder meetings
and not by written consent;

. the authority of the board of directors of PLATINUM to issue series of
preferred stock with such voting rights and other powers as it may
determine;

. 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 PLATINUM charter
relating to (a) the classification of PLATINUM's board of directors, (b)
the removal of directors, and (c) the inability of PLATINUM stockholders
to call special meetings and to take action by written consent;

. a requirement that the bylaws may only be amended by PLATINUM's board of
directors or by the vote of the holders of 66% of the shares entitled to
vote generally for the election of directors; and

. notice requirements in the bylaws relating to nominations to the board
of directors of PLATINUM and to the raising of business matters at
PLATINUM stockholder meetings.

Delaware Business Combination Law

PLATINUM is subject to the provisions of the Delaware General Corporation
Law, or the "DGCL." Pursuant to Section 203 of the DGCL, 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 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, 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 is commenced (other than certain excluded shares),
or on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
stockholders. Under Section 203, an "interested stockholder" is defined as any
person, other than the corporation and any direct or indirect majority-owned
subsidiaries of the corporation, that is the owner of 15% or more of the
outstanding voting stock of the corporation or 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 PLATINUM to negotiate
in advance with PLATINUM's board of directors because the stockholder approval
requirement would be avoided if a majority of the PLATINUM'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 PLATINUM. 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 PLATINUM common stock is American Stock
Transfer and Trust Company, Chicago, Illinois.

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BUSINESS OF MEMCO

General

Memco develops, markets, distributes and supports security software products
designed to protect and manage access to critical information assets and system
resources in an open client/server environment. Memco's SeOS(R) Access Control
and SeOS(R) Security Administrator products provide a security solution for the
server, where information resides. Although many existing network security
products, such as firewalls and other access control mechanisms, limit access
to an organization's network and product data in transit, data residing on open
system servers has remained largely unprotected and vulnerable to security
breaches. The SeOS(R) products address the growing demand for server security
solutions by maintaining easy access for each authorized user while restricting
unauthorized users from both inside and outside an organization from accessing
computing resources and data. Memco's Proxima(TM) suite of products increases
end-user productivity and overall system and network security by providing a
single, secured point of user identification, authentication and login to
applications across different computing platforms in open client/server
environments. User definitions and privileges are administered through a
centralized security administration console. Memco's SessionWall-3 is a network
based network monitoring and intrusion detection product that enables the
customer to monitor the network for irregular activity. As an increasing number
of organizations recognize the importance of protecting their critical data and
increasing end-user productivity, Memco(R) products are being adopted by
companies in various industries, including many Fortune 100 companies. During
1997, Memco sold and derived substantially all of its revenues from SeOS Access
Control and SeOS Security Administrator. Proxima SSO and Proxima Manager were
released for general commercial distribution by Memco in September 1997, and
SessionWall-3 was acquired by Memco in connection with its acquisition of
AbirNet which closed in June 1998.

In connection with its efforts to introduce additional product offerings and
enhance its current products, Memco completed two acquisitions: AbirNet Ltd., a
company which develops and markets network usage monitoring intrusion detection
and response technology, and Network Information Technology, Inc., a company
which develops and markets access control technology for UNIX and Windows NT
servers. The acquisition of Network Information Technology was consummated on
May 6, 1998 and the acquisition of AbirNet was consummated on June 8, 1998.

Memco was incorporated in Israel in 1990. Unless otherwise indicated, all
references to Memco in this section include Memco Software Inc. and Memco
Software Europe Ltd., both of which are wholly-owned subsidiaries of Memco
Software Ltd. References herein to Memco as of and after May 6 and June 8, 1998
also include Network Information Technology and AbirNet and its subsidiary, as
the case may be.

The U.S. dollar is the functional and reporting currency of Memco as it is
the currency of the primary economic environment in which the operations of
Memco are conducted. Accordingly, Memco prepares its financial statements in
accordance with United States generally accepted accounting principles and in
U.S. dollars. All references herein to New Israeli Shekels are to "NIS."

Memco's principal executive offices are located at 24 Raoul Wallenberg
Street, Tel Aviv 69719, Israel and its telephone number is 011-972-3-645-0000.

Industry Background

In recent years, there has been a shift from centralized computing
environments to open client/server computing environments. Mission-critical
applications and sensitive corporate data are now often distributed across
multiple open client/server systems. These systems are designed to permit their
users broad access to system resources, resulting in increased security
exposures. The growing use of the Internet and the expansion of intranets
within organizations have intensified security concerns by enabling remote as
well as unknown users to access distributed data and applications. Many
organizations are addressing threats to their systems through the use of
firewalls, encryption and hardware-based user authentication. These solutions
primarily

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address external threats to an organization's network. However, organizations
are vulnerable not only to unauthorized access by outsiders, but also to abuse
and inadvertent damage by internal users. According to a press release issued
on March 4, 1998 by the Computer Security Institute, a California-based
organization focusing on education of practical, cost-effective ways to protect
an organization's information assets, the most serious financial losses that
organizations incur is due to unauthorized access by insiders, although the
number of outside attacks initiated through the internet continues to rise.
Memco's products address security concerns by effectively protecting
information from unauthorized access by both internal and external users and by
ensuring single step access for authorized users to secure systems. An industry
study conducted by Dataquest, a Gartner Group company, estimated the size of
the worldwide information security market to be $5 billion in 1995, growing to
approximately $13 billion by the year 2000.

Decentralized Storage of Data. In an open client/server environment,
information may be located across multiple servers, making it difficult to
manage and secure. As a result, data can be stolen, altered, damaged, misused
and otherwise compromised and system operations can be adversely affected.

Multiple Computing Platforms. The open client/server environment requires
organizations to implement security measures across multiple hardware and
operating system. The use of various platforms in an organization's network is
likely to introduce inconsistent levels of security, leading to overall reduced
security standards, as well as control and management difficulties.

Multiple Points of Access. The open client/server environment frequently
allows access to information from multiple locations either within the internal
network or from external networks, such as the internet. These multiple access
paths to data make it more difficult to protect, manage and monitor information
and system security.

Limited Operating System Security. Operating systems used by open computing
environments are known for their openness, flexibility and scalability.
However, these systems are often designed with a relaxed approach to security,
allowing users ease of access to privileged system resources. As a result,
applications including databases, web servers, mail servers and even firewalls,
which rely on these operating systems, are vulnerable to internal and external
security breaches.

UNIX Security Weaknesses. The primary risk for UNIX applications is the
concept of a "Superuser," also known as "root," which is embedded within the
design of most UNIX-based platforms to facilitate privileged access. The UNIX
design allows the Superuser to bypass all of its internal security measures.
The Superuser may therefore perform any action in the system, including gaining
access to all resources and manipulating the audit trail, thereby obscuring any
security breaches which may have occurred. These Superuser powers are granted
to a variety of users and applications in order to facilitate their activities.
This exposes the system to a wide range of potential security breaches and
abuses by users who are able to obtain and manipulate these Superuser powers.
Thus, the existence of a Superuser limits the ability to ensure adequate
accountability, data confidentiality, system integrity and availability.

Password Security Weaknesses. In distributed computing environments, users
need to sign-on to many different systems and applications. Each system and
application requires the user to enter a different ID and password for
authorized access. Users often simplify passwords or create password "cheat
sheets," both of which compromise security. Administration is compounded
significantly by the number of users, systems and applications. Even a few
hundred users can require managing thousands of passwords. Often, it can take
days for new employees to get the access to systems they need to use. The
failure to remove an ex-employee from even one application can leave behind a
security hole. In addition, traditional sign-on to UNIX systems and many other
applications is achieved with a clear text password that is stored on the
system, available for repeated use and accessible to unauthorized users.

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The Limitations of Traditional Security Solutions

The market for information security is highly fragmented and consists of
various solutions designed to address different problems. Currently available
security solutions address aspects of the security risks presented by open
client/server systems, but they are generally ineffective in addressing
existing server security problems. Existing security products address the
following:

Network Security. Network security products aim to control access to entire
systems or networks and to protect data in transit. Examples of such products
include:

Firewalls and Network Isolation. Firewalls are tools designed to control
access to an organization's network. However, once a user has been
permitted to pass through a firewall or already has local access to a
network, these tools do not control the user's activity within the isolated
area. For example, firewalls cannot restrict a user's ability to access
specific data files or applications once within the network. Because
firewalls are not designed to control security within an isolated network,
they are a complementary technology to Memco's server security solution.

Encryption. Because open client/server systems depend on distributed
networks, much attention is given to securing data in transit across
network lines, largely with encryption technologies. These solutions
provide incomplete protection to information as data spends only a short
time in actual transit. Data spends far more time on servers where it
usually resides unencrypted and, to a large degree, unprotected. Memco's
security solutions address this issue by protecting data while it resides
on servers.

Authentication. Authentication is the process of verifying a user's
identity. This verification is generally achieved through the use of passwords
that are often vulnerable to interception. Current solutions addressing this
problem include password encryption and hardware devices. However, these
solutions do not restrict a user's ability to access data and system resources
once authenticated. Authentication solutions are a complementary technology to
Memco's products.

Login Restrictions. Login restrictions address a user's initial access to a
system. This approach applies conditions under which users are allowed to login
to a system, including day and time, or the user's physical location. However,
this security approach does not control user access to data and applications
after a user has logged in, when most damaging security breaches occur. Memco's
SeOS and Proxima products provide enhanced login restrictions as one component
of its overall security solution.

Operating System Security Controls. Commercial implementations of popular
UNIX and other operating system platforms such as Windows NT offer some built-
in security measures. However, Memco believes that the scope of their
protection remains limited. For example, UNIX's built-in security measures only
apply to ordinary users and not to the Superuser. The greatest potential area
of unauthorized entry into a UNIX system is through the Superuser because of
the Superuser's inherently broad powers. Windows NT's built-in security
measures address some of UNIX's security shortfalls but introduce others.

Inconsistent Cross-Platform Security. The different security approaches
across various versions of operating systems hinder the implementation of
consistent, effective security measures within an organization. Memco's
products provide enhanced security features that may be implemented and
administered consistently across multiple UNIX and Window NT platforms. Windows
NT's built-in security measures address some of UNIX's shortfalls, but still
require additional security, such as provided by Memco. For example, Windows
NT's Administrator ID has broad powers within a Windows NT domain, not
dissimilar to UNIX's Superuser within a UNIX environment. These powers
necessitate security technology to manage and delegate select authority to
other administrators, as provided by Memco's SeOS for Windows NT software
product.

Monitoring, Auditing and Reporting. Certain solutions aim to monitor, audit
and report security breaches. These solutions rely heavily on after-the-fact
reporting, by scanning system files to detect any changes. However, such tools
have difficulty distinguishing between authorized and unauthorized changes,
requiring

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extensive human analysis and verification. These solutions could prove
ineffective because intruders have the ability to hide their trails through
manipulation of audit files and because breaches can only be detected after
they have occurred. In contrast, Memco's SessionWall-3 network protection
product and its SeOS server security products provide a complementary "detect
and protect" solution that is designed to detect network intrusions and abuses,
provide real-time breach notification and respond to the attack by preventing
unauthorized access to corporate data and applications.

Products

Memco's SeOS Access Control and SeOS Security Administrator products provide
information security solutions that enhance the level of security of open
client/server systems and applications by increasing data confidentiality and
system integrity and availability, and by simplifying security administration.
Memco's Proxima suite of products increases end-user productivity and overall
system and network security by providing a single, secured point of user
identification, authentication and login to applications across different
computing platforms in open client/server environments. During 1997, Memco sold
and derived substantially all of its revenues from SeOS Access Control, SeOS
Security Administrator, Proxima SSO and Proxima Manager which were released for
general commercial distribution by Memco in September 1997. SessionWall-3 was
acquired by Memco in connection with its acquisition of AbirNet which closed in
June 1998. Memco expects to introduce additional product offerings and new
versions of its existing product line with support for additional computing
platforms.

SeOS Access Control. Memco's principal product, SeOS Access Control for UNIX
and Windows NT, enables the creation and establishment of proactive and
preventive information security policies governing access to systems,
applications and data residing on UNIX and Windows NT based servers. SeOS
Access Control intercepts security sensitive actions and verifies the
authorization before allowing these actions to proceed. By restricting initial
system access, or logins, and then controlling user access to such resources as
programs, applications and data files, SeOS Access Control allows authorized
users to access critical data, applications and systems while maintaining the
confidentiality and integrity of such data and systems.

Memco believes that SeOS Access Control bolsters UNIX and Windows NT
security in the following ways:

. can be used to restrict the otherwise unlimited capabilities and
potential security breaches associated with the UNIX "Superuser" and the
Windows NT "Administrator" account;

. can be used to delegate limited privileges to individuals and
applications, enabling them only to perform specified tasks;

. maintains a reliable real-time audit trail of actions and events;

. can be used to restrict the authority of any given user or application;

. increases accountability by logging sensitive actions of users and by
providing real-time notification of actions; and

. provides a framework for the creation and administration of consistent
security policies within and across UNIX and Windows NT environments.

By combining tight control with extensive logging of sensitive actions and
by providing real-time notifications of these sensitive actions, SeOS provides
the features and strength required to secure mission-critical applications and
corporate data in open client/server environments. Additionally, SeOS Access
Control relies on its architecture to protect itself from breaches.

SeOS Access Control's architecture includes Memco's proprietary "Soft Hooks"
technology which attaches SeOS to the operating system services table, thereby
diverting control over sensitive actions to SeOS. SeOS Access Control then
validates requests according to tables containing security rules and access

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permissions. This referral enables UNIX-based systems to be secured to the
level of individual users and specific actions. By enabling SeOS Access Control
to function without permanently modifying the underlying operating systems, the
"Soft-Hooks" technology helps simplify the installation and activation of SeOS
on any supported system, and enables the regulation of system security. On
October 27, 1998, the United States Patent and Trademark office issued a Notice
of Allowance with respect to the patent application for "Soft-Hooks."

SeOS Security Administrator. SeOS Security Administrator is a graphical tool
which enables centralized and effective control and administration of user
accounts and security policies in open client/server networks. SeOS Security
Administrator interacts with SeOS Access Control and enables administrators to
efficiently implement consistent security policies across multiple UNIX
platforms and Windows NT. SeOS Security Administrator provides a high degree of
automation to simplify complicated administrative tasks and reduces the need to
understand the underlying complexity of different security environments. SeOS
Security Administrator provides organizations with the ability to accelerate
the implementation of comprehensive security policies necessary to protect
systems, applications and data from unauthorized access. The SeOS Security
Wizard, which is part of the security administration suite facilitates the
quick generation of detailed security policies consistent with an
organization's business needs. This tool is designed to provide security
officers with generic security policy templates, which can be easily customized
and implemented. These policies can then be propagated by the SeOS Security
Administrator for immediate deployment throughout the network. This tool
simplifies the initial set-up of security policies, thereby increasing the
security administrator's efficiency and effectiveness.

Proxima SSO. The Proxima SSO product is a "Single Sign-On" solution designed
to increase end-user productivity and overall system and network security by
providing a single, secured point of user identification and authentication to
an open client/server environment. Currently, users must sign-on to multiple
applications using different user identifications and passwords for each
application. In addition, these passwords are vulnerable to interception each
time they are transmitted over the network. Proxima SSO provides a single step
for identification and authentication to the system, resulting in easy and
secure access for end-users to authorized applications. Proxima SSO also
provides a single point of login control to applications across multiple
computing platforms. The sign-on framework uses an open architecture that
facilitates compatibility and easy integration with various authentication
solutions including hardware-based tokens and software-based authentication
technology such as certificates.

Proxima Manager. The Proxima Manager product provides centralized
enterprise-wide security administration across a wide range of software
applications and main-frame as well as client/server computing environments.
Proxima Manager is a third party product that is privately labeled and
distributed under license from EagleEye Control Software Ltd. Proxima Manager
allows for cross platform administration of various UNIX platforms, Windows NT,
OS/2, Netware, RACF, TopSecret, ACF2, SAPR3, Lotus Notes, Sybase, Oracle, SeOS
Access Control and Proxima SSO. Memco has been notified by EagleEye that it
does not wish to extend distribution rights to PLATINUM after the consummation
of the arrangement. This matter and related issues are the subject of
litigation between such company and Memco. See "--Legal Proceedings."

Memco Secured For FireWall-1. The Memco Secured For FireWall-1 product is a
customized version of SeOS Access Control which is designed to "harden" the
FireWall-1(TM) software application developed and marketed by Check Point
Software Technologies Ltd. by protecting the application from operating system
vulnerabilities. The functionality of Memco Secured For FireWall-1 is limited
in that it secures only the resources of the FireWall-1 application and a
selected set of main operating system files to ensure their integrity.
Accordingly, Memco believes that Memco Secured For FireWall-1 complements the
FireWall-1 application and installations of the full-function version of SeOS
Access Control.

SessionWall-3. The SessionWall-3 technology was in-process research and
development that was acquired by Memco in connection with its acquisition of
AbirNet which closed in June of 1998. The SessionWall-3 technology is designed
to reside on a Windows desktop or Windows NT workstation or server

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and to monitor the network traffic on the internal network, monitor the network
for activity and identify network-based attacks, intrusions, abuses and usage
policy violations. When problems are detected, a functionality is activated to
block the intrusion, alert the system administrator and provide reports for
documentation of specific intrusion attempts or abuses.

Unishield. The Unishield technology was in-process research and development
that was acquired by Memco in connection with its acquisition of Network
Information Technology, which closed in May of 1998. Unishield includes access
control functionality for UNIX and Windows NT. Certain features of the
Unishield technology overlap with the functionality provided by SeOS Access
Control while others are complementary. Memco anticipates that certain features
of Unishield technology will be merged into future versions of SeOS Access
Control. Unishield is no longer marketed as a separate product.

Customers

As of September 30, 1998, Memco had licensed its products, primarily the
SeOS products, to approximately 290 customers through direct sales and indirect
channels. Many of Memco's customers are leaders in their fields, and represent
a broad range of industries, including engineering, finance, insurance,
manufacturing, telecommunications and government. These customers include The
Guardian Life Insurance Company of America, Nestle USA, Bear Stearns & Company,
Lehman Brothers Inc., Raytheon & Systems Inc., Chase Manhattan Bank, GTE, J.P.
Morgan & Co. Incorporated, MCI Communications Corporation, McDonnell Douglas,
Motorola and Texas Instruments. For a description of Memco's revenue break-down
by customer and geography, see "Memco Management's Discussion and Analysis of
Financial Condition and Results of Operations."

In order to protect its intellectual property, Memco does not sell or
transfer title of its products to customers. Instead, Memco grants to its
customers a non-exclusive right to use its software products in exchange for
the payment of a fee pursuant to the terms of a software end-user agreement.
Such agreements permit customers to use the product on designated computers and
entitle customers to purchase support services from Memco for an additional
fee, payable annually, in advance. Pursuant to such agreements, Memco also
grants a limited warranty for products and services to the customer, and
disclaims all other warranties, whether expressed or implied.

Marketing and Distribution

Memco's SeOS and Proxima products are primarily marketed to medium and large
corporate customers who use these products to protect mission-critical
applications and corporate data in open client/server computing environments
and to enhance user productivity. A customer's decision to use the SeOS and
Proxima products may involve a substantial financial commitment including
license costs, maintenance fees, education and deployment costs, as well as
substantial involvement of the customer's personnel resources. Accordingly, a
decision to purchase these products is traditionally long in duration, normally
ranging between six months and one year. The SessionWall-3 product has been
test marketed by AbirNet primarily through resellers and a direct telesales
organization. The Memco Secured for FireWall-1 product is marketed primarily on
the Worldwide Web. A prospective customer can download an evaluation copy of
this product free of charge which will operate for a period of 60 days.
Customers who elect to purchase the product are provided with an authorization
key which enables permanent use.

To increase the effectiveness of the sales cycle for the SeOS and Proxima
products, Memco offers qualified prospects a free controlled trial or an
initial phase implementation program, each pursuant to the terms of a software
evaluation agreement granting such customer a license to evaluate Memco's
product during the trial period or the initial phase implementation program, as
the case may be. The initial phase implementation program may include both
product licenses and professional services, including consultation with Memco.
It provides a limited scale installation that requires a financial and
personnel commitment by the customer. This program increases the probability of
successful larger product sales and associated service contracts. The free
trial program and the initial phase implementation program have been utilized
more frequently as customers consider large scale installations of SeOS and
Proxima products.

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In support of its sales effort, Memco conducts sales training courses and
various targeted marketing programs. These programs include advertising, trade
shows and ongoing customer and third-party communication programs. Memco also
seeks to stimulate interest in computer and network security through its public
relations program, speaking engagements, white papers, technical notes and
other publications. Additionally, Memco has established a home page on the
Worldwide Web, which includes a growing library of articles concerning security
issues and developments.

In addition to the foregoing model for direct sales, Memco continues to
establish and maintain indirect sales channels for its products, such as OEM
partners who sell the SeOS technology under their private label on a worldwide
basis, system integrators and local country VARs.

To date, Memco's relationships with its non-OEM distributors and System
integrators have not generated significant revenues for Memco and there can be
no assurance that such relationships will generate significant revenues for
Memco in the future.

Memco has received grants and approvals for future grants from the Israeli
government, through the Fund for the Encouragement of Marketing Activities, for
marketing expenses incurred to increase export sales from Israel. See "Memco
Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Israeli government's grants
will continue or that the level of support of such grants will not decrease.

Research and Development

Product Development. Memco's research and development efforts are aimed at
maintaining and enhancing its current software products, developing and
introducing new products on a timely basis, maintaining technological
competitiveness and meeting an expanding range of customer requirements.
Accordingly, Memco devotes a significant portion of its personnel and financial
resources to research and development and seeks to maintain close relationships
with its customers to remain responsive to their product needs.

Memco believes that its research and development team provides it with a
significant competitive advantage. The team includes security and system
software specialists. As of November 30, 1998, Memco's research and development
group consisted of 114 employees, including the employees of Network
Information Technology and AbirNet. Notwithstanding the addition of Network
Information Technology and AbirNet employees, Memco continues to recruit highly
qualified employees. Memco's ability to attract and retain such employees will
be a principal determinant of its success in maintaining technological
leadership.

Memco intends to continue to devote research and development resources to
improving and upgrading its products through the addition of extra features,
functionality and adaptability to additional platforms. In order to respond to
rapidly changing competitive and technological conditions, Memco may seek to
enhance or expand its product offerings through one or more acquisitions of
complementary technologies. There can be no assurance that Memco will
successfully develop new or enhanced products.

During 1996, 1997 and the first nine months of 1998, gross research and
development expenses totaled $3 million, $5 million and $6.1 million,
respectively. Memco believes that significant investment in research and
development is required to remain competitive.

Research and Development Grants. Memco's research and development efforts
have been financed through Memco's initial resources, its income from
operations and through programs sponsored by the Israeli Government through the
Office of the Chief Scientist. Research and development grants from the Office
of the Chief Scientist totaled $0.7 million, $1 million and $1.8 million for
the years ended December 31, 1996, 1997, and the first nine months of 1998,
respectively.

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Generally, grants from the Office of the Chief Scientist constitute up to
50% of certain research and development expenses for the development of
approved technology products. Under the terms of the Office of the Chief
Scientist's participation, a royalty of 3% to 5% of the net sales of products
developed in, and related services resulting from, a project funded by the
Office of the Chief Scientist generally is required to be paid to the Office of
the Chief Scientist beginning with the commencement of sales of products and
ending when 100% of the grant is repaid in NIS linked to the U.S. dollar. In
1996, 1997 and the first nine months of 1998, Memco paid royalties on sales of
such products in the aggregate amount of $1.4 million. Terms of Israeli
Government participation also require that the research and development be
conducted by the applicant for the grant as specified in the application and
that the manufacturing of products developed with government grants be
performed in Israel, unless a special approval has been granted. Separate
Israeli Government consent is required to transfer to third parties
technologies developed through projects in which the Israeli Government
participates. Such restrictions, however, do not apply to exports from Israel
of products developed with such technologies. Because the Israeli Government
has revised its policies regarding the availability of grants from time to
time, there can be no assurance that the Israeli Government's support of
research and development will continue. See "Israeli Tax Considerations."

Intellectual Property

Memco currently relies primarily on a combination of trade secret, copyright
and trademark law, together with non-disclosure and non-compete agreements, to
establish and protect the technology used in its products. Memco believes that
the improvement of existing products and the development of new products are
important in establishing and maintaining a competitive advantage and that the
value of its products is dependent upon its proprietary software remaining a
"trade secret" or subject to copyright protection. Generally, Memco enters into
non-disclosure and non-compete agreements with its employees, subcontractors
and distributors.

Memco has fourteen applications pending for trademark protection in the
United States, the European Community and Japan for its marks. Memco and its
wholly-owned subsidiaries have four patent applications pending with the United
States Patent and Trademark Office for the "Soft Hooks," "Stop," "Security
Shield" and "Network Sessionwall" technologies. On October 27, 1998, the United
States Patent and Trademarks office issued a Notice of Allowance with regard to
the patent application for "Soft Hooks." The status of trademarks and patents
involves complex legal and factual questions, and the breadth of claims allowed
is uncertain. Accordingly, there can be no assurance that the applications
filed by Memco will result in the marks being registered or the patents being
issued or that its marks and patents, and any marks and patents that may be
issued to it in the future, will afford protection against intellectual
property infringements by competitors. Memco does not have any registered
copyrights with respect to its products or technology. Memco has two registered
trademarks, SeOS(R) and Memco(R). If any claims or actions are asserted against
Memco, Memco may seek to obtain a license under a third party's intellectual
property rights. There can be no assurance that the licenses that might be
required by Memco would be available on reasonable terms or at all.

Competition

The market in which Memco operates is relatively new, competitive, rapidly
evolving and subject to continuous technological change. There can be no
assurance that Memco can maintain or enhance its competitive position against
current and future competitors. Significant factors such as the emergence of
new products, fundamental changes in computing technology and aggressive
pricing and marketing strategies by Memco's competitors may affect Memco's
competitive position. Due to the rapid expansion of the open client/server
security market and the fact that there are no substantial barriers to entry
into this industry, Memco expects to face competition from new entrants,
including Memco's resellers. Many of Memco's current and potential competitors
have longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and marketing
resources than Memco. There can be no assurance that Memco's current and
potential competitors will not develop open client/server security products
that may be more effective than Memco's current or future products or that
Memco's technologies and products

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would not be rendered obsolete by such developments. Increased competition
could result in price reductions, reduced margins or loss of market share, any
of which could materially, adversely affect Memco's business, results of
operations or financial condition. In addition, Memco competes with certain
built-in security offerings provided by operating system vendors. There can be
no assurance that such built-in security offerings will not be enhanced or that
they will not successfully compete with Memco's product offerings. There can be
no assurance that Memco will be able to compete successfully against current
and future competitors or that competitive pressures faced by Memco will not
have a material adverse effect on its business, financial condition or results
of operations.

Memco believes that it has competed effectively to date and that its ability
to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support as well as
sales and marketing. To be successful in the future, Memco 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 Memco's ability to
attract and retain highly qualified technical personnel in a competitive market
for experienced and talented software developers.

Memco's direct competitors with regard to:

. SeOS Access Control include, among others, the following: Axent
Technologies, Inc.; Mission Critical Software (MCS), Inc.; BindView
Development; Security Dynamics Technologies, Inc.; Network Associates
Inc. and Computer Associates International, Inc.;

. Proxima SSO include, among others, the following: Axent Technologies,
Inc.; Groupe Bull; PLATINUM; Computer Associates International Inc.;
CyberSafe Corp.; Hewlett-Packard Company; IBM Corporation; CKS Group
Inc.; Blockade Systems Corp.; Proginet Corporation; Security Dynamics
Technologies, Inc. and Schumann Software AG;

. SeOS Security Administrator and Proxima Manager include, among others,
the following: Axent Technologies, Inc.; Groupe Bull; PLATINUM; Computer
Associates International Inc.; Schumann Software AG; Technologic
Software Inc.; EagleEye Control Software Ltd. and Tivoli; and

. SessionWall-3 include, among others, the following: Internet Security
Systems Inc.; Axent Technologies, Inc.; Secure Computing Corporation;
Network Associates Inc.; Security Dynamics Technologies, Inc.; Centrax
Corporation Cisco Systems Inc. and Integralis Network Systems Ltd.

In addition, certain companies offer security products that may not provide
the same protection as Memco's solution but may be perceived to be competitors.
Certain of Memco's perceived competitors, in fact, offer software products
which are complementary to Memco's products and have formed alliances with
Memco.

Employees

As of November 30, 1998, Memco employed 258 full-time employees, including
114 employees in research and development, 66 employees in sales and marketing,
21 employees in customer technical support and 57 employees in finance and
administration. Of these employees, 142 were based in Memco's facilities in
Israel, one employee in Memco's wholly owned subsidiary in Europe and 115 were
employed by Memco's wholly owned subsidiaries located in the United States.
Memco believes that its relations with its employees are good. However, since
the date the arrangement was announced, a significant number of employees have
left Memco US, including the Chief Executive Office of Memco US, the Senior
Vice President of Worldwide Sales and the Senior Vice President of Worldwide
Marketing.

The employees and Memco are not parties to any collective bargaining
agreements. However, certain provisions of the collective bargaining agreements
between the Histadrut, the General Federation of Labor in Israel, and the
Coordination Bureau of Economic Organizations, including the Industrialists'
Association of Israel, are applicable to Memco's Israeli employees by order of
the Israeli Ministry of Labor and Welfare.

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These provisions and certain laws principally concern the length of the work
day and the work week, minimum wages for workers, contributions to a pension
fund, insurance for work-related accidents, procedures for dismissing
employees, determination of severance pay and other conditions of employment.
Furthermore, pursuant to such provisions, the wages of most of Memco's Israel-
based employees are automatically adjusted based on partial changes in the
Consumer Price Index of Israel. The amount and frequency of these adjustments
are modified from time to time.

Israeli law generally requires the payment by employers of severance pay
upon the retirement or death of an employee or upon termination of employment
by the employer without due cause. Memco currently funds its ongoing severance
obligations by making monthly payments to approved severance funds or insurance
policies. In addition, according to the National Insurance Law, Israeli
employees and employers are required to pay specific sums to the National
Insurance Institute, which is similar to the U.S. Social Security
Administration. Since January 1, 1995, such amounts also include payments for
national health insurance. The payments to the National Insurance Institute are
approximately 14.5% of wages, up to a specified amount, of which the employee
contributes approximately 66% and the employer contributes approximately 34%.
The majority of the permanent employees of Memco are covered by life and
pension insurance policies providing customary benefits to employees, including
retirement and severance benefits. Memco contributes between 13.33% and 15.83%,
depending on the employee, of each employee's base wages to such plans and
permanent employees contribute 5% of their base wages to such plans.

Description of Property

Headquarters in Israel. Memco's headquarters as well as research and
development, distribution and sales and customer support operations are
currently located in facilities occupying approximately 16,040 square feet in
Tel Aviv, Israel, pursuant to a lease expiring in October 2001. The annual rent
and maintenance for the facility is approximately $0.42 million and is linked
to the United States CPI.

Headquarters in the United States. The headquarters of Memco Software Inc.,
Memco's wholly owned subsidiary in the United States which includes marketing,
distribution and sales and customer support operations, was recently moved to
facilities occupying approximately 18,500 square feet in Redwood City,
California pursuant to a lease expiring in February 2003. The annual rent and
maintenance for the facility is approximately $0.3 million. Approximately 4,600
square feet of such space is subleased to a third party, generating income of
approximately $79,000 per year that is linked to the United States CPI. Subject
to certain conditions, which Memco believes to be reasonable, this lease may be
terminated on short notice. In connection with the relocation of the
headquarters of Memco, Memco US has vacated a smaller office in San Jose and is
in the process of subleasing such property.

Memco US also operates a sales, marketing and support office in New York,
New York occupying approximately 3,800 square feet and small offices in the
Washington DC area and in Atlanta, Georgia.

AbirNet Properties. In connection with the acquisition of AbirNet, Memco
assumed a lease for facilities occupying approximately 6,450 square feet in
Yokneam, Israel pursuant to a lease expiring in 2003. The annual rent and
maintenance for the facility is approximately $80,000. AbirNet's research and
development and international customer support operations are currently located
at this facility and Memco anticipates that it will retain this facility.
AbirNet's wholly owned United States subsidiary, AbirNet Inc., operates a
sales, marketing and support office in Dallas, Texas occupying approximately
4,754 square feet.

Network Information Technology Property. In connection with the acquisition
of Network Information Technology, Memco assumed a lease for facilities
occupying approximately 2,600 square feet in Saratoga, California pursuant to a
lease expiring in January 2001. The average annual rent and maintenance for the
facility is approximately $80,000. Memco is in the process of subleasing such
property, as a result of the transfer of Network Information Technology
employees to Memco US facilities in Redwood City, California.

In addition, Memco sold a property of 678 square feet of office space in
Ramat-Gan, Israel in May 1997.

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Legal Proceedings

On or about February 23, 1998, RISC Management, Inc. brought suit in the
state court of the State of Massachusetts against Memco Software Ltd., Memco
US, MCI Telecommunications Inc. and seven of Memco's customers relating to the
alleged non-payment by Memco US of commissions to RISC in connection with the
sale of software licenses and associated services by Memco US to MCI
Telecommunications Inc. Among other things, RISC alleges in the complaint that
Memco and Memco US are liable for breach of contract, unfair and deceptive
trade practices and breach of fiduciary and partnership duties which have
caused RISC damages in excess of $963,000. The suit was subsequently removed to
the United States District Court for the District of Massachusetts where
further action on the suit was stayed pending arbitration of the claims between
RISC and Memco US as required by the contract between RISC and Memco US.

On November 2, 1998, EagleEye Control Software Ltd. brought a suit in the
Israeli district court of Tel Aviv-Jaffa against Memco US for the sum of two
million dollars. EagleEye claims such sums are due as pre-paid royalties, under
a Non-Exclusive Software Distribution Agreement dated January 1, 1996 and the
fourth amendment thereto dated, January 1, 1998. EagleEye alleges in its suit
that the consummation of the contemplated transaction between Memco and
PLATINUM shall be contrary to the provisions of the EagleEye Distribution
Agreement. EagleEye is a subsidiary of New Dimension Software Ltd.

Neither Memco nor any of its subsidiaries is a party to any other litigation
that management believes, individually or in the aggregate, could have a
material adverse effect on the business, financial condition or results of
operations of Memco.

Exchange Controls and Other Limitations Affecting Security Holders

Non-residents of Israel who purchase Memco's securities with non-Israeli
currency will be able to convert dividends, if any, thereon, and any amounts
payable upon the dissolution, liquidation or winding up of the affairs of
Memco, less any applicable taxes, as well as the proceeds of any sale of
Memco's securities, into freely repatriable foreign currency at the rate of
exchange prevailing at the time of conversion, pursuant to the general permit
issue by the Controller of Foreign Currency at the Bank of Israel under the
Israeli Currency Control Law, 1978.

Non-residents of Israel may freely hold and trade Memco's securities
pursuant to the general permit issued under the Currency Control Law. Neither
the memorandum of association nor the articles of association of Memco nor the
laws of the State of Israel restrict in any way the ownership or voting of
ordinary shares by non-residents, except that such restrictions may exist with
respect to citizens of countries that are in a state of war with Israel.

Investments, including acquisitions, and certain other transactions outside
Israel by Memco require a specific permit from the Controller of Foreign
Currency. While such permits have generally been granted in the past, no
assurance can be given that such permits will be granted in the future.

Pursuant to a permit issued by the Bank of Israel, Israeli residents are
allowed to purchase Memco's securities.

In April 1998, the Israeli government announced its intention to liberalize
its foreign currency control regime by, in effect, permitting any foreign
currency activity or transaction, except for certain restrictions on
institutional investors and on some derivatives transactions of non-residents.
For example, in May 1998, the Israeli government adopted regulations that
replace many of the restrictions on foreign currency transactions with the
requirement that such transactions be reported to the Controller of Foreign
Currency at the Bank of Israel. Over time, if enacted, this liberalization may
include the NIS becoming a fully convertible currency. No assurance can be
given that the Israeli government's intention, as announced, will receive
legislative or regulatory approval, that any such approvals will be received in
any particular time frame or that the risks described above will be alleviated.

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On November 30, 1998, the exchange rate between the NIS and the U.S. dollar
was NIS 4.191 = $1.00.

The following table sets forth certain information with respect to the
exchange rate between the NIS and the U.S. dollar for the periods indicated, as
reported by the Bank of Israel.

NIS per U.S. Dollar

<TABLE>
<CAPTION>
Period Average
Year Ended December 31, End Rate(1) High Low
----------------------- ------ ------- ---- ----
<S> <C> <C> <C> <C>
1993............................................ 2.99 2.83 3.00 2.72
1994............................................ 3.02 3.01 3.06 2.96
1995............................................ 3.14 3.12 3.18 2.94
1996............................................ 3.25 3.19 3.30 3.08
1997............................................ 3.54 3.42 3.59 3.24
</TABLE>
- --------
(1) The average of the exchange rate between the NIS and the U.S. dollar on the
last day of each month during the period, as reported by the Bank of
Israel.

TAXATION

The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on Memco, and certain
Israeli Government programs benefiting Memco. The following also contains a
discussion of certain Israeli and United States federal income tax consequences
to persons acquiring, owning and disposing of Memco's ordinary shares. To the
extent that the discussion is based on legislation which has yet to be subject
to judicial or administrative interpretation, there can be no assurance that
the views expressed in the discussion will accord with any such interpretation
in the future. The discussion is not intended and should not be construed as
legal or professional tax advice and is not exhaustive of all possible tax
considerations.

The following summary is included herein for general information only and is
not intended to substitute for careful tax planning. Accordingly, each investor
should consult his or her own tax advisor as to the particular tax consequences
to such investor of the purchase, ownership or sale of an ordinary share,
including the effects of applicable state, local, foreign or other tax laws and
possible changes in the tax laws.

ISRAELI TAX CONSIDERATIONS

General Corporate Tax Structure

The regular rate of corporate tax to which Israeli companies are subject has
decreased in the last few years and is currently 36%. However, the effective
rate of tax payable by a company, such as Memco, which derives income from an
"Approved Enterprise," as further discussed below, may be considerably lower.
See "--Law for the Encouragement of Capital Investments, 1959."

Dividends received by an Israeli corporation from its foreign subsidiaries
are generally subject to Israeli tax of up to 25% regardless of its status as
an Approved Enterprise, and subject to the relevant tax treaties.

Law for the Encouragement of Industry (Taxes), 1969

Pursuant to the Law for the Encouragement of Industry (Taxes), 1969, a
company qualifies as an "Industrial Company" if it is resident in Israel and at
least 90% of its gross income in any tax year, exclusive of income from capital
gains, passive interest and dividends, is derived from an "Industrial
Enterprise" it owns. An "Industrial Enterprise" is defined for the purposes of
the Industry Law as an enterprise the major activity of which, in a given tax
year, is industrial production activity.

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Memco qualifies currently as an Industrial Company. As an Industrial
Company, Memco is entitled to certain tax benefits, including a deduction of
12.5% per annum on the purchase of patents or certain other intangible property
rights, other than goodwill, over a period of eight years beginning with the
year in which such rights were first used and a deduction of 33% per annum on
expenses incurred in connection with the issuance of publicly traded shares
over a period of three years from the time the expenses were incurred.

The tax laws and regulations dealing with the adjustment of taxable income
for local inflation provide that an Industrial Enterprise, such as that of
Memco, is eligible for special rates of depreciation deductions. These rates
vary in the case of plant and machinery according to the number of shifts in
which the equipment is being operated and range from 20% to 40% on a straight-
line basis, or 30% to 50% on a declining balance basis, instead of the regular
rates which are applied on a straight-line basis. For equipment first put into
operations during the years 1993 and 1994, an industrial company may elect to
claim 150% of such rates.

Industrial Enterprises which are Approved Enterprises, as hereinafter
defined, can choose between (a) the special rates referred to above and (b)
accelerated regular rates of depreciation applied on a straight-line basis in
respect of property and equipment, generally ranging from 200%, with respect to
equipment, to 400%, with respect to buildings, of the ordinary depreciation
rates during the first five years of service of these assets, provided that the
depreciation on a building may not exceed 20% per annum. In no event may the
total depreciation exceed 100% of the cost of the asset.

No assurance can be given that Memco will continue to qualify as an
Industrial Company or will be able to avail itself of any benefit under the
Industry Law in the future, or that Industrial Companies will continue to enjoy
such tax benefits in the future.

Law for the Encouragement of Capital Investments, 1959

General. Certain production and development facilities of Memco and its
wholly owned subsidiary AbirNet have been granted "Approved Enterprise" status
pursuant to the Law for the Encouragement of Capital Investments, 1959, which
provides certain tax and financial benefits to investment programs that have
been granted such status.

The Israeli Investment Center, a statutory body made up of representatives
of various government ministries, has the discretion, within the funding limit
set by the government budget, to grant the status of an "Approved Enterprise"
to projects submitted to it if such projects are likely to meet the objectives
of the Capital Investment Law and it is desirable to encourage the
implementation of the project by the grant of the approval. These objectives
are to attract capital to Israel and encourage economic initiative and
investments of foreign and local capital in order to: develop the Israeli
economy's productive capacity, utilize its resources and economic potential
efficiently and maximize the productive capacity of existing enterprises;
improve the state's balance of payments by reducing imports and increasing
exports; and assist in the absorption of immigration, distribute the population
over the area of the country and create sources of employment.

The Capital Investment Law provides that capital investments in production
facilities, or other eligible assets, may, upon application to the Israeli
Investment Center, be designated as an Approved Enterprise. Each instrument of
approval for an Approved Enterprise relates to a specific investment program,
delineated both by the financial scope of the investment, including sources of
funds, and by the physical characteristics of the facility of other assets. The
tax benefits available under any instrument of approval relate only to taxable
profits attributable to the specific investment program and are contingent upon
compliance with the conditions set out in the instrument of approval.

Subject to certain provisions concerning income tax and subject to the
Alternative Benefits, as hereinafter described, any distributed dividends are
deemed attributable to the entire enterprise, and the effective tax rate and
the effective withholding tax rates represent the weighted combination of the
various applicable tax rates.

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An Approved Enterprise is entitled to certain benefits, including Israeli
Government cash grants, only in certain development areas, state guaranteed
loans and tax benefits.

The undistributed income derived from Memco's Approved Enterprise is tax-
exempt for a two-year period, beginning with the first year in which it
generates otherwise taxable income and is subject to a reduced tax rate for the
remainder of the benefit period.

Tax Benefits. Income derived from an Approved Enterprise is subject to
corporate tax at the reduced rate of 25% or lower in the case of a foreign
investors company ("FIC"), as described below, until the earlier of: seven
consecutive years, or ten in the case of an FIC, commencing in the year in
which the specific Approved Enterprise first generates taxable income, which
income is not offset by deductions attributable to the other sources; 12 years
from the year of commencement of production; or 14 years from the year of
approval of the Approved Enterprise status.

A company owning an Approved Enterprise, which was approved after April 1,
1986 may elect to forego the entitlement to grants or state guarantees under
the Investment Law, and apply for an alternative package of tax benefits, or
"Alternative Benefits." Under the Alternative Benefits, undistributed income
from the Approved Enterprise is fully tax exempt, a tax holiday, from corporate
tax for a defined period. The tax holiday ranges between 2 and 10 years from
the first year of taxable income subject to the limitations as described above,
depending principally upon the geographic location within Israel and the type
of the Approved Enterprise. On expiration of the tax holiday, the Approved
Enterprise is eligible for a beneficial tax rate, 25% or lower in case of an
FIC, which is at least 49% owned by non-Israeli investors, for the remainder of
the otherwise applicable period of benefits, as described above. In December
1995, the Government of Israel resolved to reduce the tax holiday period
granted to Approved Enterprises to a period of two years with respect to
certain geographic locations.

Dividends paid out of income derived by an Approved Enterprise, or out of
dividends received from a company whose income is derived by an Approved
Enterprise, are generally subject to withholding tax at the rate of 15%,
deductible at source. In the case of companies which do not qualify as FIC, as
described above, the reduced rate of 15% is limited to dividends and
distributions out of income derived during the benefits period and actually
paid at any time up to 12 years thereafter. In addition, a company which elects
the Alternative Benefits and which pays a dividend, at any time, out of income
derived from its Approved Enterprise during the tax holiday period will be
subject to corporate tax at the otherwise applicable rate of 25% on the income
out of which such dividend has been paid, or lower in the case of an FIC. Memco
has elected the Alternative Benefits with respect to its current Approved
Enterprise, pursuant to which Memco will enjoy, in relation to its Approved
Enterprise, a tax holiday for a period of two years and reduced tax rates for
an additional period of up to eight years, depending on the percentage of
foreign stock ownership in Memco.

The tax benefits, available to an Approved Enterprise relate only to taxable
income attributable to that specific enterprise, are given according to an
allocation formula provided for in the Capital Investment Law or in the
instrument of approval and are contingent upon the fulfillment of the
conditions stipulated by the Capital Investment Law, the regulations published
thereunder and the instruments of approval for the specific investments in the
Approved Enterprises. In the event of Memco's failure to comply with these
conditions, the tax and other benefits could be canceled, in whole or in part,
and Memco might be required to refund the amount of the canceled benefits,
together with the addition of CPI linkage differences and interest. Memco
believes that its Approved Enterprise substantially complies with all such
conditions at present, but there can be no assurance that it will continue to
do so.

A company which qualifies as an FIC is entitled to further tax benefits
relating to its Approved Enterprises. Subject to certain conditions, an FIC is
a company more than 25% of whose share capital, in terms of shares, rights to
profits, voting and appointment of directors, and of whose combined share and
loan capital, is owned, directly or indirectly, by persons who are not
residents of Israel. Such a company will be eligible for an extension of the
period of tax benefits, up to ten years, for its Approved Enterprises and
further tax benefits should the foreign investment rise above 49%.

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Proceeds received from the sale of Memco's products may be deemed to be
royalties under the domestic law of the country of residence of the
purchaser/licensee or under an applicable tax treaty. For instance, proceeds
received by Memco from the sale of its software in the United States might be
treated as royalties and as such subject to U.S. withholding tax of either 10%
or 15% pursuant to the U.S.-Israel Tax Treaty.

Where withholding tax is paid by Memco to the country of residence of the
purchaser/licensee, such tax would generally be creditable by Memco for Israeli
income tax purposes, pursuant to any relevant income tax treaty and under
Israeli law, against income derived from the same source. However, where Memco
does not have taxable income for Israeli tax purposes because of the
application of a tax holiday available to Approved Enterprise, for example, it
would have no Israeli tax liability against which to credit the foreign
withholding tax. Furthermore, under Israeli law, Memco cannot carry forward
such unused credit for benefit in future tax years.

Financial Benefits. An Approved Enterprise is also entitled to a grant from
the Government of Israel with respect to investments in certain production
facilities located in designated areas known as national priority regions
within Israel, provided it did not elect the Alternative Benefits. Grants are
available for enterprises situated in national priority regions and for high
technology or skill intensive enterprises in Jerusalem. The investment grant is
computed as a percentage, of up to 24%, depending upon the location of the
enterprise, of the original costs of the fixed assets for which Approved
Enterprise status has been granted and the amount of investment.

For companies whose foreign investment level exceeds 25%, an Approved
Enterprise would create an entitlement to reduced tax rates for a period not to
exceed ten tax years, rather than the seven tax years applicable to other
companies.

From time to time, the government of Israel has discussed reducing the
benefits available to companies under the Capital Investment Law. The
termination or substantial reduction of any of the benefits available under the
Capital Investment Law could have a material adverse effect on future
investments by Memco in Israel, although Memco believes that any such
termination or reduction will be prospective only in its effect and thus would
not affect Memco's existing Approved Enterprises or the benefits derived
therefrom.

Taxation Under Inflationary Conditions

The Income Tax Law (Inflationary Adjustments), 1985 is intended to
neutralize the inflationary erosion of capital investments in business and to
prevent tax benefits resulting from deduction of inflationary interest
expenses. This law applies a supplementary set of inflationary adjustments to
the normal taxable income computed under regular historical cost principles.

The Inflationary Adjustments Law introduced a special tax adjustment for the
preservation of equity, based on changes in the Israeli CPI, whereby certain
corporate assets are classified broadly into fixed, inflation resistant assets
and non-fixed assets. Where shareholders' equity, as defined in the
Inflationary Adjustments Law, exceeds the depreciated cost of fixed assets, as
defined in the Inflationary Adjustments Law, a tax deduction which takes into
account the effect of inflation on such excess is allowed of up to a ceiling of
70% of taxable income for companies in any single year, with the unused portion
carried forward on a linked basis, without limit. If the depreciated cost of
such fixed assets exceeds shareholders' equity, then such excess, multiplied by
the annual inflation rate, is added to taxable income.

Under the Inflationary Adjustments Law, results for tax purposes are
measured in real terms in accordance with the changes in the Israeli CPI. Memco
is taxed under this law. The discrepancy between the change in the Israeli CPI
and the exchange rate of the Israeli currency to the U.S. dollar, each year and
cumulatively, may result in a significant difference between taxable income and
the income denominated in U.S. dollars as reflected in the financial statements
of Memco, whose financial statements are reported in U.S. dollars. In addition,
subject to certain limitations, depreciation of fixed assets and losses carried
forward are adjusted for inflation on the basis of changes in the Israeli CPI.

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The Israeli Income Tax Ordinance and the Inflationary Adjustments Law allow
"Foreign-Invested Companies," which maintain their accounts in dollars in
compliance with regulations published by the Israeli Minister of Finance, to
base their tax returns on their operating results as reflected in the dollar
financial statements or to adjust their tax returns based on exchange rate
changes rather than changes in the Israeli CPI, in lieu of the principles set
forth by the Inflationary Adjustments Law. For these purposes, a Foreign-
Invested Company is a company, more than 25% of whose share capital, in terms
of rights to profits, voting and appointment of directors and of whose combined
share and loan capital is held by persons who are not residents of Israel. A
company that elects to measure its results for tax purposes based on the dollar
exchange rate cannot change that election for a period of three years following
the election.

Tax Benefits and Government Support for Research and Development

Israeli tax laws have allowed, under certain conditions, a tax deduction in
the year incurred for expenditures, including capital expenditures, in
scientific research and development projects, if the expenditures are approved
or funded by the relevant Israeli Government Ministry, determined by field of
research, and the research and development is for the promotion of the
enterprise and is carried out by, or on behalf of, Memco seeking such deduction
or under certain limitations if the expenditures are incurred with respect to
participation in research conducted by another entity. Expenditures not so
approved or funded are deductible over a three year period, however, grants
made available to Memco by the Israeli Government are considered taxable
income.

Under the law for the Encouragement of Industrial Research and Development,
1984, research and development programs approved by a research committee are
eligible for grants of up to 66% of the projects expenditures, depending on the
circumstances, upon meeting certain criteria, against a payment of royalties
from the sale of the product developed in accordance with the program. Memco is
generally required to pay royalties at a rate of 3%-5%, or up to 6% in relation
to certain new grants, of sales of products developed with such grants, up to a
U.S. dollar linked amount equal to 100% of the grant. Generally, the Research
Law requires that the manufacture of any product developed as a result of
research and development funded by the Israeli Government shall take place in
Israel. It also provides that know-how from the research and development which
is used to produce the product may not be transferred to third parties without
the approval of a research committee. Such approval is not required for the
export of any products resulting from such research or development.

Regulations for the Encouragement of Industrial Research and Development
(Rate of Royalties and Rules for their Payment-1996) which were adopted in June
1996 include the following: royalties will be paid on all revenues received
with respect to the systems and products developed with the assistance of funds
granted by the Office of the Chief Scientist, including revenue from sales,
maintenance services and other sources; and modification of the existing
royalty schedule, as follows: 3%-4% of revenues during the first three years,
4%-5% during the following three years and 5%-6% in the seventh year and
thereafter, with total royalties not to exceed 100% of the dollar value of the
Office of the Chief Scientist grant. The terms of the Israeli government
participation also require that the manufacture of products developed with
government grants be performed in Israel. However, under the regulations, in
the event that any of the manufacturing volume is not performed in Israel, if
approved by the Office of the Chief Scientist, Memco would be required to pay
an increased royalty and the payback sum is 120%, 150% or 300% of the grant if
the manufacturing volume that is performed outside of Israel is up to 50%, and
90% or more, respectively. The regulations are effective as to January 1, 1994,
but under the regulations, the increased rate applies from January, 1996.

Taxation of Non-Israeli Subsidiaries

The taxation of a subsidiary of Memco which is managed or controlled outside
of Israel is based upon applicable tax laws in the country of residence of the
subsidiary.

In the case that both the United States and Israel consider Memco as a
resident in their respective jurisdictions, the benefits of the U.S.-Israel tax
treaty may apply to a limited extent only.

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

Overview

Memco develops, markets, distributes and supports security software products
designed to protect and manage access to critical information assets and system
resources in an open client/server environment. Memco was incorporated in
Israel in 1990 and commercially released its SeOS Access Control product in
mid-1995. During the period from 1990 through September 30, 1998, Memco devoted
its resources to product development, sales, marketing and security systems
consulting. Memco has an established direct sales organization as well as
multiple indirect distribution channels, which include OEM partners, VARS and
system integrators.

Up to and including the fiscal year ended December 31, 1997, Memco
recognized revenues in accordance with the Statement of Position of Software
Revenue Recognition, Statement of Position 91-1. As required under GAAP,
commencing with the fiscal year beginning January 1, 1998, Memco started
recognizing revenues in accordance with the Statement of Position of Software
Revenue Recognition, Statement of Position 97-2. Revenues from software
licenses are generally recognized upon shipment, after an evaluation period,
where applicable, and when collection is probable. Revenues from annual
maintenance contracts are recognized ratably over the term of the agreement.
Payments pursuant to maintenance contracts are generally made in advance.

Since mid-1995, Memco has marketed and sold SeOS Access Control and SeOS
Security Administrator. From mid-1995 through 1997, Memco has derived
substantially all of its revenues from such products, and expects to continue
to derive a substantial portion of its revenues from such products,
particularly its SeOS Access Control product. In September 1997, Memco released
its Proxima SSO product and a third party product that is resold by Memco under
the private label Proxima Manager. Revenues were derived from Proxima SSO and
Proxima Manager in the fourth quarter of 1997 and in the nine months ending
September 30, 1998. Memco expects to continue to derive a portion of its
revenues from Proxima SSO. Memco has been notified by the company who develops
and owns the Proxima Manager technology that it does not wish to extend
distribution rights to PLATINUM after the consummation of the merger between
Memco and PLATINUM. This matter and related issues are the subject of
litigation between such company and Memco. See "Business of Memco--Legal
Proceedings."

Memco's revenues for the nine months ending September 30, 1998 and for the
year ended December 31, 1997 were $33.9 million and $30.6 million, which
represents an 84% and 99.8% increase, respectively, over revenues for the nine
months ending September 30, 1997 and the year ended December 31, 1996. To
increase revenues, Memco intends to increase direct sales by expanding its
sales force and marketing and support organizations and to increase indirect
sales of its products by entering into worldwide and regional distribution
arrangements. Memco's existing distribution arrangements are non-exclusive and
do not prevent Memco from opening additional distribution channels provided
certain conditions have been satisfied.

In the nine months ending September 30, 1998, Memco made significant
investments in the further development of its sales, marketing and research and
development organizations and made additional investments in its support
organization. The amount and timing of any future expansion of such
organizations are likely to result in fluctuations of operating margins.

Research and development expenditures have been charged to operations as
incurred. The Statement of Financial Accounting Standards, No. 86, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Costs incurred subsequent to
achievement of technological feasibility in the process of software production
have not been material. Therefore, Memco has not capitalized any of its
research and development expenses, and does not currently anticipate that its
development process, or its accounting policy with respect thereto, will differ
materially in the future.

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<PAGE>

Memco has restated its financial data to reduce the in-process research and
development charge recorded in connection with its second quarter 1998
acquisitions of Network Information Technology, Inc. and AbirNet Ltd. from
$52.3 million to $31.0 million and has increased goodwill by $21.3 million,
which will be amortized over seven years. As a result, net losses for the third
quarter of 1998 were approximately $27.7 million, or $1.59 per share, compared
with the previously reported loss of approximately $47 million, or $2.79 per
share. See the Memco consolidated financial statements and related notes
thereto on pages F-41 to F-85.

Results of Operations

The following table presents for the periods indicated line items from
Memco's statement of operations as a percentage of Memco's revenues.

<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
----------------- ---------------
1995 1996 1997 1997 1998
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues................................. 100% 100% 100% 100% 100%
Cost of revenues......................... 16 10 10 11 12
Gross profit........................... 84 90 90 89 88
Operating expenses:
Research and development, net............ 56 15 13 15 13
Marketing and selling expenses........... 152 48 45 43 48
General and administrative expenses...... 35 10 10 11 10
Amortization of excess of cost over net
assets acquired, net.................... -- -- -- -- 4
Acquired in-process technology........... -- -- -- -- 93
Total operating expenses............. 243 73 68 69 168
Operating income (loss).................. (159) 17 22 20 (80)
Financing income, net.................... 19 8 10 13 7
Income (loss) before taxes on income..... (140) 25 32 33 (73)
Income taxes............................. 19 3 3 4 5
Net income (loss)........................ (159)% 22% 29% 29% (78)%
</TABLE>

Nine Months Ended September 30, 1998 Compared with Nine Months Ended September
30, 1997

Revenues. Revenues were $33.9 million in the nine months ended September 30,
1998 compared with $18.5 million in the nine months ended September 30, 1997.
This increase is primarily a result of increased sales of the SeOS Access
Control and SeOS Security Administrator products. In the nine months ended
September 30, 1998, approximately 98%, 1.0% and 1.0% of Memco's total revenues
were derived from sales to customers in the United States, Israel and Europe,
respectively. In the nine months ended September 30, 1998, revenues from
Memco's largest end-user customer represented approximately 11% of Memco's
revenues. Revenues from Memco's two largest resellers, PLATINUM and Tivoli
represented 44% and 7%, respectively, of Memco's revenues during the nine
months ended September 30, 1998. Revenues derived from Memco's resellers for
the nine months ended September 30, 1998 include $1.5 million of deferred
revenues recognized during the year in respect of the Platinum OEM Licensing
Agreement. See "The Agreement--Supplemental Agreements."

Cost of Revenues. Cost of revenues was $4.1 million in the nine months ended
September 30, 1998 compared with $2 million in the nine months ended September
30, 1997. This increase was primarily related to the increase in revenues. The
majority of cost of revenues for the nine months ended September 30, 1998 and
1997 was attributable to labor costs, depreciation charges for goodwill and
technology in connection with the Abirnet and Network Information Technology
acquisitions and royalty payments to the Office of the Chief Scientist in
connection with research grants previously received by Memco under the Research
Law. See "Israeli Tax Considerations." Due to Memco's increased revenues from
product sales, gross profit increased to

117
<PAGE>

$29.8 million, or 88% of revenues in the nine months ended September 30, 1998,
from $16.5 million or 89% in the comparable period in 1997. Gross profits for
the nine months ended September 30, 1998 increased by 81% compared to gross
profits in the same period in 1997, but remained relatively stable as a
percentage of revenues.

Research and Development Expenses, Net. Research and development expenses,
net of grants from the Office of the Chief Scientist, were $4.4 million the
nine months ended September 30, 1998 compared with $2.9 million in the same
period in 1997. This increase was primarily related to expenses associated with
the addition of personnel to develop new products. Research and development
costs, net of grants from the Office of the Chief Scientist as a percentage of
revenues, decreased to 13% in the nine months ended September 30, 1998 from 15%
in the same period in 1997.

Marketing and Selling Expenses. Marketing and selling expenses were $16.3
million or 48% of revenues in the nine months ended September 30, 1998 compared
with $7.9 million or 43% of revenues in the same period of 1997. This increase
was primarily due to the expansion of marketing and sales efforts in North
America.

General and Administrative Expenses. General and administrative expenses
were $3.5 million in the nine months ended September 30, 1998 compared with $2
million in the nine months ended September 30, 1997. This increase was
primarily related to an increase in the number of administrative personnel and
the expansion of Memco's business.

Acquired in-process technology. During the quarter ended June 30, 1998,
Memco completed the acquisitions of Network Information Technology, Inc.
("NIT") and AbirNet Ltd., or collectively the "Acquired Companies," in
transactions accounted for under the purchase method of accounting.

As a result of the NIT transaction, Memco acquired in-process research and
development ("IPR&D") related to a developmental intranet security application
aimed at UNIX and Windows NT environments. At the time of the acquisition, NIT
was a development-stage company located in Saratoga, California. NIT, founded
in 1992 as a network and security consulting organization, changed its business
focus in 1995 to begin the design and development of intranet security software
applications.

As a result of the AbirNet transaction, Memco acquired IPR&D related to a
developmental network security application. At the time of the acquisition,
AbirNet was a development-stage company located in Yokneam, Israel with a
subsidiary in Dallas, Texas. AbirNet, founded in 1996, was engaged in the
development, manufacture and marketing of network monitoring and protection
software applications.

At the time of the acquisitions, the values of the IPR&D of both NIT and
AbirNet were comprised of on-going development associated with the purchased
research and development that had not reached the stage of being
technologically feasible products, and which had no alternative use.

When the Acquired Companies were purchased there were significant efforts
that were necessary to develop the acquired in-process technology into
commercially viable products, principally related to the completion of all
designing, prototyping, coding, scalability verification and testing activities
that were required to establish that the proposed technologies would meet their
design specifications.

For the NIT project, development efforts included several efforts geared
towards completing development of an enterprise level, scaleable cross platform
product that would target not only intranet environments, but also web and e-
commerce environments. Memco has made significant progress with the development
of this acquired technology and continues to advance its efforts to attain
technological feasibility. At the purchase date, Memco expected to release the
product as early as during the fourth quarter of 1998, and no later than the
first quarter of 1999.

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<PAGE>

There were substantial remaining efforts associated with the AbirNet
acquired technology. These remaining efforts were geared towards completing
development of an enterprise level, scaleable product that would include strong
intrusion detection capabilities and flexible reporting capabilities.

The IPR&D was valued at approximately $14 million for NIT and approximately
$17 million for AbirNet. The income approach was the primary technique utilized
in valuing the IPR&D with future cash flows project over a seven year period.
The IPR&D projects are expected to begin providing positive cash flows in 1999,
assuming their successful completion. The rates utilized to discount the net
cash flows to their present value were based on venture capital rates of
return. Due to the nature of the forecast and the risks associated with the
projected growth, profitability and developmental projects, a discount rate of
30 percent was deemed appropriate for the business enterprise and for the
IPR&D. Memco did not assume in its valuation model any material change in its
profit margins or any material increases in selling, general and administrative
expenses as a result of the acquisitions. Since NIT and AbirNet were
development stage enterprises, Memco did not anticipate any expense
reductions/synergies as a result of the acquisitions.

NIT had spent approximately $1.75 million in research and development as of
the acquisition date. Memco expected to expend significant additional
resources, on the order of $2.5 million for the completion of NIT IPR&D
projects. AbirNet had spent approximately $1 million on the IPR&D projects as
of the acquisition date, and Memco expected to expend an additional $4 million
on the completion efforts.

Currently, the completion and integration of NIT and AbirNet products is on
track with existing plans and the development costs are on budget. As the
products become viable, incremental revenues attributed to such products are
expected to match the projections used in the valuation analysis. Memco
believes that its investment in NIT and AbirNet will contribute materially to
its overall revenues and earnings if it is successful in completing the
research and development projects.

The forecasts used in valuing the IPR&D were based upon assumptions Memco
believed to be reasonable but which were inherently uncertain and
unpredictable. For this reason, actual results may vary from projected results.
Currently, Memco is strongly dedicated to refining the development of the
acquired technology and continues to advance the products towards technological
feasibility. Failure to complete the research and development efforts of NIT
and AbirNet would cause Memco's future revenues and profits attributable to the
research and development not to materialize as these new product capabilities
are expected to contribute to differentiating Memco from the competition in the
future. Commercial results will also be subject to uncertain market events and
risks, which are beyond Memco's control, such as trends in technology,
government regulations, market size and growth, and product introduction or
other actions by competitors and other factors discusses herein.

Financing Income, Net. Net financing income was $2.2 million in the nine
months ended September 30, 1998 compared with $2.3 million in the same period
of 1997. This decrease resulted from cash payments made to AbirNet shareholders
in connection with acquisition of AbirNet. Interest expense and bank charges
were $84,000 and $21,000 for the nine months ended 1998 and 1997, respectively.

During 1998, Memco continued to enter into arrangements with finance
companies to enable it to offer its customers extended payment terms. Pursuant
to such arrangements, Memco has assigned or factored certain receivables from
customer sales in exchange for a one-time payment of the discounted value of
the receivable. Under the current arrangement, such discounted value amounts to
91.5% of such receivable. These finance arrangements amounted to $6 million in
the nine months ended September 30, 1998.

Net Income (loss). As a result of the foregoing, Memco's net loss was
$(26.7) million for the nine months ended September 30, 1998 compared to net
income of $5.4 million in the same period in 1997. Net income, excluding
acquired in-process technology, for the nine months ended September 30, 1998
was $4.9 million.

119
<PAGE>

Year Ended December 31, 1997 Compared with Year Ended December 31, 1996

Revenues. Revenues were $30.6 million in 1997 compared with $15.3 million in
1996. This increase is primarily a result of sales of the SeOS Access Control
and SeOS Security Administrator products. In 1997, approximately 95.4%, 1.8%
and 2.8% of Memco's total revenues were derived from sales to customers in the
United States, Israel and Europe, respectively. In 1996, revenues from two of
Memco's largest end-user customers represented approximately 21% and 15% of
Memco's revenues, respectively. In 1997, no single end-user customer
represented more than 10% of Memco's annual revenues. Revenues from Memco's two
largest resellers, Tivoli and PLATINUM, represented 38% and 17%, respectively,
of Memco's 1997 revenues. Revenues derived from Memco's resellers for 1997
include $2 million of deferred revenues recognized during the year in respect
of the OEM agreement.

Cost of Revenues. Cost of revenues was $3.1 million in 1997 compared with
$1.6 million in 1996. This increase was primarily related to the increase in
revenues. The majority of cost of revenues for 1997 and 1996 was attributable
to labor costs and royalty payments to the Office of the Chief Scientist in
connection with research grants previously received by Memco under the Research
Law. See "Taxation." Due to Memco's increased revenues from product sales,
gross profit increased to $27.5 million, or 90% of revenues in 1997, from $13.7
million in 1996. The increase in 1997 gross profit represents an increase over
1996 gross profit in dollar amounts but relative stability in gross profit as a
percentage of revenues.

Research and Development Expenses, Net. Research and development expenses,
net of grants from the Office of the Chief Scientist, were $4.1 million in 1997
compared with $2.3 million in 1996. This increase was primarily related to
expenses associated with the addition of personnel to develop new products.
Research and development costs, net of grants from the Office of the Chief
Scientist as a percentage of revenues, decreased to 13% in 1997 from 15% in
1996.

Marketing and Selling Expenses. Marketing and selling expenses were $13.6
million in 1997 compared with $7.4 million in 1996. This increase was primarily
due to the expansion of marketing and sales efforts in North America. Although
marketing and selling expenses increased in 1997 compared to 1996, the
percentage of marketing and selling decreased as a percentage of revenues to
45% in 1997 from 48% in 1996 as a result of the increase in Memco's revenues.

General and Administrative Expenses. General and administrative expenses
were $3.0 million in 1997 compared with $1.5 million in 1996. This increase was
primarily related to an increase in the number of administrative personnel and
the expansion of Memco's business.

Financing Income, Net. Net financing income was $3.2 million in 1997
compared with $1.3 million in 1996. This increase resulted from additional
interest income received by Memco on deposits of net proceeds from its initial
public offering in October 1996. In 1997 and 1996, Memco paid interest on loans
borrowed from banks and other third parties. Interest expense and bank charges
were $68,500 for 1997 compared to $41,000 in 1996.

During 1997, Memco entered into arrangements with finance companies to
enable Memco to offer its customers extended payment terms. Pursuant to such
arrangements, Memco has assigned or factored, certain receivables from customer
sales in exchange for a one-time payment of the discounted value of the
receivable. Under the term of the current arrangement, such discounted value
amounts to 91.5% of such receivable. The finance terms provide that the finance
company assumes the risk that a customer will be unable to pay for financial
reasons such as bankruptcy and Memco retains all obligations to its customers
and risks associated with the performance of its software products. During
1997, 17% of Memco's revenues were derived from customer transactions that were
financed under factoring arrangements.

Net Income. As a result of the foregoing, Memco's net income increased to
$9.1 million for 1997 from $3.4 million for 1996.

120
<PAGE>

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

Revenues. Revenues were $15.3 million in 1996 compared with $1.5 million in
1995. This increase is primarily a result of sales of the SeOS Access Control
and SeOS Security Administrator products which were commercially released in
mid-1995. In 1996, revenues from two of Memco's largest end-user customers
amounted to 21% and 15%, respectively, of revenues. In 1996, revenues from two
of Memco's largest resellers amounted to 32% and 13%, respectively, of
revenues. Revenues derived from Memco's resellers for 1996 include $2 million
of deferred revenues recognized during the year in respect of the OEM
agreement.

Cost of Revenues. Cost of revenues was $1.6 million in 1996 compared with
$0.2 million in 1995. This increase was primarily related to the increase in
revenues. The cost of revenues decreased as a percentage of revenues to 10% for
1996 from 16% for 1995, as a result of Memco's shift away from primarily
providing consulting and training services to selling software products, which
product sales involve relatively lower labor costs. The majority of cost of
revenues for 1996 and 1995 was attributable to labor costs and royalty payments
to the Office of the Chief Scientist in connection with research grants
previously received by Memco under the Research Law. See "Taxation." Due to
Memco's shift to product sales from consulting and training services, gross
profit increased to $13.7 million, or 90% of revenues in 1996, from $1.3
million, or 84% of revenues in 1995.

Research and Development Expenses, Net. Research and development expenses,
net of grants from the Office of the Chief Scientist, was $2.3 million in 1996
compared with $0.9 million in 1995. This increase was primarily related to
expenses associated with the addition of personnel to develop new products.
Research and development costs, net of grants from the Office of the Chief
Scientist as a percentage of revenues, decreased to 15% in 1996 from 56% in
1995 due to the significant increase in Memco's revenues. Research and
development costs, net consisted primarily of labor costs.

Marketing and Selling Expenses. Marketing and selling expenses were $7.4
million in 1996 compared with $2.4 million in 1995. This increase was primarily
related to the expansion of marketing and sales efforts in North America.
Although marketing and selling expenses increased in 1996 compared to 1995, the
percentage of marketing and selling expenses decreased as a percentage of
revenues to 48% in 1996 from 152% in 1995 as a result of the significant
increase in Memco's revenues.

General and Administrative Expenses. General and administrative expenses
were $1.5 million in 1996 compared with $0.5 million in 1995. This increase was
primarily related to an increase in the number of administrative personnel and
due to the expansion of Memco's business. Although general and administrative
expenses increased in 1996 compared to 1995, the percentage of general and
administrative expenses decreased as a percentage of revenues in 1996 to 10%
from 35% in 1995 as a result of the significant increases in Memco's revenues.

Financing Income, Net. Net financing income was $1.3 million in 1996
compared with $0.3 million in 1995. This increase resulted from additional
interest income received by Memco on deposits of net proceeds from its initial
public offering in October 1996. In 1996 and 1995, Memco paid interest on loans
borrowed from banks and other third parties. Interest expense was $41,000 for
1996 compared to $31,000 in 1995.

Net Income. As a result of the foregoing, Memco's net income increased to
$3.4 million for 1996 from a net loss of $2.5 million for 1995.

Variability of Quarterly Operating Results

Memco's operating results may be subject to significant fluctuations in
future periods. Significant annual and quarterly fluctuations in Memco's
results of operations may be caused by, among other factors, market acceptance
of Memco's products, the timing and composition of orders from Memco's
customers, the mix of distribution channels, the timing of new product
announcements by Memco and its competitors, currency

121
<PAGE>

exchange rate fluctuations and economic conditions in the geographical areas in
which Memco operates. Moreover, revenue generation has historically followed a
seasonal pattern whereby a disproportionate amount of revenue is recognized by
Memco during the last month of each fiscal quarter and in the fourth quarter of
each fiscal year. Memco's expense levels are based, in part, on its
expectations as to future revenues. If revenue levels are below expectations,
operating results are likely to be adversely affected. Net income, if achieved,
may be disproportionately affected by reduction in revenues because a
corresponding reduction in expenses may not be achieved. As a result, Memco
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.

Quarterly Results of Operations

The following tables set forth unaudited quarterly consolidated financial
data for each of the four quarters ended December 31, 1997 and the three
quarters ended September 30, 1998. Memco believes that all necessary
adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the selected quarterly
information when read in conjunction with the Consolidated Financial Statements
included elsewhere in this proxy statement/prospectus. The results of
operations for any quarter are not necessarily indicative of results that may
be expected for any subsequent periods.

<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1997 1997 1997 1998 1998 1998
-------- -------- --------- -------- -------- -------- ---------
(U.S. dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Unaudited Consolidated
Statement of Operations
Data:
Revenues............... $4,465 $5,910 $8,082 $12,134 $8,401 $ 10,702 $14,789
Cost of revenues....... 509 658 816 1,104 870 1,321 1,923
------ ------ ------ ------- ------ -------- -------
Gross profit........... 3,956 5,252 7,266 11,030 7,531 9,381 12,866
------ ------ ------ ------- ------ -------- -------
Operating Expenses:
Research and
development, net...... 814 961 1,079 1,212 1,071 1,316 1,971
Marketing and selling
expenses.............. 1,856 2,358 3,644 5,770 3,770 5,674 6,829
General and
administrative
expenses.............. 590 649 755 1,001 797 1,060 1,638
Amortization of excess
of cost over net
assets acquired,
net................... -- -- -- -- -- 515 771
Acquired in-process
technology............ -- -- -- -- -- 31,553 --
------ ------ ------ ------- ------ -------- -------
Total operating
expenses............ 3,260 3,968 5,478 7,983 5,638 40,118 11,209
------ ------ ------ ------- ------ -------- -------
Operating income
(loss)................ 696 1,284 1,788 3,047 1,893 (30,737) 1,657
Financing income,
net................... 754 568 1,020 854 799 809 611
Income before taxes on
income................ 1,450 1,852 2,808 3,901 2,692 (29,928) 2,268
Income taxes........... 200 205 300 230 550 450 700
------ ------ ------ ------- ------ -------- -------
Net income............. $1,250 $1,647 $2,508 $ 3,671 $2,142 $(30,378) $ 1,568
====== ====== ====== ======= ====== ======== =======
</TABLE>

Liquidity and Capital Resources

In the last three years, Memco's financing requirements were met primarily
through funds generated from operations, as well as funds generated in Memco's
initial public offering of 3,450,000 ordinary shares in the United States in
October 1996 through which Memco raised approximately $45 million in net
proceeds, and grants from the government of Israel. See "Business of Memco--
Research and Development." Cash, cash equivalents and deposits with banks were
$50 million and $56 million at September 30, 1998 and 1997, and $60.6 million
in the year ended December 31, 1997. Memco generated net cash from operations
amounting to $2.8 million and $2.2 million in the nine months ended September
30, 1998 and 1997, respectively, and $6.7 million in the year ended December
31, 1997. Memco's capital expenditures since inception have been related
primarily to the purchase of computers and related equipment, and have amounted
to $0.8 million and $1.8 million in 1996 and 1997 and $1.9 million in the nine
months ended September 30, 1998. Net cash provided by

122
<PAGE>

financing activities was $45.0 million and $1.0 million in 1996 and 1997 and
$1.2 million in the nine months ended September 30, 1998. The increase in 1996
is primarily as a result of the IPO. In addition, as of September 30, 1998,
Memco had bank loans with an aggregate balance of approximately $263,000.

Memco believes that the net proceeds from the IPO and the cash generated
from operations together with existing sources of liquidity and cash flow will
be sufficient to meet its anticipated cash needs for its current operations in
the ordinary course for at least the next 12 months.

Subsequent Accounting Pronouncement--Earnings Per Share. In February 1997,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." This statement establishes
standards for computing and presenting EPS, and replaces the presentation of
currently required primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation
of both Basic EPS and Diluted EPS on the face of the statement of income. Under
this new standard, Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects potential
dilution from the exercise of conversion of securities into common stock or
from other contracts to issue common stock and is similar to the currently-
required fully diluted EPS. Statement of Financial Accounting Standards 128 is
effective for financial statements issued for periods after December 15, 1997,
and earlier application is not permitted. When adopted, Memco will be required
to restate its EPS data for all prior periods presented. Memco does not expect
that the adoption of this statement will have a material effect on previously
reported EPS amounts.

Research and Development Grants. Memco's software development efforts have
been financed through Memco's internal resources and through programs sponsored
by the government of Israel through the Office of the Chief Scientist starting
in the end of 1992. Research and development grants from the Office of the
Chief Scientist totaled $0.1 million, $0.3 million, $0.4 million, $0.7 million,
and $1.0 million, for the years 1993, 1994, 1995, 1996 and 1997, respectively,
and $1.7 million for the nine months ending September 30, 1998. Pursuant to the
terms of the Office of the Chief Scientist's participation, Memco is required
to pay royalties of 3% to 5% of the net sales of products developed in, and
related services resulting from, a project funded by the Office of the Chief
Scientist, up to an amount of 100% of the grant obtained in NIS linked to the
dollar. Memco paid royalties to the Office of the Chief Scientist in an
aggregate amount of approximately $1.9 million in the nine months ending
September 30, 1998 and $0.9 million in the year ended December 31, 1997. See
"Business of Memco--Research and Development."

Impact of Inflation and Currency Fluctuations

The dollar cost of Memco's operations in Israel is influenced by the extent
to which any increase in the rate of inflation in Israel is not offset, or is
offset on a lagging basis, by a devaluation of the NIS in relation to the
dollar. The inflation rate in Israel was 8.1%, 10.6% and 6.9% in 1995, 1996 and
1997, respectively, and 4.05% in the nine months ended September 30, 1998. At
the same time, devaluation of the NIS against the dollar was 3.9%, 3.7% and
8.8% in 1995, 1996 and 1997 and 8.74% in the nine months ending September 30,
1998. As a result of this differential, Memco experienced increases in the
dollar costs of operations in Israel in 1995 and 1996 which did not materially
adversely affect its results in such periods. In the nine months ending
September 30, 1998, the devaluation of the NIS against the dollar exceeded the
inflation rate in Israel, resulting in decreases in the dollar costs of
operations in Israel for 1998. This decrease in the dollar cost of Memco's
operations in Israel relates primarily to the cost of salaries in Israel, which
are paid in, and constitute a substantial portion of, Memco's expenses in NIS.
There can be no assurance that Memco will not be materially adversely affected
in the future if inflation in Israel exceeds the devaluation of the NIS against
the dollar or if the timing of such devaluation of the NIS against the dollar
or if the timing of such devaluation lags behind increases in inflation in
Israel. See "Business of Memco--Exchange Controls and Other Limitations
Affecting Security Holders."

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<PAGE>

Export Financing

Memco has received grants and approvals for future grants from the Israeli
government, through the Fund for the Encouragement of Marketing Activities, for
marketing expenses incurred to increase export sales from Israel. The grants
are recognized as a reduction of marketing expenses as such expenses are
incurred. In 1995, 1996 and 1997, Memco received grants totaling $584,000 and
has been approved for and may receive additional amounts in connection with its
marketing expenditures.

Effective Corporate Tax Rate

Certain of Memco's production facilities have been granted "Approved
Enterprise" status under the Israeli Law for Encouragement of Capital
Investments, 1959, and consequently are eligible for certain tax benefits for
the first several years in which they generate taxable income. Memco currently
has one Approved Enterprise program, which commenced operations in 1995. Income
derived from such an enterprise is subject to reduced tax rates for a period of
7 to 10 years, commencing from the first year in which Memco generates income
from the respective Approved Enterprise, on the basis of the nature of the
incentives selected by Memco. Memco's combined effective tax rate is comprised
of the United States corporate income tax rates which apply to Memco US, the
corporate income tax rates which apply to Israeli production facilities that
benefit from Approved Enterprise status and the corporate income tax rates
which apply to Israeli operations that do not benefit from Approved Enterprise
status. Memco also incurs certain withholding tax liability related to royalty
income generated in the United States and other countries outside of Israel.
See Note 8 of Notes to the Consolidated Financial Statements of Memco.

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COMPARISON OF SHAREHOLDER RIGHTS

The following is a summary of the material differences between the rights of
holders of PLATINUM common stock and Memco ordinary shares. The rights of Memco
shareholders are governed by the Companies Ordinance of the State of Israel,
the Memco articles of association and the Memco memorandum of association. Upon
consummation of the arrangement, Memco shareholders will become holders of
PLATINUM common stock, and their rights will be governed principally by the
DGCL and the PLATINUM charter and bylaws. This summary does not purport to
identify all of the differences that may be material to Memco shareholders and
is subject to the detailed provisions of the relevant laws and governing
instruments. This summary should be read in conjunction with "Description of
PLATINUM's Capital Stock."

Dividends

As a Memco Shareholder:

The Companies Ordinance does not define the sources from which dividends may
be paid, although Israeli common law has been generally interpreted to require
that dividends be paid solely out of profits. Under the Memco articles,
dividends may be paid solely out of the profits of Memco.

As a PLATINUM Stockholder:

Under the DGCL, a corporation may pay dividends out of surplus, defined as
the excess of net assets over capital. If no such surplus exists, dividends may
be paid out of its net profits for the fiscal year, provided that dividends may
not be paid out of net profits if the capital of such corporation is less than
the aggregate amount of capital represented by the outstanding stock of all
classes having a preference upon distribution of assets. The PLATINUM charter
and bylaws contain provisions relating to the declaration and payment of
dividends consistent with the DGCL.

Neither PLATINUM nor Memco currently pays dividends to their respective
stockholders.

Voting Rights

As Both a Memco Shareholder and a PLATINUM Stockholder:

Each share of PLATINUM and Memco is entitled to one vote on matters
submitted to a vote of stockholders. Neither PLATINUM nor Memco stockholders
have cumulative voting rights in the election of directors.

Directors--Number of Directors; Vacancies

As a Memco Shareholder:

Under the Companies Ordinance, a public company must have at least two
directors. The Memco articles specify that the Memco board size shall be
determined by ordinary resolution of the Memco shareholders. The current number
of directors is seven. Vacant director positions may be filled by the Memco
board. If in filling vacant director positions, the directors then in office
constitute less than a majority of the board, the Memco board may only act in
an emergency to fill a vacant director position in order to obtain the minimum
number of directors needed to call a Memco shareholders meeting to fill the
director vacancies. The Memco articles also provide a procedure for the
appointment of alternate directors.

As a PLATINUM Stockholder:

Under the DGCL, a corporation's board of directors must consist of at least
one member with the number fixed by the charter document or bylaws of the
corporation. The PLATINUM charter and bylaws provide that the PLATINUM board
shall consist of six to eleven directors elected for staggered three year
terms, with the exact number determined by the PLATINUM board. The current size
of the PLATINUM board is seven. The DGCL provides that vacant director
positions may be filled by a majority of the directors then in office, even
though less than a quorum, unless:

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(a) otherwise provided in the certificate of incorporation or bylaws of
the corporation; or

(b) the certificate of incorporation directs that a particular class
elects such director.

PLATINUM'S charter and bylaws do not provide for either (a) or (b) above.

In addition, at the time of filling any vacant director position, if the
directors then in office constitute less than a majority of the board, the
Delaware Court of Chancery may, upon application of stockholders holding at
least ten percent (10%) of shares outstanding, summarily order an election to
be held to fill any such vacant director positions, or to replace the directors
chosen by the directors then in office.

Unless otherwise provided in the certificate of incorporation or bylaws,
when one or more directors resign from the board, a majority of directors then
in office may vote to fill the vacancy. PLATINUM's bylaws limit this provision
to directors that have resigned, effective at a future date.

Directors--Classification

As a Memco Shareholder:

Memco has no staggered terms of office. Each Memco director is elected to
serve until the annual meeting proceeding the general meeting at which such
director was elected, or until his or her earlier removal.

As a PLATINUM Stockholder:

Directors of PLATINUM serve staggered terms of office. The PLATINUM charter
and bylaws provide that its boards of directors shall be divided into three
classes, as nearly equal in number as possible, with each class serving a
staggered three year term.

Directors--Removal

As a Memco Shareholder:

The Memco articles provide that a director or the entire Memco board may be
removed with or without cause by the holders of a majority of Memco ordinary
shares represented at a general meeting in person or by proxy.

As a PLATINUM Stockholder:

Under Section 141 of the DGCL, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares entitled to vote in an election of directors, unless the certificate of
incorporation limits such removal only for cause.

PLATINUM's charter provides that directors may be removed only with cause by
a vote of a majority of the combined voting power of PLATINUM's outstanding
stock.

Directors--Nominations

As a Memco Shareholder:

The Memco articles and memorandum are silent on the nomination procedure.

As a PLATINUM Stockholder:

The PLATINUM bylaws provide that nominations for directors may be made only
by or at the direction of the PLATINUM board or by a stockholder entitled to
vote for the election of directors at a stockholders' meeting. Written notice
of such stockholder's intent to make a director nomination must be received by
the Secretary of PLATINUM in a manner and within the time period specified in
the bylaws of PLATINUM.

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Limitation on Directors Liability; Indemnification of Officers and Directors

As a Memco Shareholder:

The Companies Ordinance permits a company's articles of association to
provide that:

(a) a company may obtain an insurance policy for an executive officer or
similar position without regard to the corporate title with respect to
liabilities incurred by such person as a result of a breach of his duty of
care or fiduciary duty to the company to the extent that he acted in good
faith and reasonably believed that the act would not prejudice the company,
as well as for monetary liabilities charged against him as a result of an
act or omission that he committed in connection with his serving as an
office holder of a company; and

(b) a company may indemnify an office holder for monetary liability
incurred pursuant to a judgment from an action brought against him by a
third party, or as a result of a criminal charge of which he was acquitted.

A company may not indemnify an office holder as a result of the following:

(a) a breach of fiduciary duty, except for a breach of fiduciary duty to
the company while acting in good faith and having reasonable cause to
assume that such act would not prejudice the interests of the company;

(b) a willful breach of the duty of care or reckless disregard for the
circumstances or the consequences of a breach of the duty of care;

(d) a fine imposed for an offense.

The Memco articles provide for the insurance and indemnification as
described above, and Memco carries such insurance and has entered into
indemnification agreements with office holders.

As a PLATINUM Stockholder:

Section 102 of the DGCL allows a corporation to include in its certificate
of incorporation a provision that limits or eliminates the personal liability
of directors to the corporation and its stockholders for monetary damages for a
breach of fiduciary duty as a director. However, a corporation may not limit or
eliminate the personal liability of a director for:

(a) any breach of the director's duty of loyalty to the corporation or
its stockholders;

(b) acts or omissions in bad faith or which involve intentional
misconduct or a knowing violation of law;

(d) any transaction which derives the director an improper personal
benefit.

Section 145 of the DGCL permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to:

(a) any action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, against expenses, including attorneys' fees, judgments,
fines and reasonable settlement amounts if such person acted in good faith
and reasonably believed that his or her actions were in or not opposed to
the best interests of such corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful;

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<PAGE>

(b) any derivative action or suit on behalf of such corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense or settlement of such action or suit, if such
person acted in good faith and reasonably believed that his or her actions
were in or not opposed to the best interest of such corporation.

In the event that a person is adjudged to be liable to the corporation in a
derivative suit, the DGCL prohibits indemnification unless either the Delaware
Court of Chancery or the court in which such derivative suit was brought
determines that such person is entitled to indemnification for those expenses
which such court deems proper. To the extent that a representative of a
corporation has been successful on the merits or otherwise in the defense of a
third party or derivative action, indemnification for actual and reasonable
expenses incurred is mandatory.

The PLATINUM charter provides that PLATINUM shall indemnify PLATINUM
directors to the maximum extent permitted by the DGCL. The PLATINUM charter
provides that PLATINUM may, at the discretion of the PLATINUM board, indemnify
officers and employees of PLATINUM.

Call of Special Meetings

As a Memco Shareholder:

Under Section 109 of the Companies Ordinance, an extraordinary general
meeting of shareholders may be called by the board of directors or by a request
of the shareholders holding at least one-tenth of the paid-up capital of the
company carrying voting rights at general meetings. Under Memco's articles, an
extraordinary general meeting of the shareholders may be called by a majority
of the Memco board or by shareholder request in accordance with Section 109 of
the Companies Ordinance.

As a PLATINUM Stockholder:

Under Section 211 of the DGCL, special meetings of stockholders may be
called by the board of directors and by such other person or persons authorized
to do so by the corporation's certificate of incorporation or bylaws. Under
PLATINUM's bylaws, a special meeting of stockholders may be called only by the
PLATINUM board.

Action of Shareholders Without a Meeting

As a Memco Shareholder:

Under the Memco articles, a resolution in writing signed or consented to by
written notification by all of the Memco shareholders then entitled to attend
and vote at general shareholder meetings shall be deemed to have been
unanimously adopted.

As a PLATINUM Stockholder:

The DGCL permits the stockholders of a corporation to consent in writing to
any action without a meeting, unless the certificate of incorporation of such
corporation provides otherwise. The PLATINUM charter contains a prohibition
that prevents PLATINUM's stockholders from taking any action without a meeting.

Shareholder Proposals

As a Memco Shareholder:

Neither the Companies Ordinance nor the Memco articles or memorandum address
the issue of shareholder proposals.

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As a PLATINUM Stockholder:

The PLATINUM bylaws provide that, to be timely, the Secretary of PLATINUM
must receive written notice at the principal executive offices of PLATINUM
between 120 and 150 days prior to the first anniversary of the date of
PLATINUM's consent solicitation or proxy statement distribution to stockholders
in connection with the previous year's election of directors or meeting of
stockholders. If no annual meeting of stockholders or election by consent was
held in the previous year, or if the date of the meeting has been changed from
the previous year's meeting date, a proposal must be received within 10 days
after the meeting date has been "publicly disclosed."

Amendment to Charter, Memorandum of Understanding

As a Memco Shareholder:

Under the Companies Ordinance, an Israeli company may not amend its
memorandum of association, except to the extent allowed under the explicit
instructions in the Companies Ordinance, or under other limited circumstances
in accordance with Israeli law.

As a PLATINUM Stockholder:

Under the DGCL, the charter of a corporation may be amended by resolution of
the board of directors and the affirmative vote of the holders of a majority of
the outstanding shares of voting stock then entitled to vote. The DGCL also
permits a corporation to make provision in its certificate of incorporation
requiring a greater proportion of the voting power to approve a specified
amendment. Any amendment to the charter of a corporation that adversely affects
a particular class or series of stock requires the separate approval of the
holders of the affected class or series of stock. Any amendment to the PLATINUM
charter relating to the classified board of directors or the prohibition on
stockholder action by written consent requires the approval of eighty percent
(80%) of the outstanding shares of voting capital stock of PLATINUM.

Amendment to Bylaws, Articles of Association

As a Memco Shareholder:

Under the Companies Ordinance, an Israeli company may, subject to its
memorandum of association, amend or supplement its articles of association by
"Special Resolution." Under the Companies Ordinance, a "Special Resolution"
requires the approval, at a general meeting with a quorum, of seventy-five
percent (75%) of the shareholders present and voting in person or by proxy.

As a PLATINUM Stockholder:

Section 109 of the DGCL provides that the power to adopt, amend or repeal
bylaws shall be in the stockholders entitled to vote. A corporation may, in its
certificate of incorporation, confer such powers on the board of directors.
Under the PLATINUM charter, the PLATINUM board is expressly authorized to make,
alter, amend or repeal the bylaws of PLATINUM. If such action is to be taken by
stockholders, the affirmative vote of 66 2/3% of the total votes eligible to be
cast by stockholders is required.

Conflict of Interest

As a Memco Shareholder:

Under the Companies Ordinance, certain "unusual transactions" of a company,
defined as transactions not in the ordinary course of business, not on market
terms or apt to substantially affect the corporation, in which an office holder
of the company has a "personal interest" must be approved by the company's
audit committee and its board of directors and, for certain companies, its
shareholders.

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The Memco articles provide that no director shall be disqualified by virtue
of his office from holding any office or place of profit in Memco or in any
company which Memco holds shares of or contracts with. No contract or
arrangement entered into by Memco in which any director is in any way
interested, may be avoided, nor, other than as required under the Companies
Ordinance, shall any director be liable to account to Memco for any profit
arising from any such office or place of profit or realized by any such
contract or arrangement solely due to such interest. The nature of the
interest, as well as any material fact or document, must be disclosed by him at
the meeting of the board of directors at which the contract or arrangement is
first considered, if his interest then exists, or, no later than the first
meeting of the board of directors after the acquisition of his interest.

As a PLATINUM Stockholder:

The PLATINUM bylaws provide that no contract entered into between PLATINUM
and one or more of its directors or officers or between PLATINUM and any other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely
because the director or officer is present or participates in a meeting which
authorizes the contract or transaction, or solely because his or her votes are
counted for such purpose, if:

(a) the director or officer's relationship or interest in the contract
or transaction is disclosed to the disinterested directors, and the
disinterested directors authorize the contract or transaction in good
faith;

(b) the material facts as to the director or officer's relationship or
interest in the contract are disclosed to the stockholders then entitled to
vote, and the contract is approved in good faith by the vote of the
stockholders; or

(c) the contract is fair to the corporation as of the time it is
authorized by the board of directors or by the stockholders.

Business Combinations; Antitakeover Effects

As a Memco Shareholder:

Under the Companies Ordinance, settlements and arrangements between a
company and any class of its shareholders, or any class of its creditors,
involving certain types of mergers, reorganizations, sales of assets and
dissolutions require:

(a) the majority approval at an extraordinary meeting of shareholders
representing 75% of the relevant class of shares; and

(b) the sanction of the Israeli District Court.

Once so approved and sanctioned, all shareholders of the relevant class are
bound by the arrangement.

As a PLATINUM Stockholder:

Section 203 of the DGCL generally prohibits, a publicly held corporation
from engaging in a "business combination" with an "interested stockholder" for
three years after the date the person becomes an interested stockholder. See
"Description of PLATINUM's Capital Stock--Delaware Business Combination Law."
Except as described above under "Conflict of Interest," neither the PLATINUM
charter nor bylaws contains any provisions which modify Section 203 of the
DGCL.

PLATINUM's charter, bylaws and rights agreement contain a number of
provisions which may be deemed to have potential anti-takeover effects. See
"Description of PLATINUM's Capital Stock."

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EXPERTS

The consolidated financial statements and related financial statement
schedule of PLATINUM technology International, inc. as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, have been included in this proxy statement/prospectus and in the
registration statement in reliance upon the reports of KPMG LLP and other
auditors, independent certified public accountants, given on the authority of
said firms as experts in accounting and auditing.

The consolidated financial statements of Mastering, Inc. for the year ended
December 31, 1997 referenced in KPMG LLP's independent auditors' reports
relating to PLATINUM technology International, inc. have been audited by Arthur
Andersen LLP, independent auditors, to the extent indicated in their report
thereon appearing elsewhere herein.

The consolidated financial statements of Logic Works, Inc. for the year
ended December 31, 1997 referenced in KPMG LLP's independent auditors' reports
relating to PLATINUM technology International, inc. have been audited by Ernst
& Young LLP, independent auditors, to the extent indicated in their report
thereon appearing elsewhere herein.

With respect to the unaudited interim financial information of PLATINUM
technology International, inc. for the periods ended September 30, 1998 and
1997, included herein, KPMG LLP has reported that they applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report included herein states that they
did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of the
proxy statement/prospectus prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.

The audited financial statements of Memco as of December 31, 1996 and 1997
and for the three years ended December 31, 1995, and 1996 and 1997 included in
this prospectus and elsewhere in the registration statement have been audited
by Luboshitz, Kasierer & Co., a member firm of Arthur Andersen and by Chaikin,
Cohen Rubin, each of which are independent public accountants, as indicated in
their report which respect thereto and are incorporated by reference herein in
reliance upon the authority of said firms as experts in giving said report.

The audited financial statements of Network Information Technology as of,
and for the year ended December 31, 1997, included in this proxy
statement/prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon the
authority of said firms as experts in accounting.

The audited consolidated financial statements of AbirNet as of December 31,
1997, and for the year ended December 31, 1997, included in this proxy
statement/prospectus and elsewhere in the registration statement have been
audited by Kost, Forer & Gabbay, a member of Ernst & Young International,
independent auditors, as indicated in their report with respect, thereto and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the PLATINUM common stock offered hereby will be passed upon
for PLATINUM by Katten Muchin & Zavis, Chicago, Illinois.

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WHERE YOU CAN FIND MORE INFORMATION

Memco and PLATINUM each files reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's Public Reference Rooms at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 or the SEC's regional offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and at the World Trade Center, 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of these materials can also be obtained from the
SEC at prescribed rates by writing to the Public Reference Room of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549. Questions relating to the operation
of the Public Reference Room may be directed to the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers, including
PLATINUM, that file electronically with the SEC. This Internet site can be
accessed at http://www.sec.gov. In addition, material filed by Memco and
PLATINUM can be inspected at the offices of The Nasdaq Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006.

PLATINUM has filed with the SEC a Registration Statement on Form S-4 with
respect to the PLATINUM common stock issuable to Memco shareholders (other than
shares already owned by PLATINUM) pursuant to the agreement. This proxy
statement/prospectus constitutes the prospectus of PLATINUM that is filed as
part of the Registration Statement. Other parts of the Registration Statement
are omitted from this proxy statement/prospectus in accordance with the rules
and regulations of the SEC. Copies of the Registration Statement, including
exhibits, may be inspected without charge at the offices of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies may be obtained from the
SEC at prescribed rates.

As used in this proxy statement/prospectus, the term "Memco" means Memco
Software Ltd. and its subsidiaries, and the term "PLATINUM" means PLATINUM
technology International, inc. and its subsidiaries. Memco has supplied all
information contained in this proxy statement/prospectus relating to Memco, and
PLATINUM has supplied all such information relating to PLATINUM.

You should rely only on the information contained in this proxy
statement/prospectus to vote on the arrangement and the agreement. We have not
authorized anyone to provide you with information that is different from what
is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated February 4, 1999. You should not assume that the
information contained in the proxy statement/prospectus is accurate as of any
date other than such date, and neither the mailing of this proxy
statement/prospectus to you nor the issuance of PLATINUM common stock in the
arrangement shall create any implication to the contrary.

This proxy statement/prospectus is being furnished to Memco shareholders in
connection with the solicitation of proxies by the Memco board for use at the
Memco extraordinary general meeting of shareholders. Each copy of this proxy
statement/prospectus mailed to the Memco shareholders is accompanied by a form
of proxy for use at the Memco extraordinary general meeting. This proxy
statement/prospectus is also being furnished by PLATINUM to Memco shareholders
as a prospectus in connection with PLATINUM common stock to be issued upon
consummation of the arrangement.

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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<S> <C>
PLATINUM technology International, inc.:
Independent Auditors' Review Report..................................... F-3
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997...................................................... F-4
Consolidated Statements of Operations (unaudited) for the nine months
ended September 30, 1998 and 1997...................................... F-5
Consolidated Statements of Comprehensive Income (unaudited) for the nine
months ended September 30, 1998 and 1997............................... F-6
Consolidated Statement of Stockholders' Equity for the nine months ended
September 30, 1998..................................................... F-7
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1998 and 1997...................................... F-8
Notes to Consolidated Financial Statements.............................. F-9
Independent Auditors' Report............................................ F-12
Consolidated Balance Sheets as of December 31, 1997 and 1996............ F-13
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-14
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995....................................... F-15
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-16
Notes to Consolidated Financial Statements.............................. F-17
Memco Software Ltd.:
Consolidated Balance Sheets (unaudited) for the nine months ended
September 30, 1998 and December 31, 1997............................... F-41
Consolidated Statements of Operations (unaudited) for the nine months
ended September 30, 1998 and 1997 and the three months ended September
30, 1998 and 1997...................................................... F-42
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1998 and 1997...................................... F-43
Notes to Consolidated Financial Statements.............................. F-44
Report of Independent Public Accountants................................ F-45
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-46
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................................... F-47
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1995, 1996 and 1997................................. F-48
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................................... F-49
Notes to Consolidated Financial Statements.............................. F-50
Network Information Technology, Inc.:
Report of Independent Public Accountants................................ F-57
Balance Sheets as of December 31, 1997 and March 31, 1998............... F-58
Statements of Operations (unaudited) for the year ended December 31,
1997 and the three months ended March 31, 1998......................... F-59
Statements of Changes in Shareholders' Equity (unaudited) for the year
ended December 31, 1997 and the three months ended March 31, 1998...... F-60
Statements of Cash Flows (unaudited) for the year ended December 31,
1997 and the three months ended March 31, 1998......................... F-61
Notes to Financial Statements........................................... F-62
AbirNet Ltd.:
Consolidated Balance Sheet as of December 31, 1997 and March 31, 1998... F-65
Consolidated Statement of Operations (unaudited) for the year ended
December 31, 1997 and the three months ended March 31, 1998............ F-66
</TABLE>

F-1
<PAGE>

<TABLE>
<S> <C>
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
for the year ended December 31, 1997 and the three months ended March
31, 1998............................................................... F-67
Consolidated Statement of Cash Flows (unaudited) for the year ended
December 31, 1997 and the three months ended March 31, 1998............ F-68
Notes to Consolidated Financial Statements.............................. F-69
Report of Independent Auditors.......................................... F-70
Consolidated Balance Sheet as of December 31, 1997...................... F-71
Consolidated Statement of Operations for the year ended December 31,
1997................................................................... F-72
Statement of Changes in Shareholders' Equity for the year ended December
31, 1997............................................................... F-73
Consolidated Statement of Cash Flows for the year ended December 31,
1997................................................................... F-74
Notes to Consolidated Financial Statements.............................. F-75
Memco Software Selected Consolidated Financial Data:
Summary Unaudited Pro Forma Combined Financial Data..................... F-82
Pro Forma Combined Statement of Operations for the year ended December
31, 1997............................................................... F-83
Pro Forma Combined Statement of Operations for the three months ended
March 31, 1998......................................................... F-84
Pro Forma Combined Balance Sheets as of March 31, 1998.................. F-85
PLATINUM technology International, inc.:
Independent Auditors' Report............................................ F-86
Schedule II--Valuation and Qualifying Accounts.......................... F-87
</TABLE>

F-2
<PAGE>

INDEPENDENT AUDITORS' REVIEW REPORT

The Board of Directors
PLATINUM technology International, inc.:

We have reviewed the consolidated balance sheet of PLATINUM technology
International, inc. and subsidiaries as of September 30, 1998, and the related
consolidated statements of operations, comprehensive income and cash flows for
the nine month periods ended September 30, 1998 and 1997, and stockholders'
equity for the nine month period ended September 30, 1998. These consolidated
financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of PLATINUM technology International,
inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended; and in our report dated May 28, 1998, which was based in part on the
reports of other auditors, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1997 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.

/s/ KPMG LLP

Chicago, Illinois
November 12, 1998

F-3
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
As of As of
September 30, December 31,
ASSETS 1998 1997
------ ------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 110,809 $ 233,024
Short-term investment securities...................... 144,567 79,699
Trade accounts receivable, net of allowances of $2,322
and $4,788........................................... 248,753 227,964
Installment accounts receivable, net of allowances of
$412 and $878........................................ 31,685 30,043
Accrued interest and other current assets............. 51,194 37,090
Refundable income taxes............................... 858 753
---------- ---------
Total current assets.............................. 587,866 608,573
---------- ---------
Non-current investment securities....................... 28,290 45,481
Property and equipment, net............................. 90,179 92,165
Purchased and developed software, net................... 152,258 117,213
Excess of cost over net assets acquired, net of
accumulated amortization of $22,666 and $15,975........ 62,338 52,759
Non-current installment receivables, net of allowances
of $736 and $1,616..................................... 66,419 21,912
Other assets............................................ 29,784 34,804
---------- ---------
Total assets...................................... $1,017,134 $ 972,907
========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables.......................... $ 20,470 $ 15,717
Income taxes payable.................................. 6,173 4,165
Accounts payable...................................... 22,547 23,294
Accrued commissions and bonuses....................... 17,381 16,237
Accrued royalties..................................... 4,136 7,215
Accrued restructuring costs........................... 3,761 7,391
Other accrued liabilities............................. 65,529 51,946
Current maturities of long-term obligations........... 1,489 1,619
Deferred revenue...................................... 128,580 128,326
---------- ---------
Total current liabilities......................... 270,066 255,910
---------- ---------
Acquisition-related payables............................ 8,044 18,320
Deferred revenue........................................ 76,089 60,435
Deferred rent........................................... 6,553 6,197
Accrued restructuring costs............................. 10,463 21,930
Long-term obligations, net of current maturities........ 268,668 267,239
---------- ---------
Total liabilities................................. 639,883 630,031
---------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000 shares, issued and outstanding 1,768 in 1998.. 18 --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997...................... -- 18
Common stock, $.001 par value; authorized 180,000
shares, issued and outstanding 86,266 and 80,239..... 86 80
Paid-in capital....................................... 777,069 691,609
Accumulated deficit................................... (391,514) (352,450)
Accumulated other comprehensive income:
Unrealized holding gains (losses) on marketable
securities......................................... (3,315) 8,466
Foreign currency translation adjustment............. (5,093) (4,847)
---------- ---------
Total stockholders' equity........................ 377,251 342,876
---------- ---------
Total liabilities and stockholders' equity........ $1,017,134 $ 972,907
========== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)
(unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Software products....................................... $343,654 $260,419
Maintenance............................................. 124,782 102,159
Professional services................................... 185,043 133,604
-------- --------
Total revenues........................................ 653,479 496,182
-------- --------
Costs and expenses:
Professional services................................... 166,529 122,019
Product development and support......................... 178,018 150,439
Sales and marketing..................................... 217,054 184,805
General and administrative.............................. 49,430 38,983
Special general and administrative charge............... 6,525 13,513
Restructuring charges................................... (6,525) 56,063
Merger costs............................................ 39,965 3,706
Acquired in-process technology.......................... 32,615 17,164
-------- --------
Total costs and expenses.............................. 683,611 586,692
-------- --------
Operating loss............................................ (30,132) (90,510)
Other income, net......................................... 11,729 14,721
-------- --------
Loss from continuing operations before income taxes....... (18,403) (75,789)
Income taxes.............................................. 16,754 9,032
-------- --------
Net loss from continuing operations....................... (35,157) (84,821)
-------- --------
Loss from discontinued operations, net of tax benefit of
$365 and $1,196.......................................... -- (1,858)
-------- --------
Net loss.................................................. $(35,157) $(85,846)
======== ========
Net loss per share--basic................................. $ (0.42) $ (1.11)
======== ========
Shares used in computing per share amounts--basic......... 82,965 77,457
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)
(unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Net loss.................................................... $(35,157) $(85,846)
-------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment................... (246) (2,090)
-------- --------
Unrealized holding gains (losses) on marketable
securities:
Unrealized holding gains (losses) arising during the
period................................................. (5,266) 5,749
Less reclassification adjustment for gains included in
net loss............................................... (6,515) (9,887)
-------- --------
Change in unrealized holding gains (losses) for the
period............................................... (11,781) (4,138)
-------- --------
Comprehensive income (loss)................................. $(47,184) $(92,074)
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands)
(unaudited)

<TABLE>
<CAPTION>
Nine Months
Ended September
30, 1998
-----------------
Shares Amount
------ ---------
<S> <C> <C>
Preferred stock:
Balance at beginning of year............................. 1,768 $ 18
Preferred stock subscribed............................... (1,768) (18)
Issuance of preferred stock.............................. 1,768 18
------ ---------
Balance at end of year................................. 1,768 $ 18
====== =========
Common stock:
Balance at beginning of year............................. 80,239 $ 80
Exercise of stock options................................ 2,901 3
Issuance of common stock under Stock Purchase Plan....... 1,199 1
Issuance of common stock................................. 1,925 2
Conversion of subordinated notes......................... 2 --
------ ---------
Balance at end of year................................. 86,266 $ 86
====== =========
Paid-in capital:
Balance at beginning of year............................. $ 691,609
Exercise of stock options................................ 33,398
Issuance of common stock under Stock Purchase Plan....... 18,545
Issuance of common stock................................. 33,605
Preferred stock subscribed............................... (41,848)
Issuance of preferred stock.............................. 41,848
Amortization of shelf registration costs................. (124)
Conversion of subordinated notes......................... 36
---------
Balance at end of year................................. $ 777,069
=========
Accumulated deficit:
Balance at beginning of year............................. $(352,450)
Net loss................................................. (35,157)
Adjustment for immaterial pooled businesses.............. (3,522)
Adjustment to conform fiscal years of pooled businesses.. (385)
---------
Balance at end of year................................. $(391,514)
=========
Unrealized appreciation (depreciation) in marketable
securities:
Balance at beginning of year............................. $ 8,466
Change in unrealized holding gains, net of tax........... (11,781)
---------
Balance at end of year................................. $ (3,315)
=========
Foreign currency translation adjustment:
Balance at beginning of year............................. $ (4,847)
Translation adjustment................................... (246)
---------
Balance at end of year................................. $ (5,093)
=========
Total stockholders' equity........................... $ 377,251
=========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (35,157) $(85,846)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 60,634 47,324
Acquired in-process technology........................ 32,615 17,164
Write-off of fixed assets, capitalized software and
other intangible assets in conjunction with the
restructuring plan................................... -- 19,687
Recovery related to restructuring liability........... (6,525) (1,256)
Gain on sale of discontinued operations............... -- (6,709)
Unrealized net holding gains on marketable equity
securities........................................... (2,232) (10,274)
Realized net gain on sales of investment securities... (12,079) (4,370)
Noncash compensation.................................. -- 79
Sales of trading securities............................. 13,918 5,565
Changes in assets and liabilities, net of acquisitions:
Trade and installment receivables..................... (66,592) (97)
Deferred income taxes................................. 11,412 5,180
Accrued interest and other current assets............. (12,995) (11,085)
Accounts payable and accrued liabilities.............. 18,527 24,164
Deferred revenue...................................... 14,880 13,294
Income taxes payable.................................. 1,784 (489)
Other................................................. (171) (9,669)
--------- --------
Net cash provided by operating activities........... 18,019 2,662
--------- --------
Cash flows from investing activities:
Purchases of investment securities...................... (237,473) (34,810)
Sales of available-for-sale securities.................. 14,591 8,056
Maturities of investment securities..................... 156,152 18,505
Purchases of property and equipment..................... (25,833) (18,544)
Proceeds from the sale of discontinued operations....... -- 17,574
Purchased and developed software........................ (60,489) (48,952)
Payments for acquisitions............................... (36,050) (11,444)
Other assets............................................ (1,366) (5,708)
--------- --------
Net cash used in investing activities............... (190,468) (75,323)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and Stock
Purchase Plan.......................................... 51,946 16,691
Payments on borrowings.................................. (1,327) (5,795)
Other................................................... -- (282)
--------- --------
Net cash provided by financing activities........... 50,619 10,614
--------- --------
Adjustment to conform fiscal years of pooled businesses... (385) 254
--------- --------
Net decrease in cash and cash equivalents................. (122,215) (61,793)
Cash and cash equivalents at the beginning of the period.. 233,024 178,661
--------- --------
Cash and cash equivalents at the end of the period........ $ 110,809 $116,868
========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of
PLATINUM technology International, inc. and its subsidiaries (collectively, the
"Company" or "PLATINUM") 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. All
intercompany accounts and transactions have been eliminated.

These unaudited interim 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, 1997 included herein.

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

Note 2--REVENUE RECOGNITION

On January 1, 1998, the Company adopted AICPA Statement of Position ("SOP")
97-2, Software Revenue Recognition, which specifies the criteria that must be
met prior to the Company recognizing revenues from software sales. The adoption
of SOP 97-2 in 1998 has not had a material impact on the Company's financial
position or results of operations.

Note 3--EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of common stock equivalents.
Diluted earnings per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of common stock equivalents.
Because the Company reported a net loss for the nine month periods ended
September 30, 1998 and 1997, per share amounts have been presented under the
basic method only.

Note 4--BUSINESS COMBINATIONS

On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mastering, a leading provider of information technology training, in
exchange for 6,497,094 shares of the Company's Common Stock, $.001 par value
("Common Stock"), which had a market value, based upon the closing price of the
Common Stock on the Nasdaq National Market ("Market Value"), of approximately
$168,100,000 on the date the acquisition was consummated. In addition, the
Company assumed stock options which converted into options to purchase
2,193,219 shares of Common Stock.

On May 12, 1998, the Company acquired all of the outstanding capital stock of
LBMS, a leading provider of process management solutions, in exchange for
2,775,595 shares of the Company's Common Stock, which had a Market Value of
approximately $72,000,000 on the date the acquisition was consummated. In
addition, the Company exchanged options to purchase 430,736 shares of Common
Stock for outstanding LBMS stock options.

On May 28, 1998, the Company acquired all of the outstanding capital stock of
Logic Works, a leading provider of data modeling tools, in exchange for
7,424,447 shares of the Company's Common Stock, which had a Market Value of
approximately $197,200,000 on the date the acquisition was consummated. In
addition, the Company assumed stock options which converted into options to
purchase 1,160,609 shares of Common Stock.

F-9
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Each of the aforementioned transactions was accounted for as a pooling of
interests.

The following unaudited information reconciles total revenue and net loss of
PLATINUM as reported in the Company's Form 10-Q for the quarter ended September
30, 1997 (the "Form 10-Q") with the amounts presented in the accompanying
unaudited statements of operations for the nine months ended September 30,
1997, as well as the separate results of operations for the nine months ended
September 30, 1998 of Mastering, LBMS and Logic Works during the periods
preceding their acquisition. The 1998 results for Mastering and LBMS represent
the four months ended April 30, 1998. The 1998 results for Logic Works
represent the five months ended May 31, 1998.

<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
------------------- -------------------
Net income Net income
Revenues (loss) Revenues (loss)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
PLATINUM (1)......................... $412,262 $(94,042)
Mastering........................... $13,428 $(5,078) 29,580 1,619
LBMS................................ 5,981 (865) 18,619 4,256
Logic Works......................... 21,191 575 35,721 2,321
-------- --------
Total.............................. $496,182 $(85,846)
======== ========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM as reported in the Form 10-Q
without considering the effect of the pooling-of-interests transactions
consummated in 1998. All merger costs are reflected in the historical
results of PLATINUM.

PLATINUM has also made a number of acquisitions during the nine month period
ended September 30, 1998, 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. Estimated 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.

In June 1998, PLATINUM acquired all the outstanding common stock of Geneva
Software, Inc., a leading provider of network management tools, in exchange for
920,615 shares of PLATINUM common stock, which had a market value of
approximately $21,700,000 at the time of the acquisition. A portion of the
purchase price was charged to acquired in-process technology in the second
quarter of 1998.

In June 1998, PLATINUM acquired all the outstanding capital stock of Systems
Management Solutions, Inc., a provider of mainframe asset management and cost
modeling tools, in exchange for approximately $5,500,000. A portion of the
purchase price was charged to acquired in-process technology in the second
quarter of 1998.

In June 1998, PLATINUM acquired all the outstanding capital stock of ICON
Computing, Inc., a provider of modeling technologies, in exchange for 142,570
shares of PLATINUM common stock, which had a market value of approximately
$5,900,000 at the time of the acquisition. A portion of the purchase price was
charged to acquired in-process technology in the second quarter of 1998.

In June 1998, PLATINUM acquired all the assets of Ergondata Do Brasil LTDA
("Ergondata") and Senior Consultores Associados LTDA ("Senior"), (together, the
"Brazil Acquisitions"), providers of consultancy services relating to the
installation and maintenance of specialized computer systems, in exchange

F-10
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

for 138,632 shares of PLATINUM common stock, which had a market value of
approximately $3,600,000 at the time of the acquisition, and approximately
$300,000, plus contingent consideration of approximately $3,100,000, as
specified in the acquisition agreement. The amount of this additional payment
was not determinable at September 30, 1998. Additional payments will be
recorded as excess of cost over net assets acquired in the periods in which
such payments are determinable.

During the first nine months of 1998, PLATINUM also acquired certain other
software businesses and product technologies, in transactions accounted for as
purchases, for an aggregate purchase price of approximately $5,732,000.
Portions of the purchase prices were charged to acquired in-process technology
in the periods in which the acquisitions occurred.

The following summary presents information concerning the purchase price
allocations for the acquisitions accounted for under the purchase method for
the nine months ended September 30, 1998.

<TABLE>
<CAPTION>
Purchased Acquired In-process Purchase
Company Name Software Technology Goodwill Other Price (1)
------------ --------- ------------------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Geneva Software......... $1,303 $18,816 $2,165 $(276) $22,008
SMS..................... 327 4,379 826 207 5,739
ICON.................... -- 5,300 630 150 6,080
Brazil Acquisitions..... -- -- 4,592 33 4,625
Others.................. 2,274 4,120 95 (757) 5,732
------ ------- ------ ----- -------
$3,904 $32,615 $8,308 $(643) $44,184
====== ======= ====== ===== =======
</TABLE>
- --------
(1) Purchase price includes costs associated with the acquisition.

The following unaudited pro forma summary presents PLATINUM's results of
operations as if the acquisitions of Geneva Software and other software and
services businesses had occurred at the beginning of each period. This summary
is provided for information purposes only. It does not necessarily reflect the
actual results that would have occurred had the acquisitions been made as of
their respective dates, or of results that may occur in the future.

<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1998 1997
-------- --------
(in thousands,
except per share
data)
<S> <C> <C>
Revenues.............................................. $660,217 $502,868
Net loss.............................................. (34,164) (84,531)
Net loss per share.................................... (0.41) (1.07)
</TABLE>

PLATINUM incurred significant costs and expenses in connection with these
acquisitions, including investment banking and other professional fees,
employees' severance and various other expenses. Such expenses were recorded as
part of the purchase price in connection with the acquisitions accounted for as
purchases. For the acquisitions accounted for as poolings of interests, these
expenses were recorded as merger costs in the second quarter of 1998.

F-11
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of PLATINUM
technology International, inc. and subsidiaries as of December 31, 1997 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, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Mastering, Inc. and Logic Works, Inc.,
wholly-owned subsidiaries, which statements reflect total assets constituting
13 percent and 14 percent in 1997 and 1996, respectively, and total revenues
constituting 12 percent, 12 percent and 10 percent in 1997, 1996 and 1995,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose reports have been furnished to us and our opinion,
insofar as it relates to the amounts for Mastering, Inc. and Logic Works, Inc.,
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 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 International,
inc. and subsidiaries as of December 31, 1997 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, 1997, in conformity with generally accepted
accounting principles.

/s/ KPMG LLP

Chicago, Illinois
May 28, 1998

F-12
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
As of December 31,
--------------------
ASSETS 1997 1996
------ --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 233,024 $ 178,661
Short-term investment securities....................... 79,699 75,827
Trade accounts receivable, net of allowances of $4,788
and $5,415............................................ 227,964 180,801
Installment accounts receivable, net of allowances of
$878 and $395......................................... 30,043 13,603
Net current assets of discontinued operations.......... -- 4,268
Accrued interest and other current assets.............. 37,090 14,979
Refundable income taxes................................ 753 733
--------- ---------
Total current assets................................. 608,573 468,872
--------- ---------
Non-current investment securities........................ 45,481 2,135
Property and equipment, net.............................. 92,165 79,420
Purchased and developed software, net.................... 117,213 83,032
Excess of cost over net assets acquired, net of
accumulated amortization of $15,975 and $10,610......... 52,759 37,382
Non-current installment receivables, net of allowances of
$1,616 and $816......................................... 21,912 21,665
Net long-term assets of discontinued operations.......... -- 9,789
Other assets............................................. 34,804 34,373
--------- ---------
Total assets......................................... $ 972,907 $ 736,668
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables........................... $ 15,717 $ 7,872
Income taxes payable................................... 4,165 2,446
Accounts payable....................................... 23,294 19,214
Accrued commissions and bonuses........................ 16,237 13,395
Accrued royalties...................................... 7,215 3,913
Accrued restructuring costs............................ 7,391 3,096
Other accrued liabilities.............................. 51,946 38,270
Current maturities of long-term obligations............ 1,619 4,027
Deferred revenue....................................... 128,326 94,090
--------- ---------
Total current liabilities............................ 255,910 186,323
--------- ---------
Acquisition-related payables............................. 18,320 2,502
Deferred revenue......................................... 60,435 38,674
Deferred rent............................................ 6,197 8,360
Accrued restructuring costs.............................. 21,930 7,867
Long-term obligations, net of current maturities......... 267,239 117,198
--------- ---------
Total liabilities.................................... 630,031 360,924
--------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000 shares, none issued and outstanding............ -- --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997....................... 18 --
Common stock, $.001 par value; authorized 180,000
shares, issued and outstanding 80,239 and 76,195...... 80 76
Paid-in capital........................................ 691,609 605,177
Accumulated deficit.................................... (352,450) (246,262)
Unrealized holding gains on marketable securities...... 8,466 17,814
Foreign currency translation adjustment................ (4,847) (1,061)
--------- ---------
Total stockholders' equity........................... 342,876 375,744
--------- ---------
Total liabilities and stockholders' equity........... $ 972,907 $ 736,668
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.

F-13
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software products........................... $ 410,369 $ 289,125 $ 208,929
Maintenance................................. 139,912 114,579 88,602
Professional services....................... 188,599 149,780 110,894
--------- --------- ---------
Total revenues............................ 738,880 553,484 408,425
--------- --------- ---------
Costs and expenses:
Professional services....................... 170,851 145,445 111,658
Product development and support............. 203,499 170,153 107,739
Sales and marketing......................... 263,989 218,435 152,384
General and administrative.................. 70,022 49,515 42,727
Restructuring charges....................... 55,829 16,312 --
Merger costs................................ 8,927 5,782 31,287
Acquired in-process technology.............. 67,904 49,451 88,493
--------- --------- ---------
Total costs and expenses.................. 841,021 655,093 534,288
--------- --------- ---------
Operating loss................................ (102,141) (101,609) (125,863)
Other income, net............................. 20,497 8,075 4,623
--------- --------- ---------
Loss from continuing operations before income
taxes........................................ (81,644) (93,534) (121,240)
Income taxes.................................. 23,459 (9,752) (10,814)
--------- --------- ---------
Net loss from continuing operations........... (105,103) (83,782) (110,426)
Discontinued operations:
Loss from discontinued operations, net of
tax benefit of $1,196, $2,721 and $0....... (1,858) (3,610) (3,441)
Gain (loss) on disposal, net of tax expense
of $394, $40 and $0........................ 833 198 (350)
--------- --------- ---------
Total discontinued operations............. (1,025) (3,412) (3,791)
--------- --------- ---------
Net loss...................................... $(106,128) $ (87,194) $(114,217)
========= ========= =========
Net loss per share............................ $ (1.36) $ (1.21) $ (2.10)
========= ========= =========
Shares used in computing per share amounts.... 78,072 71,919 54,349
</TABLE>

See accompanying notes to consolidated financial statements.

F-14
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock:
Balance at beginning of
year................... -- $ -- -- $ -- -- $ --
Stock subscribed........ 1,768 18 -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................. 1,768 $ 18 -- $ -- -- $ --
====== ========= ====== ========= ====== =========
Common stock:
Balance at beginning of
year................... 76,195 $ 76 67,788 $ 68 47,189 $ 47
Exercise of stock
options................ 1,609 2 892 1 993 1
Issuance of common
stock under Stock
Purchase Plan.......... 973 1 282 -- -- --
Issuance of common
stock.................. 1,461 1 7,233 7 19,606 20
Conversion of
subordinated notes..... 1 -- -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................. 80,239 $ 80 76,195 $ 76 67,788 $ 68
====== ========= ====== ========= ====== =========
Paid-in capital:
Balance at beginning of
year................... $ 605,177 $ 497,865 $ 205,612
Exercise of stock
options................ 10,690 4,152 6,582
Income tax benefit
related to stock
options................ 3,233 1,297 352
Issuance of common
stock under Stock
Purchase Plan.......... 12,503 2,791 --
Issuance of common
stock.................. 18,173 99,207 285,318
Preferred stock
subscribed............. 41,848 -- --
Amortization of shelf
registration costs..... (25) (135) --
Conversion of
subordinated notes..... 10 -- --
Adjustment to conform
fiscal years of pooled
businesses............. -- -- 1
--------- --------- ---------
Balance at end of
year................. $ 691,609 $ 605,177 $ 497,865
========= ========= =========
Notes receivable:
Balance at beginning of
year................... $ -- $ (515) $ (333)
Issuance of notes
receivable............. -- -- (200)
Repayment of notes
receivable............. -- -- 18
Reclassification to
other assets........... -- 515 --
--------- --------- ---------
Balance at end of
year................. $ -- $ -- $ (515)
========= ========= =========
Accumulated deficit:
Balance at beginning of
year................... $(246,262) $(157,967) $ (42,139)
Net loss................ (106,128) (87,194) (114,217)
Adjustment for
immaterial pooled
businesses............. 1,014 45 --
Other................... -- (1,006) (387)
Adjustment to conform
fiscal years of pooled
businesses............. (1,074) (140) (1,224)
--------- --------- ---------
Balance at end of
year................. $(352,450) $(246,262) $(157,967)
========= ========= =========
Unrealized appreciation
in marketable
securities:
Balance at beginning of
year................... $ 17,814 $ 6 $ --
Change in unrealized
holding gains, net of
tax.................... (9,348) 17,808 6
--------- --------- ---------
Balance at end of
year................. $ 8,466 $ 17,814 $ 6
========= ========= =========
Foreign currency
translation adjustment:
Balance at beginning of
year................... $ (1,061) $ 1,033 $ 387
Translation
adjustment............. (3,786) (2,094) 646
--------- --------- ---------
Balance at end of
year................. $ (4,847) $ (1,061) $ 1,033
========= ========= =========
Total stockholders'
equity................. $ 342,876 $ 375,744 $ 340,490
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-15
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(106,128) $(87,194) $(114,217)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 62,288 43,549 26,393
Acquired in-process technology............. 67,904 49,451 88,493
Net write-off of fixed assets, capitalized
software and other intangible assets in
conjunction with the restructuring plan... 18,197 3,440 --
Gain on sale of discontinued operations.... (6,709) -- --
Unrealized holding gains on marketable
equity securities......................... (12,590) (923) (6)
Realized net gain on sales of investment
securities................................ (7,566) (1,032) (332)
Write-off of capitalized software in
connection with product stabilization and
mergers................................... -- 654 1,183
Noncash compensation....................... 100 421 716
Sales of trading securities.................. 9,489 -- --
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables.......... (60,684) (68,614) (58,703)
Deferred income taxes...................... 15,649 (21,238) (13,748)
Accrued interest and other current assets.. (12,979) (2,619) (4,152)
Accounts payable and accrued liabilities... 34,668 2,638 7,136
Deferred revenue........................... 55,338 62,566 21,919
Income taxes payable....................... 3,573 1,390 3,540
Other...................................... (11,308) 4,906 16,071
--------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 49,242 (12,605) (25,707)
--------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities........... (91,423) (55,188) (71,701)
Sales of investment securities............... 15,789 43,763 75,519
Maturities of investment securities.......... 24,383 5,846 10,753
Purchases of property and equipment, net..... (37,824) (45,172) (44,528)
Proceeds from the sale of discontinued
operations.................................. 17,500 -- --
Purchased and developed software............. (63,781) (42,354) (20,742)
Payments for acquisitions.................... (19,338) (18,095) (104,315)
Other assets................................. (1,598) (4,038) (891)
--------- -------- ---------
Net cash used in investing activities.... (156,292) (115,238) (155,905)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of issuance costs........................... -- 49,973 241,486
Proceeds from issuance of convertible notes,
net of issuance costs....................... 144,967 110,783 --
Proceeds from exercise of stock options and
Stock Purchase Plan......................... 23,196 6,944 6,583
Proceeds from borrowings..................... -- 1,465 10,624
Payments on borrowings....................... (5,189) (10,404) (9,386)
Other........................................ (487) (1,109) (3,479)
--------- -------- ---------
Net cash provided by financing
activities.............................. 162,487 157,652 245,828
--------- -------- ---------
Adjustment to conform fiscal years of pooled
businesses.................................... (1,074) (140) (2,203)
--------- -------- ---------
Net increase in cash and cash equivalents...... 54,363 29,669 62,013
Cash and cash equivalents at beginning of
year.......................................... 178,661 148,992 86,979
--------- -------- ---------
Cash and cash equivalents at end of year....... $ 233,024 $178,661 $ 148,992
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.

F-16
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Nature of Operations

PLATINUM technology International, inc. and its subsidiaries (collectively,
the "Company" or "PLATINUM") develop, market and support software products, and
provide related professional services, that help organizations manage and
improve their information technology ("IT") infrastructures, which consist of
data, systems and applications. The Company's products and services help IT
departments, primarily in large and data-intensive organizations, minimize
risk, improve service levels and leverage information to make better business
decisions. The Company's products typically perform fundamental functions such
as automating operations, maintaining the operating efficiency of systems and
applications and ensuring data access and integrity. The Company currently
develops software products through its four business units: database
management, systems management, application infrastructure management and data
warehousing and decision support. 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 International, inc. and its subsidiaries. All intercompany accounts
and transactions are 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 are satisfied and the collection of the
resulting receivables is 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 service 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 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 four
to thirty years, corporate bonds with original maturities of less than one year
and marketable equity securities. The Company classifies its investment
securities as either available-for-sale or trading and reports them at fair
value. The consolidated financial statements reflect investment securities
classified as held-to-maturity which were acquired through the Company's
acquisition of Mastering, Inc. ("Mastering"), as discussed in Note 2.

F-17
<PAGE>

PLATINUM technology International, 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. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. 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. For securities transferred from available-for-
sale to the trading classification, any unrealized holding gains or losses at
the date of transfer are recognized in pre-tax earnings immediately.

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 three to
seven years, of the various classes of property and equipment. Amortization of
leasehold improvements is computed over the shorter of the lease term or the
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 10 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 temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. 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,
1997: cash and cash equivalents; trade and installment receivables; accrued
interest and other current assets; refundable income taxes; acquisition-related
payables;

F-18
<PAGE>

PLATINUM technology International, 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 12.

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, 1997 are
recoverable in future periods.

Earnings Per Share

In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which established new methods for computing and presenting earnings
per share ("EPS") and replaced the presentation of primary and fully-diluted
EPS with basic ("Basic") and diluted EPS. Basic earnings per share is based on
the weighted average number of shares outstanding and excludes the dilutive
effect of unexercised common stock equivalents. Diluted earnings per share is
based on the weighted average number of shares outstanding and includes the
dilutive effect of unexercised common stock equivalents. Because the Company
reported a net loss for the years ended December 31, 1997, 1996 and 1995, per
share amounts have been presented under the Basic method only.

Had the Company reported net earnings for the years ended December 31, 1997,
1996 and 1995, the weighted average number of shares outstanding would have
potentially been diluted by the following common equivalent securities (not
assuming the effects of applying the treasury stock method to outstanding stock
options or the if-converted method to convertible securities):

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Stock options........................... 14,925,000 12,814,000 9,727,000
Convertible subordinated notes (November
1996).................................. 8,243,000 962,000 --
Convertible subordinated notes (December
1997).................................. 231,000 -- --
---------- ---------- ---------
23,399,000 13,776,000 9,727,000
========== ========== =========
</TABLE>

Additionally, net earnings applicable to common stockholders for the years
ended December 31, 1997 and 1996 would have been increased by adding back
interest expense, net of income taxes, related to the convertible subordinated
notes of $5,870,000 and $501,000, respectively.

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 statement of
operations.

Derivative Financial Instruments

In the ordinary course of business, the Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations on
assets and liabilities denominated in currencies other than

F-19
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the functional currency of the reporting entity. All foreign exchange forward
contracts designated and effective as hedges of firm commitments are treated as
hedges, as required by generally accepted accounting principles.

Forward exchange contracts are reported at fair value within short-term
investment securities. Fair values of forward exchange contracts are determined
using published rates. Gains and losses on the forward exchange contracts are
included in other income and expense and offset foreign exchange gains and
losses from the revaluation of intercompany balances denominated in currencies
other than the functional currency of the reporting entity. Realized and
unrealized holding gains and losses on the forward exchange contracts are
reported within operating activities in the statement of cash flows.

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.

Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. The Company sells installment
receivables to third party finance companies in the normal course of business.
During 1997, all such transactions were accounted for as sales in accordance
with SFAS No. 125.

Supplemental Cash Flow Disclosure

Income tax refunds received by the Company amounted to $524,000, $307,000 and
$933,000 in 1997, 1996 and 1995, respectively. Cash paid for income taxes in
1997, 1996 and 1995 was $2,877,000, $3,642,000 and $1,403,000, respectively.
Cash paid for interest in 1997, 1996 and 1995 was $8,603,000, $1,206,000 and
$1,653,000, respectively.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 1997
presentation.

2. Acquisitions

Poolings of Interests

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 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

F-20
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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.

F-21
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mastering, Inc., a leading provider of information technology training, in
exchange for 6,497,094 shares of Common Stock, which had a Market Value of
approximately $168,100,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase
2,193,219 shares of Common Stock.

On May 12, 1998, the Company acquired all of the outstanding capital stock of
Learmonth and Burchett Management Systems Plc ("LBMS"), a leading provider of
process management solutions, in exchange for 2,775,897 shares of Common Stock,
which had a Market Value of approximately $71,900,000 at the time of the
acquisition. In addition, the Company exchanged options to purchase 430,736
shares of Common Stock for outstanding LBMS stock options.

On May 28, 1998, the Company acquired all of the outstanding capital stock of
Logic Works, Inc. ("Logic Works"), a leading provider of data modeling tools,
in exchange for 7,466,981 shares of Common Stock, which had a Market Value of
approximately $198,342,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase
1,159,591 shares of Common Stock.

Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all periods
presented. Merger costs relating to the acquisitions consummated in 1997, 1996
and 1995 amounted to $8,927,000, $5,782,000 and $31,287,000, respectively, of
which $3,155,000 and $353,000 were included in other accrued liabilities at
December 31, 1997 and 1996, respectively. 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 loss of PLATINUM
as previously reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 with the amounts presented in the accompanying
consolidated statements of operations for the years ended December 31, 1997,
1996 and 1995.

<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- -------------------
Net income Net income
Revenues (loss) Revenues Net loss Revenues (loss)
-------- ---------- -------- -------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1)............. $623,503 $(117,784) $468,065 $(64,922) $326,411 $(111,567)
Mastering............... 40,966 2,581 21,018 (2,892) 10,168 (3,273)
LBMS.................... 23,897 4,469 21,861 (16,318) 41,158 (784)
Logic Works............. 50,514 4,606 42,540 (3,062) 30,688 1,407(2)
-------- --------- -------- -------- -------- ---------
Total............... $738,880 $(106,128) $553,484 $(87,194) $408,425 $(114,217)
======== ========= ======== ======== ======== =========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM without considering the
effect of the poolings of interests consummated during 1998. All merger
costs and acquired in-process technology charges are reflected in the
historical results of PLATINUM.
(2) Represents historical Logic Works net income for the year ended December
31, 1995 before the effects of preferred stock cash dividends and the
accretion of a preferred stock redemption requirement.

F-22
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The consolidated statement of operations for the year ended December 31, 1997
reflects the impact of LBMS' operating results for the three months ended April
30, 1997, which are also included in the year ended December 31, 1996 statement
of operations due to differences in reporting periods relative to PLATINUM. The
revenues and net income of LBMS included more than once were $6,188,000 and
$1,074,000, respectively.

The consolidated statement of operations for the year ended December 31, 1996
reflects the impact of ATR's operating results for the six months ended June
30, 1996, which are also included in the year ended December 31, 1995 statement
of operations due to differences in reporting periods relative to PLATINUM. The
revenues and net income of ATR included more than once were $5,061,000 and
$140,000, respectively.

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.

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.

On November 26, 1997, the Company consummated an immaterial acquisition
accounted for as a pooling of interests. The Company acquired all of the
outstanding capital stock of Vayda Consulting, Inc. ("Vayda"), a leading
provider of information technology consulting services, in exchange for 580,231
shares of Common Stock, which had a Market Value of approximately $15,300,000
at the time of the acquisition. In addition, the Company assumed stock options
which converted into options to purchase 67,937 shares of Common Stock. The
Company did not restate the consolidated financial statements to reflect the
results of Vayda for the periods preceding the acquisition. As a result, the
retained earnings of Vayda were recorded as of the acquisition date, causing an
adjustment of $1,014,000 to the Company's accumulated deficit in 1997. This
adjustment is reflected in the consolidated statement of stockholders' equity.

Purchase Transactions

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

F-23
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 that required further refinement and testing. The 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 IT infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use.

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"), 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

F-24
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

Effective February 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.

Internationally, effective October 1997, the Company acquired all of the
outstanding capital stock of ProMetrics Group Limited ("ProMetrics"), a leading
provider of productivity management software, in exchange for approximately
$8,000,000 in cash plus 364,396 shares of Common Stock, which had a Market
Value of approximately $9,500,000 at the time of the acquisition, plus
contingent consideration of approximately $11,000,000, as specified in the
acquisition agreement. The Company's issuance of Common Stock was substantially
used to retire approximately $7,000,000 of assumed debt under the acquisition
agreement.

On December 23, 1997, the Company and Intel Corporation ("Intel") entered
into certain agreements providing for the sale and license to the Company by
Intel of certain product technologies and the payment to the Company by Intel
of certain cash consideration. In exchange, the Company agreed to issue to
Intel 1,768,421 shares of the Company's Class II Series B Preferred Stock
("Preferred Stock"), which had a Market Value of approximately $42,000,000 on
the date of the agreement, and to distribute certain products manufactured by
Intel. Additionally, the Company licensed certain product technologies to
Intel.

F-25
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During 1997, the Company also acquired certain other software technologies
for an aggregate purchase price of approximately $6,800,000.

The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at
the beginning of each period. This summary is provided for 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>
1997 1996
---------- ----------
(in thousands, except
per share data)
<S> <C> <C>
Revenues........................................ $ 747,527 $ 570,875
Net loss........................................ (108,775) (96,125)
Net loss per share.............................. (1.39) (1.34)
</TABLE>

The Company estimates aggregate payments for acquisition-related payables in
connection with the acquisitions described above to be $15,717,000, $17,682,000
and $638,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.

The Company may be required to make additional payments in future years to
various former owners of acquired businesses based upon the attainment of
certain operating results by such businesses. The amount of these payments was
not determinable at December 31, 1997. 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 determinable.

3. Investment Securities

At December 31, 1997, the Company classified its marketable debt and equity
securities as either available-for-sale, trading or held-to-maturity.
Available-for-sale securities represent those securities that do not meet the
classification of held-to-maturity and are not actively traded. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. Held-to-maturity securities represent those securities the Company has
the ability and intent to hold to maturity. At December 31, 1997, net
unrealized holding gains from available-for-sale securities of $14,159,000,
reduced by income taxes of approximately $5,693,000, were included as a
separate component of stockholders' equity. For the year ended December 31,
1997, available-for-sale securities amounting to $24,972,000 were reclassified
to trading securities. The Company reclassified its available-for-sale
securities to trading securities during 1997, because the Company intended to
sell the securities at various dates in the near future to benefit from
increases in the market price of those securities. Unrealized holding gains
from reclassified securities of approximately $19,829,000, previously reported
as a separate component of stockholders' equity in the amount of $11,897,000
(net of income taxes), were recognized in pre-tax earnings for the year ended
December 31, 1997. The Company sold a portion of its trading securities during
1997 and consequently reclassified the corresponding unrealized gains to
realized gains. For the year ended December 31, 1997, the Company reported
unrealized holding gains of approximately $12,590,000 in pre-tax earnings.

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 that 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 $17,805,000,
respectively. The cost and unrealized gain on the investment transferred to the
trading classification were approximately $1,125,000 and $920,000,
respectively.

F-26
<PAGE>

PLATINUM technology International, 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 investment securities at December 31, 1997
were as follows:

<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
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
securities......... $ 9,395 $ 25 $ -- $ 9,420
State and municipal
bonds.............. 10,294 16 (36) 10,274
Corporate bonds..... 15,208 26 (7) 15,227
Marketable equity
securities......... 3,675 13,770 -- 17,445
------- ------- ----- -------
38,572 13,837 (43) 52,366
------- ------- ----- -------
Trading securities--
Marketable equity
securities......... 4,338 13,867 (351) 17,854
Held-to-maturity--
U.S. Government
securities......... 9,479 15 -- 9,494
------- ------- ----- -------
$52,389 $27,719 $(394) $79,714
======= ======= ===== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $25,498 $ 55 $ -- $25,553
Held-to-maturity--
U.S. Government
securities......... 19,928 33 -- 19,961
------- ------- ----- -------
$45,426 $ 88 $ -- $45,514
======= ======= ===== =======
</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>
December 31, 1996
-------------------------------------------------
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
securities......... $ 1,338 $ 22 $-- $ 1,360
State and municipal
bonds.............. 6,204 3 -- 6,207
Corporate bonds..... 2,950 -- (4) 2,946
Marketable equity
securities......... 8,383 29,923 -- 38,306
------- ------- ---- -------
18,875 29,948 (4) 48,819
------- ------- ---- -------
Trading securities--
Marketable equity
securities......... 1,125 920 -- 2,045
Held-to-maturity--
U.S. Government
securities......... 24,963 -- (3) 24,960
------- ------- ---- -------
$44,963 $30,868 $ (7) $75,824
======= ======= ==== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $ 2,122 $ 51 $(38) $ 2,135
======= ======= ==== =======
</TABLE>

F-27
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The contractual maturities of debt securities at December 31, 1997 were as
follows:

<TABLE>
<CAPTION>
Fair value
--------------
(in thousands)
<S> <C>
Due within one year........................................ $44,415
Due after one year through five years...................... 20,377
Due after five years....................................... 25,137
-------
$89,929
=======
</TABLE>

Using the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were approximately
$44,000 and $0, respectively, for the year ended December 31, 1997, $1,032,000
and $0, respectively, for the year ended December 31, 1996 and $467,000 and
$(135,000), respectively, for the year ended December 31, 1995. For the year
ended December 31, 1997, the Company also sold investments classified as
trading securities. Gross realized gains and gross realized losses related to
these sales were $7,522,000 and $0, respectively.

4. Property and Equipment

Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Land................................................... $ 1,450 $ --
Real estate............................................ 98 98
Furniture and fixtures................................. 36,309 30,303
Computers and software................................. 75,171 68,106
Transportation......................................... 11,497 8,169
Leasehold improvements................................. 28,810 22,359
-------- --------
153,335 129,035
Less accumulated depreciation and amortization......... 61,170 49,615
-------- --------
$ 92,165 $ 79,420
======== ========
</TABLE>

5. Purchased and Developed Software

Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Purchased software..................................... $ 48,301 $ 35,461
Software development costs............................. 141,690 89,400
-------- --------
189,991 124,861
Less accumulated amortization.......................... 72,778 41,829
-------- --------
$117,213 $ 83,032
======== ========
</TABLE>

During the years ended December 31, 1997, 1996 and 1995, $62,504,000,
$38,555,000 and $19,867,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $21,361,000, $11,309,000 and
$6,276,000 during 1997, 1996 and 1995, respectively. The Company recognized
amortization expense applicable to purchased software of $9,588,000, $6,497,000
and $3,200,000 during 1997, 1996 and 1995, respectively. During 1997,

F-28
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the Company wrote-off $10,214,000 of capitalized software development costs and
$1,450,000 of purchased software related to the restructuring plan executed in
May 1997. During 1996, the Company wrote-off $654,000 of capitalized software
development costs related to certain AIB, SII and other product technologies.

6. Installment Accounts Receivable

Installment accounts receivable consist of the following:

<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
Current installment receivables........................ $ 42,753 $19,763
Allowance for uncollectible amounts.................... (878) (395)
Deferred maintenance fees.............................. (10,124) (5,058)
Unamortized discounts.................................. (1,708) (707)
-------- -------
$ 30,043 $13,603
======== =======
Non-current installment receivables.................... $ 58,889 $40,827
Allowance for uncollectible amounts.................... (1,616) (816)
Deferred maintenance fees.............................. (27,603) (16,347)
Unamortized discounts.................................. (7,758) (1,999)
-------- -------
$ 21,912 $21,665
======== =======
</TABLE>

Installment accounts receivable 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 to five years and are
recorded net of unamortized discounts, deferred maintenance fees and allowances
for uncollectible amounts.

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 1997, 1996 and 1995
were approximately $206,916,000, $129,328,000 and $2,903,000, respectively.
There were no accounts receivable sold with recourse for the year ended
December 31, 1997. Accounts receivable sold with recourse were $19,373,000 for
the year ended December 31, 1996. As of December 31, 1997, there were no
potential recourse obligations for accounts receivable sold with recourse. In
addition to accounts receivable sold with recourse, the Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Based on the terms of that agreement, potential recourse
obligations at December 31, 1997 were $14,632,000. Based on the credit ratings
of the underlying obligors to the accounts receivable and the performance
history of the accounts receivable portfolio, the Company has assessed the
exposure related to these recourse obligations and determined the potential
liability to be minimal. The fair market value of the recourse obligations at
December 31, 1997 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 $1,846,000, $1,189,000 and $647,000 in 1997, 1996 and 1995,
respectively.

F-29
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Lines of Credit

At December 31, 1997, the Company had unsecured bank lines of credit for an
aggregate of $57,500,000, under which borrowings bear interest at rates ranging
from approximately LIBOR plus 1% to the bank's prime rate plus 0.75%. These
lines of credit are subject to limitations based upon certain financial
covenants. At December 31, 1997, there were no borrowings outstanding under
these lines of credit.

At December 31, 1997, the Company had aggregate letters of credit outstanding
for approximately $2,623,000, with expiration dates ranging from March 1998 to
December 1998. These letters of credit reduce the balance available under the
lines of credit.

9. Stock Options and Employee Stock Purchase Plan

As of December 31, 1997, 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 for the years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net loss:
As reported.................... $(106,128) $(87,194) $(114,217)
Pro forma...................... (120,149) (95,432) (120,349)
Net loss per share:
As reported.................... $ (1.36) $ (1.21) $ (2.10)
Pro forma...................... (1.54) (1.33) (2.21)
</TABLE>

Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option plans and Stock Purchase Plan, before effects for income
taxes, was approximately $23,575,000, $13,775,000 and $10,309,000 in 1997, 1996
and 1995, respectively.

Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans (the "Company Plans"). The Employee Incentive
Compensation 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 16,160,000 shares. The Chief Executive
Option Plan provides for the granting of options for up to 1,600,000 shares to
the Company's 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, excluding the
Directors' Option Plan, during 1997, 1996 and 1995, 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.

F-30
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 and 1997 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. The assumption of these option grants resulted in the
deemed issuance by the Company of options for 1,603,835, 1,723,316 and
2,131,351 shares in 1997, 1996 and 1995, 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 (excluding shares assumed to be
issued pursuant to acquisitions) of Common Stock. Under terms of the Stock
Purchase Plan and current policies of the administrative committee, employees
may elect each year to withhold between one and 50 percent of their cash
compensation through regular payroll deductions to purchase Common Stock,
subject to Internal Revenue Service limitations. 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 1, or September 1 for employees with a start
date between March 1 and August 31) 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, 1997, approximately 50% of eligible employees were participating
in the Stock Purchase Plan. Under the Stock Purchase Plan, the Company sold
985,755 and 281,725 shares to employees in 1997 and 1996, respectively
(including amounts relating to acquired companies).

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 1997, 1996 and 1995, respectively: weighted
average option price, which equals the fair market value at date of grant, of
$14.96, $14.24 and $12.94; expected dividend yields of 0% for all years;
expected volatility of 61%, 55% and 55%; risk-free interest rates of 5.66%,
6.37% and 6.12%; and an expected life of five years for all 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 1997 and 1996,
respectively: average fair market value of $13.75 and $10.75; average option
price of $11.69 and $9.14; expected dividend yield of 0% for both years;
expected volatility of 61% and 51%; average risk-free interest rate of 5.52%
and 5.42%; and expected life of three months for both years.

Stock option plan activity during the years ended December 31, 1997, 1996 and
1995 was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Fixed Options Shares price Shares price Shares price
------------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 14,150,997 $11.99 11,477,651 $10.71 7,976,847 $9.03
Granted................. 4,993,131 14.96 5,022,673 14.24 4,899,247 12.94
Exercised............... (1,850,215) 11.55 (1,446,151) 11.16 (850,221) 7.48
Canceled................ (1,595,100) 9.70 (903,176) 9.61 (548,222) 11.20
---------- ---------- ----------
Outstanding at end of
year................... 15,698,813 13.21 14,150,997 11.99 11,477,651 10.71
========== ========== ==========
Options exercisable at
year-end............... 7,298,672 6,891,404 5,779,310
========== ========== ==========
Weighted-average fair
value of options
granted during the
year................... $ 9.68 $ 6.94 $ 12.30
</TABLE>

F-31
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------- -------------------
Weighted-
avg. Weighted- Weighted-
Range of remaining avg. avg.
exercise Number of contractual exercise Number of exercise
prices shares life price shares price
-------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ .00-- 9.63 2,348,543 5.94 years $ 4.66 1,653,879 $ 4.31
9.75--12.38 3,662,534 7.63 11.08 1,361,202 10.78
12.50--13.92 3,935,693 7.94 13.27 1,466,303 13.21
14.00--18.25 4,235,540 7.99 16.10 2,105,667 16.18
18.31--36.40 1,516,503 8.30 23.33 711,621 23.98
---------- ---------
15,698,813 7.62 13.21 7,298,672 12.65
========== =========
</TABLE>

During 1997, a wholly-owned subsidiary of the Company adopted a fixed stock
option plan (the "1997 Option Plan"). The 1997 Option Plan provides for the
granting of options to employees for up to an aggregate of 7,500,000 shares of
the subsidiary's common stock. Under this plan, the subsidiary has granted non-
qualified stock options. These options have an exercise price equal to the fair
market value of the subsidiary's stock on the date of grant, have a legal life
of ten years and vest on the sixth anniversary of the grant date. Options
granted under the 1997 Option Plan are exercisable in shares of the
subsidiary's common stock and are not convertible to the Company's Common
Stock. During 1997, the subsidiary granted 5,170,000 options at a fair market
value of $0.92. For the year ended December 31, 1997, 247,500 options were
canceled. The weighted-average grant date fair value of these options was $0.33
using the Minimum Value option-pricing method and a risk-free interest rate of
5.80%.

10. Preferred Stock

On December 23, 1997, the Company agreed, pursuant to a stock purchase
agreement, to issue to Intel 1,768,421 shares of its Preferred Stock, which had
a fair market value of approximately $42,000,000 on the date of subscription,
in exchange for certain product technologies and other intangible assets. The
shares of Preferred Stock were subscribed for as of December 31, 1997 and
subsequently issued on January 14, 1998.

The holders of the Preferred Stock have the option to convert, at any time,
each share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock upon
the transfer by any holder of Preferred Stock in a non-permitted transfer. In
the event of a liquidation of the Company, the holders of the Preferred Stock
are entitled to receive $23.75 per share plus the amount of any declared but
unpaid dividends. The conversion and liquidation terms are subject to
adjustment based upon subsequent changes in equity interests.

As of December 31, 1997, the Company had reserved 1,768,421 shares of its
authorized Common Stock to be issued upon conversion of the Preferred Stock.

F-32
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Income Taxes

Income (loss) from continuing operations before income taxes for the years
ended December 31, 1997, 1996 and 1995 consisted of the following:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
U.S. ...................................... $(98,309) $(74,457) $(125,895)
Non-U.S.................................... 16,665 (19,077) 4,655
-------- -------- ---------
Total.................................. $(81,644) $(93,534) $(121,240)
======== ======== =========
</TABLE>

Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consisted of the following:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal..................................... $ 3,939 $ 1,562 $ 1,741
State....................................... 1,159 336 419
Foreign..................................... 2,309 1,987 642
Deferred:
Federal..................................... 22,221 (9,458) (8,511)
State....................................... (3,539) (4,179) (5,105)
Foreign..................................... (2,630) -- --
------- ------- --------
$23,459 $(9,752) $(10,814)
======= ======= ========
</TABLE>

The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows for the years ended December
31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Income tax computed at statutory rate..... $(28,576) $(32,737) $(42,434)
State income tax, net of Federal tax
benefit.................................. (2,532) (3,693) (4,748)
Research and experimentation credits...... (3,882) (1,720) (1,213)
Foreign tax credit........................ (117) (59) (239)
Foreign taxes............................. 1,271 751 240
Foreign sales corporation................. (557) (1,036) (294)
Municipal interest........................ (80) (289) (554)
Stock acquisitions........................ 9,953 6,281 11,450
Nondeductible merger costs................ 730 2,414 4,625
Change in valuation allowance............. 43,365 18,490 22,939
Other..................................... 3,884 1,847 (586)
-------- -------- --------
Effective tax............................. $ 23,459 $ (9,752) $(10,814)
======== ======== ========
</TABLE>

F-33
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at December 31, 1997 and 1996 were as
follows:

<TABLE>
<CAPTION>
1997 1996
--------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Deferred revenue.................................. $ 6,419 $ 1,152
Allowance for doubtful accounts................... 670 876
Net operating loss carryforwards.................. 125,005 102,645
Foreign net operating losses...................... 2,630 --
General business, AMT and state tax credits....... 13,981 9,704
Foreign tax credits............................... 952 1,138
Accrued expenses and reserves..................... 13,031 4,091
Rent abatement.................................... 2,471 1,957
Fixed assets...................................... 444 602
Intangibles....................................... 469 --
Deferred compensation............................. -- 193
Other............................................. 9,185 9,854
--------- --------
Total gross deferred tax assets................. 175,257 132,212
Less valuation allowance.......................... (113,933) (70,568)
--------- --------
Net deferred tax assets......................... 61,324 61,644
--------- --------
Deferred tax liabilities:
Capitalized software, net......................... 36,420 23,908
Installment sales................................. 819 826
Depreciation and amortization..................... 502 459
Deferred revenue.................................. 524 235
Acquired technology............................... 1,000 3,124
Unrealized gain on marketable equity securities... 11,161 12,499
Other............................................. -- 223
--------- --------
Total gross deferred tax liabilities............ 50,426 41,274
--------- --------
Net deferred tax assets......................... $ 10,898 $ 20,370
========= ========
</TABLE>

The net change in the valuation allowance during 1997, 1996 and 1995 was an
increase of $43,365,000, $12,549,000 and $22,939,000, respectively.

The Company has reduced gross 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, 1997 reflects
management's estimate of the amount that 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.

At December 31, 1997, the Company had approximately $308,900,000 of net
operating loss carryforwards and $14,600,000 of tax credit carryforwards, which
are available to reduce future Federal income taxes, if any, through the year
2012. 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-34
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. Convertible Subordinated Notes

In November 1996, the Company issued $115,000,000 of convertible subordinated
notes (the "1996 Notes") due November 15, 2001, bearing interest at 6.75%
annually. Interest is payable semi-annually on May 15 and November 15. The
holders of the 1996 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 1996 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. During 1997,
$10,000 of the 1996 Notes were converted to Common Stock. As of December 31,
1997, $114,990,000 of the 1996 Notes were outstanding.

The Company estimated the fair value of the 1996 Notes as of December 31,
1997 at approximately $236,879,000, based upon their trading price on the
Nasdaq SmallCap Market on that date.

In December 1997, the Company issued $150,000,000 of convertible subordinated
notes (the "1997 Notes") due December 15, 2002, bearing interest at 6.25%
annually. Interest is payable semi-annually on June 15 and December 15,
commencing June 15, 1998. The holders of the 1997 Notes have the option to
convert them into shares of Common Stock, at any time prior to maturity, at a
conversion price of $36.05 per share. The 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the twelve-month
period commencing December 15, 2000 at 102.5% of their principal amount and
during the twelve-month period commencing December 15, 2001 at 101.25% of their
principal amount. As of December 31, 1997, $150,000,000 of the 1997 Notes were
outstanding.

The Company estimated the fair value of the 1997 Notes as of December 31,
1997 at approximately $159,375,000, based upon their bid price in the
convertible debentures market on that date.

For the years ended December 31, 1998, 1999, 2000, 2001 and 2002, aggregate
annual maturities of the 1996 Notes and the 1997 Notes are $0, $0, $0,
$114,990,000 and $150,000,000, respectively.

13. Restructuring

In August 1996, the Company's wholly-owned subsidiary, LBMS (acquired as of
May 12, 1998), executed a plan to restructure its operations. During the second
half of 1996, LBMS recorded a restructuring charge of $14,109,000, net of
$3,512,000 in sublease rentals and recoveries from the sale of a product line.
The restructuring charge was comprised primarily of abandoned lease costs,
severance and other personnel costs and write-offs of excess equipment and
other assets. During 1997, LBMS recorded a restructuring benefit of $1,490,000
related to sublease rental activity. This benefit was offset against the
Company's restructuring charge recorded in 1997, as discussed below.

In the fourth quarter of 1996, the Company's wholly-owned subsidiary, Logic
Works (acquired as of May 28, 1998), implemented a restructuring plan to
streamline its operations by reducing its workforce, consolidating and
reorganizing certain operations and writing off certain fixed assets and other
impaired assets. The plan included the closing and moving of several offices
and the termination of approximately 25 employees across all departments. Logic
Works recorded a charge of $2,203,000 relating to this restructuring.

In May 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 previous
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

F-35
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 restructuring charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: facility-related costs, including a reserve
for estimated lease obligations associated with the closing of office
facilities; write-offs of excess equipment, furniture and fixtures; write-offs
of capitalized software costs and other intangible assets related to the
termination of development efforts for certain discontinued products, as well
as penalties for the cancellation of distributorship agreements for such
products; and severance and other employee-related costs of the terminated
staff.

The following table summarizes the Company's restructuring activity for the
years ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
Intangible
assets and
penalties
Severance for Property
Excess and cancelled and
facilities benefits agreements equipment Total
---------- --------- ---------- --------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total accrued restructuring costs at December 31, 1995............ $ 1,068
=======
1996 restructuring
charges:
Cash-related charges.. $ 7,021 $ 4,388 $ 1,463 $ -- $12,872
Non-cash charges...... -- -- 368 3,072 3,440
------- ------- ------- ------ -------
$ 7,021 $ 4,388 $ 1,831 $3,072 16,312
======= ======= ======= ======
Payments made in 1996............................................. (2,977)
Write-offs taken in 1996.......................................... (3,440)
-------
Total accrued restructuring costs at December 31, 1996.......... 10,963
Less current portion.............................................. 3,096
-------
Long-term accrued restructuring costs............................. $ 7,867
=======
1997 restructuring
charges:
Cash-related charges.. $22,542 $10,364 $ 3,236 $ -- $36,142
Non-cash charges...... -- -- 16,177 3,510 19,687
------- ------- ------- ------ -------
$22,542 $10,364 $19,413 $3,510 55,829
======= ======= ======= ======
Payments made in 1997............................................. (17,784)
Write-offs taken in 1997.......................................... (19,687)
-------
Total accrued restructuring costs at December 31, 1997............ 29,321
Less current portion.............................................. 7,391
-------
Long-term accrued restructuring costs............................. $21,930
=======
</TABLE>

F-36
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Derivative Financial Instruments

The Company conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse movements in
foreign currency exchange rates. The Company has established a foreign currency
hedging program utilizing forward foreign exchange contracts to reduce certain
currency exposures. These contracts hedge exposures associated with
nonfunctional currency assets and liabilities denominated in Japanese,
Australian, numerous Asian and various European currencies. At the present
time, the Company hedges only those currency exposures associated with certain
nonfunctional currency assets and liabilities resulting from intercompany
balances and does not generally hedge anticipated foreign currency cash flows.
The Company does not enter into forward exchange contracts for trading
purposes.

Gains and losses on the foreign currency forward exchange contracts are
included in other income and offset foreign exchange gains and losses from the
revaluation of intercompany balances denominated in currencies other than the
functional currency of the reporting entity. The Company's forward contracts
generally have original maturities of one month.

The table below provides information as of December 31, 1997 about the
Company's foreign currency forward exchange contracts, including notional
values of outstanding forward contracts purchased and sold and the unrealized
gains or losses recorded for each contract.

<TABLE>
<CAPTION>
Notional
value Notional Unrealized
purchased value sold gains (losses)
--------- ---------- --------------
(in thousands)
<S> <C> <C> <C>
European currencies................... $4,407 $(20,649) $(173)
Asian currencies...................... -- (412) 4
Japanese Yen.......................... -- (972) 4
Australian Dollar..................... -- (338) 11
------ -------- -----
Total............................. $4,407 $(22,371) $(154)
====== ======== =====
</TABLE>

While the notional or contract amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the Company's full exposure to credit risk. The Company faces
additional risks if the banking counterparties are unable to meet the terms of
the agreements. The Company has established policies to minimize such risks and
will only execute forward exchange contracts with major financial institutions.
The Company has assessed the potential exposure related to default by such
institutions to be minimal.

15. Commitments and Contingencies

Operating Leases

The Company leases office space and certain computer and telecommunications
equipment under long-term lease agreements expiring through the year 2016.
Total future minimum lease payments under noncancelable leases are as follows:

<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
1998...................... $ 45,116
1999...................... 36,860
2000...................... 27,852
2001...................... 23,103
2002 and thereafter....... 50,507
--------
Total................. $183,438
========
</TABLE>

F-37
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Future minimum lease payments have not been reduced by minimum sublease
rentals of $603,000 due in the future under noncancelable subleases. Total rent
expense under all operating leases, net of insignificant sublease rental
income, amounted to $35,798,000, $26,116,000 and $18,778,000 in 1997, 1996 and
1995, respectively.

Litigation

The Company is subject to certain legal proceedings and claims that 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.

16. Other Income, Net

Other income (expense), net, for the years ended December 31, 1997, 1996 and
1995 is comprised of the following:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(in thousands)
<S> <C> <C> <C>
Interest income................................ $ 9,200 $8,691 $6,020
Interest expense............................... (9,314) (2,254) (1,602)
Foreign exchange gains (losses)................ 597 (301) 51
Net realized gains on sales of investments..... 7,566 1,032 332
Unrealized gains on marketable equity
securities.................................... 12,590 923 6
Other.......................................... (142) (16) (184)
------- ------ ------
$20,497 $8,075 $4,623
======= ====== ======
</TABLE>

17. 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
for the years ended December 31, 1997, 1996 and 1995. 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>
1997
Revenues....................... $ 548,845 $127,438 $62,597 $ 738,880
Operating income (loss)........ (118,806) 4,934 11,731 (102,141)
Identifiable assets............ 802,949 108,541 61,417 972,907
1996
Revenues....................... $ 399,127 $104,633 $49,724 $ 553,484
Operating loss................. (82,532) (13,938) (5,139) (101,609)
Identifiable assets............ 614,448 85,288 36,932 736,668
1995
Revenues....................... $ 283,658 $ 80,232 $44,535 $ 408,425
Operating income (loss)........ (130,518) 5,154 (499) (125,863)
Identifiable assets............ 436,864 64,286 28,465 529,615
</TABLE>

F-38
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1997, 1996 and 1995
include all merger costs, restructuring costs and acquired in-process
technology charges.

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

18. Discontinued Operations

On July 29, 1997, Mastering, a wholly-owned subsidiary of the Company
(acquired as of April 21, 1998), announced its intention to dispose of its
outdoor media business segment. On September 16, 1997, Mastering sold the
assets of its outdoor media business segment for approximately $4,000,000 in
cash and approximately $600,000 in notes receivable, resulting in a pre-tax
gain of approximately $1,100,000. Mastering approved the disposition of the
outdoor media business segment, including a plan for Mastering to identify
potential buyers, on May 17, 1997. As a result, the segment is accounted for as
a discontinued operation in the consolidated financial statements for all
periods presented, with a measurement date of May 17, 1997.

The following table presents approximate revenues and net income (loss) for
the outdoor media business segment for the period of January 1, 1997 to
September 16, 1997 and the years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
For the Years Ended
December 31,
January 1, 1997 to ---------------------
September 16, 1997 1996 1995
------------------ ---------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues........................ $2,100,000 $3,900,000 $4,000,000
Net income (loss)............... (200,000) 500,000 (600,000)
</TABLE>

Included in the net loss for the period of January 1, 1997 to September 16,
1997 is approximately $200,000 of costs related to the sale of the segment. The
net loss for the period of May 18, 1997 to September 16, 1997 was approximately
$800,000.

On July 29, 1997, Mastering announced its intention to dispose of its
interactive business segment. On September 26, 1997, Mastering sold the assets
of its interactive business segment for $13,500,000 in cash and the right to
future payments contingent on the segment's future earnings, resulting in a
pre-tax gain of approximately $5,600,000. As a result of this transaction, the
interactive business segment is accounted for as a discontinued operation in
the consolidated financial statements for all periods presented, with a
measurement date of July 28, 1997.

The following table presents approximate revenues and net loss for the
interactive business segment for the period of January 1, 1997 to September 26,
1997 and the years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
For the Years Ended
December 31,
January 1, 1997 to -----------------------
September 26, 1997 1996 1995
------------------ ----------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues...................... $13,000,000 $14,300,000 $6,700,000
Net loss...................... (5,100,000) (4,100,000) (2,600,000)
</TABLE>

Included in the net loss for the period of January 1, 1997 to September 26,
1997 is approximately $1,500,000 of costs related to the organizational
realignment and the sale of the interactive business segment. The net loss for
the period of July 29, 1997 to September 26, 1997 was approximately $2,600,000.

F-39
<PAGE>

PLATINUM technology International, inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

Mastering sold the following assets and was relieved of the following
liabilities related to the outdoor media and interactive business segments at
their respective sale dates:

<TABLE>
<S> <C>
Assets:
Current assets
Accounts receivable, net................................. $ 3,938,000
Other current assets..................................... 2,345,000
-----------
Total current assets................................... 6,283,000
-----------
Property, plant and equipment, net....................... 5,711,000
Goodwill and other assets, net........................... 3,389,000
-----------
Total assets........................................... 15,383,000
-----------
Liabilities:
Current liabilities
Accounts payable......................................... 778,000
Accrued liabilities...................................... 1,764,000
Other current liabilities................................ 1,148,000
-----------
Total current liabilities.............................. 3,690,000
-----------
Non-current liabilities.................................. 277,000
-----------
Total liabilities...................................... 3,967,000
-----------
Net assets sold.............................................. $11,416,000
===========
</TABLE>

Effective June 30, 1995, Mastering discontinued the operations of Production
Masters, Inc. ("PMI"), a company that operated an audio and video post-
production studio. The assets were sold to a third party for approximately
$700,000, and all proceeds from the liquidation of the assets were paid to the
previous owner of the PMI business in satisfaction of all acquisition-related
liabilities. As a result, the operations of PMI through its disposition have
been reflected as discontinued operations in the consolidated financial
statements for all periods presented. Mastering recorded a loss on the disposal
of this segment of approximately $350,000, consisting of approximately $58,000
to write down the segment's assets and $292,000 of payroll and other operating
costs incurred from the measurement date through the date of final disposition.
In addition, during 1995, Mastering recorded approximately $294,000 for losses
from PMI operations prior to the measurement date. During 1996, Mastering
recorded a gain of $198,000, net of income taxes, from discontinued operations,
representing the settlement of certain contingencies related to the PMI
business segment.

F-40
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED BALANCE SHEETS

In thousands of U.S. dollars (except share data)

<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------ ------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 18,786 $ 8,780
Short-term investments................................. 31,290 51,827
Trade receivables...................................... 15,110 11,566
Other receivables and prepaid expenses................. 4,202 1,376
-------- -------
Total current assets............................... 69,388 73,549
-------- -------
Property and equipment:
Cost................................................... 5,376 3,277
Less--accumulated depreciation......................... 1,459 749
-------- -------
3,917 2,528
-------- -------
Long-term investment..................................... 875 775
-------- -------
Excess of cost over net assets acquired and other assets,
net..................................................... 24,866 881
-------- -------
Total assets....................................... $ 99,046 $77,733
======== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term loans.................. $ 233 $ 30
Accounts payable--trade................................ 1,338 1,030
Other current liabilities.............................. 14,909 11,106
-------- -------
Total current liabilities.......................... 16,480 12,166
-------- -------
Long-term liabilities:
Deferred income........................................ -- 1,412
Loans from banks and others............................ 30 53
Accrued severance pay.................................. 1,090 773
-------- -------
Total long-term liabilities........................ 1,120 2,238
-------- -------
Shareholders' equity:
Share capital:
Ordinary shares of NIS 0.01 par value
Authorized 30,000,000 shares; Issued and outstanding
17,521,755 shares as of September 30, 1998,
15,791,196 shares as of December 31, 1997 54 50
Share premium.......................................... 98,583 53,876
Deferred compensation.................................. (27) (102)
Retained earnings...................................... (17,164) 9,505
-------- -------
Total shareholders' equity......................... 81,446 63,329
-------- -------
Total liabilities and shareholders' equity......... $ 99,046 $77,733
======== =======
</TABLE>

The accompanying notes to the financial statements form an integral part
thereof.

F-41
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands of U.S. dollars (except share data and per share data)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues.......................... $ 14,789 $ 8,082 $ 33,892 $ 18,457
Cost of revenues.................. 1,923 816 4,114 1,983
---------- ---------- ---------- ----------
Gross profit.................. 12,866 7,266 29,778 16,474
---------- ---------- ---------- ----------
Operating expenses:
Research and development costs,
net............................ 1,971 1,079 4,357 2,854
Marketing and selling expenses.. 6,829 3,644 16,273 7,858
General and administrative
expenses....................... 1,638 755 3,496 1,994
Amortization of excess of cost
over net assets acquired, net.. 771 -- 1,286 --
Acquired in-process technology.. -- -- 31,553 --
---------- ---------- ---------- ----------
Total operating expenses...... 11,209 5,478 56,965 12,706
---------- ---------- ---------- ----------
Operating income (loss)........... 1,657 1,788 (27,187) 3,768
Financing income, net............. 611 1,020 2,218 2,342
---------- ---------- ---------- ----------
Income (loss) before taxes on
income........................... 2,268 2,808 (24,969) 6,110
Taxes on income................... 700 300 1,700 705
---------- ---------- ---------- ----------
Net income (loss)............. $ 1,568 $ 2,508 $ (26,669) $ 5,405
========== ========== ========== ==========
Net income (loss) per share:
Basic........................... $ 0.09 $ 0.16 $ (1.59) $ 0.35
========== ========== ========== ==========
Diluted......................... $ 0.09 $ 0.15 $ (1.59) $ 0.33
========== ========== ========== ==========
Weighted average number of shares:
Basic........................... 17,572,196 15,652,343 16,824,737 15,527,038
========== ========== ========== ==========
Diluted......................... 18,394,441 16,879,275 16,824,737 16,550,513
========== ========== ========== ==========
</TABLE>

The accompanying notes to the financial statements form an integral part there-
of.

F-42
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands of U.S dollars

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(26,669) $ 5,405
Adjustments to reconcile net income (loss) to net cash
provided by operating activities (see below)............ (2,118) (3,212)
Acquired in-process technology........................... 31,553 --
-------- --------
Net cash provided by operating activities............ 2,766 2,193
-------- --------
Cash flows from investing activities:
Purchase of consolidated companies, net of cash
acquired................................................ (12,297) --
Purchase of property and equipment....................... (1,912) (1,115)
Decrease (increase) in short-term investments, net....... 20,537 (48,714)
Long-term investment..................................... (100) (775)
Proceeds from sale of equipment.......................... 186 --
Increase in other assets, net............................ (360) (45)
-------- --------
Net cash (used in) provided by investing activities.. 6,054 (50,649)
-------- --------
Cash flows from financing activities:
Issuance of shares (exercise of options)................. 1,146 478
Long-term loans.......................................... 63 --
Repayment of long-term loans............................. (23) (118)
-------- --------
Net cash provided by financing activities............ 1,186 360
-------- --------
Increase (decrease) in cash and cash equivalents........... 10,006 (48,096)
Cash and cash equivalents at beginning of year............. 8,780 52,016
-------- --------
Cash and cash equivalents at end of year................... $ 18,786 $ 3,920
======== ========
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Items not involving cash flows:
Amortization of deferred compensation.................. $ 75 $ 147
Depreciation and amortization.......................... 2,289 315
Severance pay, net..................................... 113 62
Deferred income........................................ (1,412) (1,412)
Changes in operating assets and liabilities:
Increase in receivables and prepaid expenses........... (5,918) (1,636)
Increase in payables and other current liabilities..... 2,735 (688)
-------- --------
Net adjustments...................................... $ (2,118) $ (3,212)
======== ========
</TABLE>

The accompanying notes to the financial statements form an integral part
thereof.

F-43
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States relating to the provision of interim financial information.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the financial statements
and notes for the year ended December 31, 1997.

Note 2--BUSINESS COMBINATIONS

In the quarter ended June 30, 1998 Memco completed the acquisition of all the
shares of Network Information Technology, Inc. ("NIT") and AbirNet Ltd.
("AbirNet"). Both transactions were accounted for under the purchase method of
accounting. Accordingly, purchase prices have been allocated to identifiable
tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. The amounts allocated to acquired in-process technology
have been expensed at the time of acquisition. The excess of cost over net
assets acquired is amortized on a straight-line basis over the expected period
to be benefited. The aggregate purchase price of both acquisitions and expensed
transaction costs was approximately $56 million. The amount of purchase price
in excess of the in-process research and development acquired is approximately
$25 million. Such excess amount is composed of both goodwill, which is
amortized over a 7-year period, and tangible assets, which are amortized over a
5-year period.

NIT is involved in development of an intranet security application aimed at
UNIX and Windows NT environments. The purchase price was $28 million (821,452
ordinary shares).

AbirNet is involved in development of network security applications. The
purchase price was $28 million (approximately $12 million in cash and 624,413
ordinary shares valued at approximately $16 million).

The unaudited consolidated statements of operations reflect the results of
operations of NIT and AbirNet since the effective dates of the acquisitions.

The following unaudited pro forma summary presents Memco's results of
operations as if the acquisitions of AbirNet and NIT had occurred at the
beginning of each period. This summary is provided for informational purposes
only. It does not necessarily reflect the actual results that would have
occurred had the acquisitions been made as of their respective dates, or of
results that may occur in the future.

PRO FORMA COMBINED STATEMENT OF OPERATIONS

In thousands of U.S dollars (except per share data)
Year ended December 31, 1997

<TABLE>
<CAPTION>
Actual Pro Forma
------------------------ -------------------
Memco AbirNet NIT Adjustment Combined
------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $30,591 $ 655 $ 87 $31,333
======= ======= ======= =======
Operating income (loss)........... $ 6,815 $(1,701) $(1,539) $(3,572) $ 3
======= ======= ======= ======= =======
Net income (loss)................. $ 9,076 $(1,650) $(1,509) $(4,256) $ 1,661
======= ======= ======= ======= =======
Net income per share:
Basic........................... $ 0.58 $ 0.10
======= =======
Diluted......................... $ 0.55 $ 0.09
======= =======
</TABLE>

F-44
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Shareholders Of
MEMCO SOFTWARE LTD.

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

We conducted our audits in accordance with generally accepted auditing
standards in Israel and in the United States including those prescribed under
the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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

/s/ Luboshitz, Kasierer & Co. /s/ Chaikin, Cohen, Rubin
Member Firm of Andersen Worldwide Certified Public Accountants (lsr.)

Tel-Aviv, February 16, 1998

F-45
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED BALANCE SHEETS

In thousands of U.S. dollars (except share data)

<TABLE>
<CAPTION>
As of
December 31,
--------------
1996 1997
------ ------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... 52,016 8,780
Deposits and banks................................................ 3,662 51,827
Trade receivables................................................. 6,164 11,566
Other receivables and prepaid expenses............................ 928 1,376
------ ------
Total current assets.......................................... 62,770 73,549
------ ------
Property and equipment
Cost.............................................................. 1,521 3,277
Less--accumulated depreciation.................................... 299 749
------ ------
1,222 2,528
------ ------
Long-term investment................................................ -- 775
------ ------
Other assets........................................................ 523 881
------ ------
Total assets.................................................. 64,515 77,733
====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term loans............................. 54 30
Accounts payable--trade........................................... 647 1,030
Other current liabilities (Note 3)................................ 6,951 11,106
------ ------
Total current liabilities..................................... 7,652 12,166
------ ------
Long-term liabilities:
Deferred income................................................... 3,295 1,412
Loans from banks and others....................................... 157 53
Accrued severance pay (Note 4).................................... 471 773
------ ------
Total long-term liabilities................................... 3,923 2,238
------ ------
Commitments and contingencies (Note 5)
Shareholders' equity (Note 6)
Share capital
Ordinary shares of NIS 0.01 par value
Authorized 30,000,000 shares; Issued and outstanding 15,791,196
shares as of December 31, 1997, 15,476,467 shares as of
December 31, 1996.............................................. 48 50
Share premium..................................................... 52,761 53,876
Deferred compensation............................................. (298) (102)
Retained earnings................................................. 429 9,505
------ ------
Total shareholders' equity.................................... 52,940 63,329
------ ------
Total liabilities and shareholders' equity.................... 64,515 77,733
====== ======
</TABLE>

The accompanying notes to the financial statements form an integral part
thereof.

F-46
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands of U.S. dollars (except share and per share data)

<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (Note 8)............................ 1,549 15,312 30,591
Cost of revenues............................. 242 1,603 3,087
---------- ---------- ----------
Gross profit............................. 1,307 13,709 27,504
---------- ---------- ----------
Operating expenses:
Research and development costs, net (Note
5)........................................ 872 2,254 4,066
Marketing and selling expenses............. 2,361 7,417 13,628
General and administrative expenses........ 535 1,506 2,995
---------- ---------- ----------
Total operating expenses................. 3,768 11,177 20,689
---------- ---------- ----------
Operating income (loss)...................... (2,461) 2,532 6,815
Financing income, net........................ 298 1,282 3,196
---------- ---------- ----------
Income (loss) before taxes on income......... (2,163) 3,814 10,011
Taxes on income (Note 7)..................... 300 430 935
---------- ---------- ----------
Net income (loss)........................ (2,463) 3,384 9,076
========== ========== ==========
Net income (loss) per share (Note 10)
Basic...................................... (0.23) 0.27 0.58
========== ========== ==========
Diluted.................................... (0.23) 0.25 0.55
========== ========== ==========
Weighted average number of shares
Basic...................................... 10,768,456 12,721,493 15,573,886
========== ========== ==========
Diluted.................................... 10,768,456 13,469,177 16,647,697
========== ========== ==========
</TABLE>

The accompanying notes to the financial statements form an integral part
thereof.

F-47
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY

In thousands of U.S. dollars (except share data)

<TABLE>
<CAPTION>
Retained
earnings
Number Share Share Deferred (accumulated
of shares capital premium compensation deficit) Total
---------- ------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1995................... 9,337,747 8 1,603 -- (492) 1,119
Shares issued........... 2,334,436 2 5,509 -- -- 5,511
Deferred compensation... -- -- 1,172 (1,172) -- --
Amortization of deferred
compensation........... -- -- -- 531 -- 531
Distribution to
shareholders........... -- -- (1,196) -- -- (1,196)
Net loss................ -- -- -- -- (2,463) (2,463)
---------- --- ------ ------ ------ ------
Balance as of December
31, 1995............... 11,672,183 10 7,088 (641) (2,955) 3,502
Shares issued........... 3,804,284 38 45,673(1) -- -- 45,711
Amortization of deferred
compensation........... -- -- -- 343 -- 343
Net income.............. -- -- -- -- 3,384 3,384
---------- --- ------ ------ ------ ------
Balance as of December
31, 1996............... 15,476,467 48 52,761 (298) 429 52,940
Shares issued (exercise
of options), net....... 314,729 2 1,115 -- -- 1,117
Amortization of deferred
compensation........... -- -- -- 196 -- 196
Net income.............. -- -- -- -- 9,076 9,076
---------- --- ------ ------ ------ ------
Balance as of December
31, 1997............... 15,791,196 50 53,876 (102) 9,505 63,329
========== === ====== ====== ====== ======
</TABLE>
- --------
(1) Net of share issue expenses amounting to $6,327.

The accompanying notes to the financial statements form an integral part
thereof.

F-48
<PAGE>

MEMCO SOFTWARE LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands of U.S. dollars

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(2,463) $ 3,384 $ 9,076
Adjustments to reconcile net income (loss) to net
cash provided by operating activities (see
below)........................................... 5,631 (1,582) (2,403)
------- ------- -------
Net cash provided by operating activities..... 3,168 1,802 6,673
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (488) (821) (1,756)
Decrease (increase) in deposits with banks........ (4,753) 1,122 (48,165)
Long-term investment.............................. -- -- (775)
Increase in other assets.......................... -- (201) (202)
------- ------- -------
Net cash (used in) provided by investing
activities................................... (5,241) 100 (50,898)
------- ------- -------
Cash flows from financing activities:
Issuance of shares (exercise of options), net..... 5,511 46,512 1,117
Long-term loans................................... 150 -- --
Repayment of long-term loans...................... (25) (50) (128)
Repayment of short-term loans to shareholders..... -- (1,017) --
------- ------- -------
Net cash provided by financing activities..... 5,636 45,445 989
------- ------- -------
Increase (decrease) in cash and cash equivalents.... 3,563 47,347 (43,236)
Cash and cash equivalents at beginning of year...... 1,106 4,669 52,016
------- ------- -------
Cash and cash equivalents at end of year............ $ 4,669 $52,016 $ 8,780
======= ======= =======
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Items not involving cash flows:
Amortization of deferred compensation........... $ 531 $ 343 $ 196
Depreciation and amortization................... 82 192 461
Severance pay, net.............................. 66 143 135
Deferred income................................. 5,175 (1,880) (1,883)
Changes in operating assets and liabilities:
Increase in receivables......................... (953) (6,027) (6,335)
Increase in payables and other current
liabilities.................................... 730 5,647 5,023
------- ------- -------
Net adjustments............................... $ 5,631 $(1,582) $(2,403)
======= ======= =======
Income taxes paid................................... $ 300 $ 177 $ 502
======= ======= =======
Noncash activities:
In 1995, a distribution to shareholders (less
applicable withholding taxes) was converted into
a short-term loan in the amount of $1,017.
</TABLE>

The accompanying notes to the financial statements form an integral part
thereof.

F-49
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In thousands of U.S. dollars

Note 1--GENERAL

A. The Company develops, markets, licenses and supports software products
designed to protect and manage access to critical information assets and system
resources in an open client/server environment.

B. The financial statements of the Company have been prepared in U.S.
dollars, as the currency of the primary economic environment in which the
operations of the Company are conducted is the U.S. dollar. Most of the
Company's sales are made outside Israel in foreign currencies (mainly the U.S.
dollar). In addition, most expenses are incurred outside Israel, primarily in
U.S. dollars.

Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are remeasured into U.S. dollars in accordance with the principles
identical to those set forth in Statement No. 52 of the Financial Accounting
Standards Board of the United States ("FASB").

Exchange gains and losses from the aforementioned remeasurement are reflected
in the statement of operations.

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

Note 2--SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. The significant accounting
policies followed in the preparation of the financial statements, applied on a
consistent basis, are:

A. Principles of Consolidation

The financial statements include the accounts of the Company and its
subsidiary in the United States (Memco Software, Inc.). Material intercompany
balances and transactions have been eliminated.

B. Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or
less are considered cash equivalents.

C. Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, ranging
from four to fifteen years.

D. Research and Development, Net

The Company expenses research and development costs, net of participations by
the Government of Israel through the Ministry of Industry and Trade--the Office
of the Chief Scientist, as incurred. Software development costs are considered
for capitalization when technological feasibility is established 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
incurred subsequent to achievement of technological

F-50
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

feasibility in the process of software production have not been material.
Therefore, the Company has not capitalized any of its research and development
expenses.

E. Revenue Recognition

Revenue is generally recognized upon shipment, after an evaluation period of
up to 90 days of the product by the customer (where applicable), and when
collection is probable. Revenue from annual maintenance contracts is recognized
ratably over the term of the agreement.

Receipts on account of OEM distribution agreements which grant a license to
sell sublicenses for the Company's products and include any such products to be
developed in the future are recognized as revenues ratably over the estimated
economic life of the products covered by the agreement. Revenues from ongoing
sublicense fees are recognized based upon the agreement with the applicable
licensee when collection of such fees is probable.

F. Earnings (Loss) Per Share

In 1997, the company adopted SFAS No. 128 "Earning per Share", effective
December 15, 1997. In accordance with the provisions of this statement, basic
earnings per share is computed based on weighted average number of ordinary
shares outstanding and excludes any potential dilutions. Diluted earnings per
share reflects potential dilution from exercise of options, using the treasury
stock method.

Upon the adoption of SFAS No. 128, the Company's reported earnings per share
for 1996 and 1995 were restated. The effect of this accounting change on
previously reported earnings per share data was as follows:

<TABLE>
<CAPTION>
Year ended
December
31,
-----------
1995 1996
----- ----
<S> <C> <C>
Primary Earnings (Loss) per share as reported................. (0.21) 0.25
Effect of SFAS No. 128........................................ (0.02) 0.02
----- ----
Basic Earnings (Loss) per share............................... (0.23) 0.27
===== ====
</TABLE>

Diluted earnings per share was not previously reported.

G. Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees.

H. Long-Term Investment

Long-term investment (16%) in a company, is presented at cost.

Note 3--OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
December 31,
--------------
1996 1997
------ -------
<S> <C> <C>
Payroll and related expenses.............................. $2,179 $ 5,310
Government institutions................................... 918 2,029
Deferred income........................................... 1,110 1,912
Sundry payables and accrued expenses...................... 2,744 1,855
------ -------
$6,951 $11,106
====== =======
</TABLE>

F-51
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4--SEVERANCE PAY

The Company's severance pay obligation to its employees is partially covered
by payments to insurance companies.

Severance pay expenses amounted to $119, $234 and $338 for the years ended
December 31, 1995, 1996 and 1997, respectively.

Deposits with insurance companies in respect of the severance pay accrual in
the balance sheet are included in "Other Assets" (1997--$333; 1996--$166).

Note 5--COMMITMENTS, LIENS AND CONTINGENCIES

A. In connection with its software development, the Company received
participation payments from the Office of the Chief Scientist in the total
amount of $2,582 (participation for 1997--$1,030; 1996--$744; 1995--$419). In
return for the participation, the Company is committed to pay royalties at a
rate of 3%-5% of sales of the developed product, up to 100% of the amount of
grants received. The Company has paid royalties in the amount of $1,402
(Payment for 1997--$909, 1996--$458, 1995--$35).

B. The Company's facilities in Israel are leased under an operating lease for
a period ending in 2001. The amount of increase in rental payments is linked to
the United States Consumer Price Index. Minimum future rental payments as of
December 31, 1997 are approximately $374 per annum. The Company's facilities in
the United States are leased for a period ending 2003.

Minimum future rental payments per annum are as following:

C. Loans from banks and others amounting to $83 as of December 31, 1997 are
collateralized by fixed charges on some of the Company's fixed assets.

Note 6--SHARE CAPITAL

The Company granted options and restricted shares to purchase ordinary shares
to key employees as an incentive to attract and retain qualified personnel.
Options generally become exercisable, vesting ratably, over a four year period.
Options were granted at varying exercise prices ranging from $0.00 to fair
market value on grant date. Restricted shares generally vest over a four-year
period commencing from the date of employment and the purchase price of such
restricted shares were equal to NIS 0.01 per share, the par value of the
ordinary shares.

Deferred compensation arising from the difference between the exercise price
and the fair market value of the shares on the date of the grant amounting to
$1,172 is included in shareholders' equity and is being amortized over the
vesting periods of the respective options, in accordance with APB 25. The
balance of unamortized compensation at December 31, 1997, is $102. Under APB25
the compensation cost that has been charged to operations for the year ended
December 31, 1997, amounted to $196 (1996--$343).

F-52
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In 1997, the shareholders of the Company adopted the 1997 Stock Option and
Incentive Plan (III) which authorizes the Company to grant stock options and
restricted shares to officers, directors, employees and consultants of the
Company. The plan authorizes awards in an aggregate amount of up to 1,600,000
ordinary shares. Options generally become exercisable, vesting ratably, over a
four year period commencing from date of grant.

Transactions related to the above discussed options and restricted shares
during the years ended December 31, 1995, 1996 and 1997 were as follows:

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Options outstanding--and restricted
shares reserved beginning of
period.............................. -- 1,184,312 1,191,597
Options granted...................... 1,184,312 263,118 1,077,376
Restricted shares issued............. -- (239,418) --
Options exercised.................... -- (13,167) (314,729)
Options forfeited.................... -- (3,248) (73,525)
----------- ----------- ----------
Options outstanding--end of period... 1,184,312 1,191,597 1,880,719
=========== =========== ==========
Price per share for restricted shares
and options granted during the year $0.00-$3.08 $4.62-$14.7 $10.25-$20
=========== =========== ==========
Weighted average price per share $ 1.22 $ 5.42 $ 9.32
=========== =========== ==========
Weighted average price of forfeited
options............................. -- -- $ 8.14
=========== =========== ==========
Weighted average price of exercised
options............................. -- -- $ 3.45
=========== =========== ==========
</TABLE>

The weighted average fair value of options granted in 1997 was $4.93 (1996--
$5.40). The following table summarizes information about options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------- -------------------------
Weighted-- Weighted-- Weighted--
Range of Number average average Number average
exercise outstanding at remaining exercise outstanding at exercise
prices December 31 contractual price December 31 price
$ 1997 life $ 1997 $
-------- -------------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
0- 4.62 663,281 8 2.72 310,610 3.00
10.25-10.75 796,376 9.75 10.27 -- --
12-14.70 146,062 9 14.35 31,577 14.70
19.37-20 275,000 10 19.71 -- --
--------- -------
1,880,719 342,187
========= =======
</TABLE>

F-53
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Had compensation cost been determined under the alternative fair value
accounting method provided for under FASB Statement No. 123 "Accounting for
Stock-Based Compensation," the Company's net income (loss) and earnings per
share would have been reduced (increased) to the following pro forma amounts:

<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Net income (loss):
As Reported......................................... (2,463) 3,384 9,076
Pro Forma........................................... (2,667) 3,185 8,078
Basics earnings
(loss) per share:
As Reported......................................... (0.23) 0.27 0.58
Pro Forma........................................... (0.25) 0.25 0.52
</TABLE>

Under Statement 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model and the minimum
value method with the following weighted--average assumptions used for grants
in 1995, 1996 and 1997: (1) expected life of 2 years; (2) dividend yield of 0%;
(3) expected volatility of 60%; and (4) risk-free interest rate of 6%.

Note 7--TAXES ON INCOME

A. The Company is subject to the Income Tax Law (Inflationary Adjustments),
1985, measuring income on the basis of changes in the Israeli Consumer Price
Index.

B. The regular tax rate applicable to the Company is 36% (1995--37%). Certain
of the Company's investments in property and equipment have received an
"Approved Enterprise" status under the Law for the Encouragement of Capital
Investments, 1959. The Company has chosen to receive its benefits through the
"Alternative Benefits" program. The benefits under this program include a tax
exemption on income deriving from the "Approved Enterprise" for a period of two
years (1996 and 1997) and a reduced tax rate of 25% for an additional period of
up to eight years, commencing in 1998. Should foreign shareholdings in the
Company exceed 49%, the reduced rate of tax applicable will be 20%.

C. Dividends paid out of income derived from the approved enterprise is
subject to 15% withholding. Should the Company pay dividends out of income
earned during the two-year tax holiday, it will be liable to 25% tax on that
income. The Company does not anticipate paying dividends from income derived
from the approved enterprise and any such earnings distributed upon dissolution
will not subject the Company to income taxes.

D. The Company's U.S. subsidiary has net operating loss carryforwards of
approximately $8 million for which no income tax benefit has been recognized in
the financial statements due to the uncertainty of future profits and certain
limitations that may be imposed on the net operating loss by the Internal
Revenue Code. The net operating loss expires in years 2009 through 2112. The
Company also has incurred certain expenses for financial statements which have
not yet been deducted for tax purposes of approximately $1.6 million. No income
tax benefit has been recognized in the financial statements due to the
uncertainty of future profits to offset the deductions.

Deferred taxes in respect of temporary differences other than the above-
mentioned net operating loss carryforwards are immaterial. In addition, there
is no deferred tax expense or benefit included as a component of income tax
expense in the statement of operations.

E. Final tax assessments in Israel have been received through December 31,
1996.

F-54
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

F. Presented below is a reconciliation between the theoretical amount of tax
that would have been incurred if all of the Company's income were subject to
tax at regular rates, and the tax expense included in the statement of income.

<TABLE>
<CAPTION>
Consolidated
-----------------------
For the year ended
December 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Statutory tax rate................................ 37% 36% 36%
===== ======= =======
Theoretical tax................................... $(800) $ 1,373 $ 3,604
Increase (decrease) in taxes arising from:
Tax benefit as "approved enterprise".............. -- (1,612) (3,094)
Losses for which no tax benefit was included by
the subsidiary................................... 800 813 1,941
Tax exempt interest............................... (944)
Other differences................................. 300 (144) (572)
----- ------- -------
$ 300 $ 430 $ 935
===== ======= =======
</TABLE>

Note 8--REVENUES

A. The Company's revenues by geographic areas are as follows:

<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
United States...................................... $1,223 $14,930 $29,194
Israel............................................. 176 52 544
Europe and others.................................. 150 330 853
------ ------- -------
$1,549 $15,312 $30,591
====== ======= =======
</TABLE>

B. Sales to single customers (including distributors) exceeding 10%:

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Customer A..................................... -- 13% 38%
Customer B..................................... 43% 32% 17%
Customer C..................................... -- 21% --
Customer D..................................... -- 15% --
</TABLE>

Note 9--BALANCES AND TRANSACTIONS WITH RELATED PARTIES

<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1995 1996 1997
--------------- --------
<S> <C> <C> <C>
Revenues......................................... $791 $5,117 $5,300
Commission expenses.............................. 48 1,301 --
</TABLE>

<TABLE>
<CAPTION>
December 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Trade receivables and other receivables..................... $3,364 $2,311
</TABLE>

The balances and transactions above include mainly revenues, commissions, and
related receivables from the Company's major distributor, who is also a
shareholder.

F-55
<PAGE>

MEMCO SOFTWARE LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 10--EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1995 1996 1997
------------------------- ------------------------- -------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
------- ------ --------- ------- ------- --------- ------- ------- ---------
(in thousands) Amount (in thousands) Amount (in thousands) Amount
--------------- --------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss)....... $(2,463) $ 3,384 $ 9,076
======= ======= =======
Basic earnings per share
Income available to
ordinary shareholders.. $(2,463) 10,768 $(0.23) $ 3,384 12,722 $0.27 $ 9,076 15,574 $0.58
====== ===== =====
Effect of dilutive
Securities Options..... -- -- -- 747 -- 1,074
Diluted Earnings per
Share Income (loss)
available to ordinary
shareholders plus
assumed conversions....
------- ------ ------- ------- ------- -------
$(2,463) 10,768 $(0.23) $ 3,384 13,469 $0.25 $ 9,076 16,648 $0.55
======= ====== ====== ======= ======= ===== ======= ======= =====
</TABLE>

F-56
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Network Information Technology, Inc.

We have audited the accompanying balance sheet of Network Information
Technology, Inc. as of December 31, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year then ended. 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 by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Network Information
Technology, Inc. as of December 31, 1997 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ Arthur Andersen LLP

June 12, 1998
New York, New York

F-57
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
As of As of
December 31, March 31,
1997 1998
------------ -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 183,094 $ 167,260
Trade receivables.................................. 5,750 --
Marketable securities.............................. 517,867 --
----------- -----------
Total current assets............................. 706,711 167,260
Fixed assets, net (note 1b).......................... 27,437 39,120
Other assets......................................... 5,200 5,700
----------- -----------
Total assets..................................... $ 739,348 $ 212,080
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable and accrued expenses................ $ 40,829 $ 124,455
Other current liabilities............................ 25,797 25,797
----------- -----------
Total current liabilities........................ 66,626 150,252
----------- -----------
Commitments and contingencies (note 2)
Shareholders' equity (note 3):
Preferred stock--no par value; 4,100,000 shares
authorized; 2,330,742 shares issued............... $ 2,005,415 $ 2,005,415
Common stock--no par value; 20,000,000 shares
authorized, 6,722,100 shares issued............... 870,000 870,000
Additional paid in capital......................... 6,000 6,000
Unrealized gain on marketable securities, net...... 13,385 --
Accumulated deficit................................ (2,222,078) (2,819,587)
----------- -----------
Total shareholders' equity....................... 672,722 61,828
----------- -----------
Total liabilities and shareholders' equity....... $ 739,348 $ 212,080
=========== ===========
</TABLE>

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

F-58
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Three months
Year ended ended
December March 31,
31, 1997 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Revenues.............................................. $ 86,923 $ 25,440
Cost of revenues...................................... 4,637 1,440
Research and development expenses..................... 838,493 269,527
Selling, general and administrative expenses.......... 783,269 370,450
----------- ---------
Operating loss........................................ (1,539,476) (615,977)
Interest income (expense)............................. 29,620 (2,580)
Gain on sale of marketable securities................. -- 21,048
----------- ---------
Net loss.............................................. $(1,509,856) $(597,509)
Net loss per share:
Basic............................................... $ (.22) $ (.09)
=========== =========
Diluted............................................. $ (.22) $ (.09)
=========== =========
Weighted average number of shares:
Basic............................................... 6,722,100 6,722,100
=========== =========
Diluted............................................. 6,722,100 6,722,100
=========== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-59
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock Preferred Stock Unrealized gain
------------------ -------------------- on Marketable Additional Accumulated
Shares Value Shares Value Securities, Net Paid-in-Capital deficit Total
--------- -------- --------- ---------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January
1, 1997.............. 6,722,100 $870,000 $ (712,222) $ 157,778
Shares issued......... 2,330,742 $2,005,415 2,005,415
Stock options granted
to consultants....... 6,000 6,000
Unrealized gain on
marketable
securities, net...... 13,385 13,385
Net loss.............. (1,509,856) (1,509,856)
--------- -------- --------- ---------- ------- ------ ----------- -----------
Balance at December
31, 1997............. 6,722,100 $870,000 2,330,742 $2,005,415 $13,385 $6,000 $(2,222,078) $ 672,722
Shares issued.........
Sales of marketable
securities........... (13,385) (13,385)
Net loss.............. (597,509) (597,509)
========= ======== ========= ========== ======= ====== =========== ===========
Balance at March 31,
1998 (unaudited)..... 6,722,100 $870,000 2,330,742 $2,005,415 $ -- $6,000 $(2,819,587) $ 61,828
========= ======== ========= ========== ======= ====== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-60
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended Three Months
December 31, ended
1997 March 31, 1998
------------ --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(1,509,856) $(597,509)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................... 4,082 --
Gain on sale of marketable securities.......... -- (7,663)
Changes in assets and liabilities--
Decrease in accounts receivable.............. 36,896 5,750
Increase in accounts payable and accrued
expenses.................................... 66,626 74,446
(Increase) in other assets................... (2,600) 500
----------- ---------
Net cash used in operating activities...... (1,404,852) (524,476)
Cash flows from investing activities:
(Purchase) Sales of short term investments....... (499,277) 520,325
Purchase of fixed assets......................... (1,117) (11,683)
----------- ---------
Net cash (used in) provided by investing
activities................................ (500,394) 508,642
Cash flows from financing activities:
Proceeds from issuance of preferred stock........ 2,005,415 --
----------- ---------
Net cash provided by financing activities.. 2,005,415 --
----------- ---------
Net increase (decrease) in cash............ 100,169 (15,834)
Cash and cash equivalents, beginning of period..... 82,925 183,094
----------- ---------
Cash and cash equivalents, end of period........... 183,094 167,260
=========== =========
Supplementary noncash information:
Unrealized gain on marketable securities........... $ 13,385 $ --
=========== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-61
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

NOTES TO THE FINANCIAL STATEMENTS

Note 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Network Information Technology, Inc. ("NIT") develops and markets easy-to-
deploy, advanced security software for UNIX and NT distributed systems. NIT's
UniShield product line provides comprehensive protection of networks systems,
files and applications from unauthorized access inside the firewall. NIT
provides security products, which have been adopted by major high tech,
telecommunications, financial, and insurance companies.

A. Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents.

B. Fixed Assets and Accumulated Depreciation

Fixed assets, as of December 31, 1997 are comprised of the following:

<TABLE>
<S> <C>
Computer equipment............................................... $32,774
Less--accumulated................................................ (5,337)
-------
$27,437
=======
</TABLE>

Depreciation has been calculated using the straight-line method over 5 years,
which is the estimated useful life of the assets.

For the year ended December 31, 1997, depreciation expense amounted to
$4,082.

C. Marketable Securities

The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"). Under SFAS
115 marketable debt and equity securities are reported at fair value, with
unrealized gains and losses from those securities classified as "available for
sale securities" reported as a separate component of shareholders' equity.

D. Revenue Recognition

Revenue is generally recognized upon shipment, after an evaluation period
(where applicable), and when collection is probable. Revenue from annual
maintenance contracts if recognized ratably over the term of the agreement.

E. Loss Per Share

In accordance with the provisions of SFAS No. 128 "Earnings per Share", basic
loss per share is computed using the weighted average number of common shares
outstanding and excludes any potential dilutions. (Common stock equivalents are
not included in the calculation of loss per share as their effect is
antidilutive.)

F. Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
and outside consultants. The Company accounts for stock option grants in
accordance with accounting principles board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has not adopted the measurement

F-62
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

requirements of SFAS No. 123, "Accounting for Stock Based Compensation," for
stock option grants to employees and accordingly, has made all of the required
pro forma disclosures for the year ended December 31, 1997.

G. Use of Estimates

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

H. Unaudited Information

The financial statements include the unaudited balance sheet as of March 31,
1998, and statements of operations and cash flows for the three-month periods
ended March 31, 1998. This unaudited information has been prepared by the
Company on the same basis as the audited consolidated financial statements and
in management's opinion, reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
information in accordance with generally accepted accounting principles for the
periods presented. Operating results for the three month period ended March 31,
1998 is not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.

Note 2--COMMITMENTS AND CONTINGENCIES

The Company has various lease agreements for offices. Future minimum annual
lease payments under the Company's operating leases for the year ended December
31, 1997 and the ensuing years are as follows:

<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Year ending December 31:
1998.......................................................... $ 98,647
1999.......................................................... 107,113
2000.......................................................... 101,159
2001.......................................................... 8,463
2002.......................................................... --
Thereafter.................................................... --
--------
Total Minimum Lease Payments................................ $315,382
========
</TABLE>

The rent expense for the year ended December 31, 1997 was $49,057.

Note 3--SHAREHOLDERS' EQUITY

Stock Options

The Company's Stock Option Plans (the "Plans") permits the granting of
options to purchase up to an aggregate of 1,310,000 shares of the Company's
common stock to employees, consultants and directors of the Company. Under
the Plans, the Company may grant either incentive stock options or
nonqualified stock options, at an underlying price of not less than 100% of
the fair market value of the common stock of the Company on the date of
grant. The options granted under the Plans are exercisable from five to ten
years pursuant to the Plans.

F-63
<PAGE>

NETWORK INFORMATION TECHNOLOGY, INC.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

The Company accounts for the Plans under APB Opinion No. 25, under which
no compensation cost has been recognized as all options granted during 1997
have been granted at the fair market value of the Company's common stock.
Had compensation cost for these plans been determined in accordance with
SFAS No. 123, the Company's net loss and loss per share would have been:

<TABLE>
<CAPTION>
Year Ended
December 31,
1997
------------
<C> <S> <C>
Net loss: As reported............................. $(1,509,856)
Pro forma............................... (1,522,750)
Net loss per share: As reported............................. $(0.22)
Pro forma............................... (0.22)
</TABLE>

Transactions under the Plans during 1997 were as follows:

<TABLE>
<CAPTION>
Year Ended
December 31, 1997
----------------- Weighted Average
Shares Exercise Price
----------------- ----------------
<S> <C> <C>
Options outstanding at beginning of
the year........................... 210,000 $0.06
Granted............................. 713,000 0.15
Exercised........................... -- --
Terminated.......................... -- --
------- -----
Options outstanding at end of year.. 923,000 $0.13
======= =====
</TABLE>

There have been no options exercised or expired since the stock option plans
were initiated.

Note 4--SUBSEQUENT EVENT

On May 6, 1998, all of the outstanding shares of the Company were purchased
by Memco Software, Ltd. ("Memco"), in exchange for a purchase price of $27.5
million. In addition, in May, Memco loaned the Company $500,000.

F-64
<PAGE>

ABIRNET LTD.

CONSOLIDATED BALANCE SHEET

In Thousands of U.S. Dollars

<TABLE>
<CAPTION>
As of As of
December 31, 1997 March 31, 1998
(Audited) (Unaudited)
----------------- --------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 614 $ 265
Trade receivables............................ 332 446
Other receivables and prepaid expenses....... 129 21
------- -------
1,075 732
------- -------
Property and equipment:
Cost......................................... 423 424
Less-accumulated depreciation................ 66 91
------- -------
357 333
------- -------
Other assets................................... 8 30
------- -------
$ 1,440 $ 1,095
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowing......................... -- 100
Trade payables............................... 231 101
Other current liabilities.................... 344 701
------- -------
575 902
------- -------
Severance pay, net............................. 13 --
------- -------
Commitments and contingencies
Shareholders' equity:
Share capital................................ 19 19
Share premium................................ 2,619 2,619
Accumulated deficit.......................... (1,786) (2,445)
------- -------
852 193
------- -------
$ 1,440 $ 1,095
======= =======
</TABLE>

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

F-65
<PAGE>

ABIRNET LTD.

CONSOLIDATED STATEMENT OF OPERATIONS

In Thousands of U.S. Dollars

<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1997 March 31, 1998
(Audited) (Unaudited)
----------------- ------------------
<S> <C> <C>
Revenues................................... $ 655 $ 496
Cost of revenues........................... 52 195
------- -----
Gross profit........................... 603 301
------- -----
Operation expenses
Research and development costs, net...... 567 248
Marketing expenses....................... 1,464 587
General and administrative expenses...... 273 124
------- -----
Total operating expenses................. 2,304 959
------- -----
Operating loss............................. (1,701) (658)
Financial income (expenses), net........... 54 (1)
------- -----
Income before taxes on income............ (1,647) (659)
------- -----
Income taxes............................... 3 --
------- -----
Net loss............................... $(1,650) $(659)
======= =====
</TABLE>

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

F-66
<PAGE>

ABIRNET LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

In Thousands of U.S. Dollars

<TABLE>
<CAPTION>
Share Share Accumulated
Capital Premium Deficit Total
------- ------- ----------- -------
<S> <C> <C> <C> <C>
Balance as of January 1, 1997........... $-- $ 225 $ (136) $ 89
Shares issued........................... -- 2,413 -- 2,413
Stock dividend.......................... 19 (19) -- --
Net loss for the year................... -- -- (1,650) (1,650)
---- ------ ------- -------
Balance as at December 31, 1997......... 19 2,619 (1,786) 852
Net loss (Unaudited).................... -- -- (659) (659)
---- ------ ------- -------
Balance as at March 31, 1998
(Unaudited)............................ $ 19 $2,619 $(2,445) $ 193
==== ====== ======= =======
</TABLE>

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

F-67
<PAGE>

ABIRNET LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

In Thousands of U.S. Dollars

<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1997 March 31, 1998
(Audited) (Unaudited)
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................ $(1,650) $(659)
Adjustments to reconcile net loss to net
cash flows in operating activities:
Depreciation and amortization......... 63 26
Increase (Decrease) in provision for
severance pay, net................... 13 (13)
Changes in operating assets and
liabilities
Increase in receivables............. (448) (6)
Increase in payables................ 458 227
------- -----
Net cash used in operating
activities....................... (1,564) (425)
------- -----
Cash flows from investing activities:
Purchase of equipment................... (299) (1)
Increase in other assets, net........... (4) (23)
------- -----
Net cash used in investing
activities....................... (303) (24)
------- -----
Cash flows from financing activities:
Issuance of shares...................... 2,413 --
Increase in short-term borrowing, net... -- 100
------- -----
Net cash provided by financing
activities....................... 2,413 100
------- -----
Increase (Decrease) in cash and cash
equivalents.............................. 546 (349)
Cash and cash equivalents at beginning of
period................................... 68 614
------- -----
Cash and cash equivalents at end of
period................................... $ 614 $ 265
======= =====
</TABLE>

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

F-68
<PAGE>

ABIRNET LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1--BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The operating results for the three month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. For further information, refer to the
financial statements and footnotes for the year ended December 31, 1997.

F-69
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
ABIRNET LTD.

We have audited the accompanying consolidated balance sheet of Abirnet Ltd.
(the "Company") as of December 31, 1997, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
year ended December 31, l997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing
standards in the United States and Israel, including those prescribed by the
Israeli Auditor Regulations (Mode of Performance), 1973. 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 the Company's
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Abirnet Ltd. as of December 31, 1997, and the consolidated results of its
operations and cash flows for the year ended December 31, 1997, in conformity
with generally accepted accounting principles in Israel. As applicable to the
Company's financial statements accounting principles generally accepted in the
United States and in Israel are identical in all material aspects.

Tel-Aviv, Israel /s/ KOST, FORER and GABBAY
March 12, 1998 Certified Public Accountants
(Israel)
A Member of Ernst & Young
International

F-70
<PAGE>

ABIRNET LTD.

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
As of
December 31,
1997
--------------
U.S. dollars
ASSETS Note (In thousands)
------ ---- --------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.............. $ 614
Trade receivables......... 332
Other accounts receivable
and prepaid expenses..... 3 129
------
Total current assets.... 1,075
------
Fixed Assets................ 4
Cost...................... 423
Less--accumulated
depreciation............. 66
------
Other Assets.............. 357
------
Patent rights............. 9
Less accumulated
amortization............. 1
------
8
------
$1,440
======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
Current Liabilities:
Trade payables............ $ 231
Other accounts payable and
accrued expenses......... 5 344
------
Total current
liabilities............ 575
------
Accrued Severance Pay, Net.. 6 13
------
Commitments and Contingent
Liabilities................ 7
Shareholders' Equity:
Share capital............. 8 19
Additional paid-in
capital.................. 2,619
Accumulated deficit....... (1,786)
------
852
------
$1,440
======
</TABLE>

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

F-71
<PAGE>

ABIRNET LTD.

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
U.S. DOLLARS
(IN THOUSANDS)
--------------
<S> <C>
Revenues......................................................... $ 655
Cost of revenues................................................. 52
------
Gross profit..................................................... 603
------
Operating costs and expenses:
Research and development costs................................. 567
Marketing expenses, net........................................ 1,464
General and administrative..................................... 273
------
Total operating costs and expenses............................... 2,304
------
Operating loss................................................... 1,701
------
Financial income, net............................................ 54
Income taxes..................................................... 3
------
Loss for the period.............................................. $1,650
======
</TABLE>

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

F-72
<PAGE>

ABIRNET LTD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Additional
Share paid-in- Accumulated
capital capital deficit Total
------- ---------- ----------- -------
U.S. Dollars (in thousands)
--------------------------------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1997........... *)-- $ 225 $ (136) $ 89
Issuance of share capital, net........ *)-- 2,413 -- 2,413
Issuance of stock dividend............ 19 (19) -- --
Loss for the year..................... -- -- (1,650) (1,650)
----- ------ ------- -------
Balance as of December 31, 1997......... 19 $2,619 $(1,786) $ 852
===== ====== ======= =======
</TABLE>
- --------
*) Represents an amount lower than $1,000.

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

F-73
<PAGE>

ABIRNET LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
U.S. DOLLARS
(IN THOUSANDS)
--------------
<S> <C>
Cash flows from operating activities:
Loss for the period........................................... $(1,650)
Adjustments to reconcile loss to net cash used in operating
activities:
Depreciation and amortization............................... 63
Increase in accrued severance pay, net...................... 13
Increase in trade receivables............................... (332)
Increase in other accounts receivable and prepaid expenses.. (116)
Increase in trade payables.................................. 194
Increase in other accounts payable and accrued expenses..... 264
-------
Net cash used in operating activities..................... $(1,564)
=======
Cash flows from investing activities:
Investments in patent rights.................................. $ (4)
Purchase of fixed assets...................................... (299)
-------
Net cash used in investing activities..................... (303)
Cash flows from financing activities:
-------
Proceeds from issuance of share capital, net.................. 2,413
-------
Net cash provided by financing activities................. 2,413
-------
Increase in cash and cash equivalents........................... 546
Cash and cash equivalents at the beginning of the period........ 68
-------
Cash and cash equivalents at the end of the period.............. $ 614
=======
</TABLE>

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

F-74
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--GENERAL

AbirNet Ltd. (the "Company") is an Israeli company which was established on
August 12, 1996 under the name Net Wizard Ltd. On January 13, 1997, the Company
changed its name to AbirNet Ltd. On December 30, 1996 the Company established a
wholly-owned subsidiary in the United States--AbirNet Inc.

The Company develops, markets, sells and resells network management software
applications and software tools that can be installed on commercial computers.
AbirNet Inc. is the Company's worldwide sales center.

The Company sells its products through distributors and to end users
directly. The Company has 14 distributors worldwide. Revenues derived from
distributors represented 55% of the revenues for the year ended December 31,
1997.

Note 2--SIGNIFICANT ACCOUNTING POLICIES

a. Financial statements in U.S. dollars:

The Company's transactions are recorded in new Israeli shekels; however, the
majority of the Company's sales are made outside Israel in U.S. dollars, and a
substantial portion of the Company's costs are incurred in U.S. dollars.
Accordingly, the Company has determined the U.S. dollar to be the currency of
its primary economic environment and thus, its functional and reporting
currency.

The Company's transactions and balances denominated in U.S. dollars are
presented at their original amounts. Non-dollar transactions and balances have
been remeasured into U.S. dollars in accordance with Statement No. 52 of the
Financial Accounting Standards Board ("FASB"). All transaction gains and losses
from remeasurement of monetary balance sheet items denominated in non-dollar
currencies are reflected in the statements of operations as financial income or
expenses, as appropriate.

The exchange rate of the U.S. dollar in relation to the NIS is as follows:

December 31, 1997--U.S. $1=NIS 3.536

b. Fixed assets:

1. These assets are stated at cost net of accumulated depreciation.

2. Depreciation is computed by the straight-line method over the estimated
useful lives of the assets, as follows:

<TABLE>
<CAPTION>
%
-----
<S> <C>
Computers and peripheral equipment.................................. 20-33
Communication systems............................................... 20-33
Office furniture and equipment...................................... 7-15
Motor vehicles...................................................... 15
</TABLE>

Leasehold improvements are depreciated over the related lease periods.

c. Other assets:

Patents are stated at cost and amortized by the straight-line method over the
estimated useful economic lives of five years.

F-75
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

d. Cash equivalents:

Cash equivalents are considered by the Company to be highly liquid
investments, which include short-term bank deposits (with original maturities
of up to 3 months).

e. Revenue recognition:

Revenues from selling and licensing software, in accordance with SOP 97-2,
are recognized when the following criteria are met:

. No significant customization or modification of the software is
required.

. Persuasive evidence of an agreement exists.

. Delivery has occurred.

. The vendor's fee is fixed or determinable.

. Collectability is probable.

In software arrangements which include multiple elements, each element is
treated according to the aforementioned criteria, and the price of the
arrangement is allocated to the elements according to the vendor specific
evidence of fair value, and is reduced by a proportional discount, if any.

f. Research and development:

Research and development costs are carried to the statement of operations as
incurred.

g. Stock issued to employees:

The Company accounts for stock-based compensation in accordance with the
requirements of APB-25 "Accounting for Stock Issued to Employees."

Under APB 25 when the exercise price of the Company's employee stock option
equals or is above the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

h. Deferred taxes:

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
This statement prescribes the use of the liability method, whereby deferred tax
asset and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides a full valuation
allowance to reduce deferred tax assets to their estimated realizable value.

Due to the uncertainty as to the existence of taxable income in the future,
deferred taxes have not been presented in respect of tax benefits originating
in the reported period to be carried forward to future years, or in respect of
the temporary difference between the recording of revenues and expenses in the
financial statements and their inclusion for tax purposes.

i. Advertising expenses:

Advertising expenses (including public relations and trade shows) are charged
to the statement of operations as incurred. Advertising expenses for the year
ended December 31, 1997, were approximately $376,200.

F-76
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

j. Use of estimate:

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

NOTE 3--OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
U.S. DOLLARS
(IN THOUSANDS)
--------------
<S> <C>
Prepaid expenses.......................................... 84
Government authorities.................................... 9
Other..................................................... 36
---
129
===
</TABLE>

NOTE 4--FIXED ASSETS

<TABLE>
<S> <C>
Cost:
Computers and peripheral equipment.................................. 244
Communication systems............................................... 32
Office furniture and equipment...................................... 54
Motor vehicles...................................................... 66
Leasehold improvements.............................................. 27
---
423
---
Accumulated depreciation:
Computers and peripheral equipment.................................. 37
Communication systems............................................... 3
Office furniture and equipment...................................... 15
Motor vehicles...................................................... 10
Leasehold improvements.............................................. 1
---
66
---
Depreciated cost...................................................... 357
===
</TABLE>

Depreciation expense for the year ended December 31, 1997 was $63.

NOTE 5--OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
U.S. DOLLARS
(IN THOUSANDS)
--------------
<S> <C>
Deferred income............................................ 143
Employees and related institutions for salaries............ 87
Provision for vacation..................................... 34
Accrued expenses........................................... 34
Other...................................................... 46
---
344
===
</TABLE>

F-77
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 6--ACCRUED SEVERANCE PAY, NET

Under Israeli law, the Company is required to make severance payments to
dismissed employees and to employees leaving employment under certain other
circumstances. This liability is calculated based on the years of employment
for each employee respectively, in accordance with the severance pay laws. The
Company's liability for required severance payments is covered by funding with
recognized severance pay funds, insurance policies and by an accrual. The
accrual for severance pay reflected in the balance sheet is in respect of the
uncovered liability.

Note 7--COMMITMENTS AND CONTINGENT LIABILITIES

a. Commitments:

The Company has entered into a lease agreement with the owners of the
building in Yokneam, where the Company's offices are located. The lease
agreement is for two years ending on August 15, 1999 with a renewal option for
four additional years.

The Company rents its facilities under various operating lease agreements,
which expire on various dates, the latest of which is in December 2000. The
minimum rental payments under non-cancelable lease agreements are as follows:

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998............................................................ $137,580
1999............................................................ $120,780
2000............................................................ $ 6,665
</TABLE>

Total rent expenses for the year ended December 31, 1997 was approximately
$49,000.

b. Liens:

As collateral for its lease agreement, the Company has placed a bank
guarantee for an inclusive amount of $8 thousand in favor of the owner of the
building.

c. The Company submitted two applications to participate in programs
sponsored by the Ministry of Industry and Trade through the Office of the Chief
Scientist for the support of research and development activities in the amounts
of $302,325 and $941,738 for periods which commenced in August 1997. The
Company has not yet received final approval in respect of these applications.

F-78
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 8--SHARE CAPITAL

a. During 1996, the Company effected a 100-for-one stock split. Each share
NIS 1 par value was split into 100 shares of NIS 0.01 par value.

<TABLE>
<CAPTION>
Number of shares
------------------------------------------------------
Issued and
outstanding Authorized
--------------------- --------------------------------
Common Preferred Common Common Preferred
shares shares "A" shares shares "A" shares "A"
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
January 1, 1997......... 84,500 -- 3,130,000 -- --
Redistribution........ (4,500) 4,500 (108,200) 8,200 100,000
Issuance of shares
(1).................. -- 39,980 -- -- --
Increase in authorized
shares............... -- -- 1,978,200 -- 3,124,000
Stock dividends (2)... 3,920,000 2,179,520 -- -- --
--------- --------- --------- ----- ---------
December 31, 1997....... 4,000,000 2,224,000 5,000,000 8,200 3,224,000
========= ========= ========= ===== =========
</TABLE>
- --------
(1) In February 1997, the Company raised approximately $2.5 million from an
investing group including venture capital funds and strategic investors.
(2) The Company allotted stock dividend shares at the rate of 49 shares for
each share of NIS 0.01 par value.
(3) The rights, preferences and restrictions of all shares are as follows:
(a) Dividends:
The holders of Common and Preferred "A" shares shall be entitled to
receive prior and in preference to the holders of Series Common "A"
shares, 10% of the amount of the dividend proposed to be paid. The
balance will be distributed pro rata to all the shareholders.
(b) Liquidation preference:
The holders of the preferred shares shall have a certain right of
priority in the event of liquidation, dissolution or winding up of the
Company.
(c) Conversion rights:
The Preferred "A" shares shall be convertible on a one-to-one
conversion basis, into Common shares upon either of the following
events:
(1) Upon a written demand of any of the holders thereof.
(2) Upon a written demand of the Company, made immediately prior to an
initial public offering or prior to a merger in which the Company
is not the surviving entity.

b. Stock option plan:

ln 1996 the Company granted 90,000 stock options at an exercise price of
$0.06 per option. In January 1997, the Company granted 19,500 stock options at
an exercise price of $0.6-$0.9 per option with vesting periods ranging from
one to four years, and which are exercisable until January 2007.

All options granted were at an exercise price equal to the fair market value
of the Company's Common shares on the date of grant.

The Company has elected to follow APB-25 "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its employee stock
options since the alternative fair value accounting provided for under FASB-
123 "Accounting for Stock-Based Compensation," requires the use of option
valuation models that were not developed for use in valuating employee stock
options.

F-79
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9--TAXES ON INCOME

a. Income Tax (lnflationary Adjustments) Law, 1985:

The Company is subject to the Income Tax Ordinance and the Income Tax
(Inflationary Adjustments) Law, 1985. Pursuant to the above law, the
results for tax purposes are measured in real terms, in accordance with the
changes in the Israeli CPI.

b. Law for the Encouragement of Capital Investments, 1959:

The Company has been granted the status of an "Approved Enterprise" from
December 16, 1996, under the Law in respect of which the Company has
elected the alternative benefits track, waiver of grants in return for tax
exemptions. Pursuant thereto, the income of the Company derived from the
aforementioned "Approved Enterprise" expansion program is tax-exempt for
ten years.

The period of tax benefits, detailed above, is subject to limits of 12
years from the commencement of production, or 14 years from granting the
approval, whichever is earlier.

The tax-exempt profits that will be earned by the Company's "Approved
Enterprise" can be distributed to shareholders, without a resultant tax
liability to the Company, only upon the complete liquidation of the
Company. If these retained tax-exempt profits are distributed in a manner
other than upon the complete liquidation of the Company, they would be
taxed at the corporate tax rate applicable to such profits if the Company
had not chosen the alternative tax benefits (currently--25% for an
"Approved Enterprise").

The Law also grants entitlement to claim accelerated depreciation on
equipment used by the "Approved Enterprise" during five tax years.

Should the Company derive income from sources other than the "Approved
Enterprise" during the periods of benefits, such income shall be taxable at
the regular corporate tax rate of 36%.

The Company's period of tax benefits has not yet commenced.

c. Tax benefits under the Israeli Law for the Encouragement of Industry
(Taxation), 1969:

The Company is an "industrial company" under the Law for the
Encouragement of Industry (Taxation), 1969 and, therefore, is entitled to
certain tax benefits, including accelerated rates of depreciation and
deduction of public offering expenses.

d. Net operating losses carryforwards:

AbirNet Ltd. has accumulated losses for Israeli tax purposes as of
December 31, 1997 in the amount of approximately $1,605,000. The Israeli
loss carryforwards have no expiration date.

The Company has provided valuation allowances in respect of deferred tax
assets resulting from tax loss carryforwards and other temporary
differences, since it has a history of losses since its establishment.
Management currently believes that it is more likely than not that the
deferred tax regarding the loss carryforwards and other temporary
differences will not be realized.

F-80
<PAGE>

ABIRNET LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 10--SELECTED STATEMENTS OF OPERATIONS DATA

a. Sales classified by geographical destinations. Sales are attributed to
countries based on location of the customers:

<TABLE>
<CAPTION>
Year ended
December 31,
1997
--------------
U.S. dollars
(In thousands)
--------------
<S> <C>
Israel..................................................... 24
Export:
U.S.A.................................................... 297
England.................................................. 177
Korea.................................................... 98
Other.................................................... 59
----
655
====

b. Major customers data, percentage of total revenues:

Distributor A.............................................. 21.6%
====
Distributor B.............................................. 14.5%
====
</TABLE>

F-81
<PAGE>

SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following selected consolidated financial data of Memco for the year
ended December 31, 1997, has been derived from Memco's consolidated financial
statements, which have been prepared in accordance with US GAAP and have been
audited by Luboshitz, Kasierer & Co., a member firm of Arthur Andersen, and by
Chaikin, Cohen, Rubin each of which are independent public accountants. The
selected financial data for NIT for the year ended December 31, 1997 has been
derived from NIT's financial statements which have been prepared in accordance
with US GAAP and have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data for AbirNet for the year ended
December 31, 1997 has been derived from AbirNet's consolidated financial
statements which have been prepared in accordance with generally accepted
accounting standards in Israel, which do not differ in any significant aspect
from US GAAP, and have been audited by Kost Forer and Gabbay, a member of Ernst
& Young International, independent public accountants. The selected
consolidated financial data as of and for the three months ended March 31, 1998
has been derived from Memco's, NIT's and AbirNet's unaudited consolidated
financial statements at and for such periods, respectively. The interim
financial statements of Memco and NIT have been prepared in accordance with US
GAAP and the interim financial statements of AbirNet have been prepared in
accordance with generally accepted accounting standards in Israel, which do not
differ in any significant respect from US GAAP and in the opinion of management
reflect all adjustments (consisting of normal and recurring adjustments)
necessary for a proper statement of the results of such periods. Results for
the interim periods are not necessarily representative of the results for the
full year. All of the financial data set forth below should be read in
conjunction with the consolidated financial statements of Memco, NIT and
AbirNet, which are included in this Prospectus.

The following tables present summary unaudited pro forma combined financial
information after giving effect to the NIT Merger and the AbirNet Transaction.
Both the NIT Merger and the AbirNet Transaction have been accounted for using
purchase accounting. The summary pro forma balance sheet has been prepared as
if such transactions had been effective as of March 31, 1998, while the summary
pro forma statements of operations for the year ended December 31, 1997 and the
pro forma statement of operations for the three months ended March 31, 1998 has
been prepared as if such transactions had been effective as of January 1, 1997.
The data below is presented for illustrative purposes and is not necessarily
indicative of the operating results or financial positions that would have
occurred or that will occur in the future.

F-82
<PAGE>

PRO FORMA COMBINED STATEMENT OF OPERATIONS

(In thousands, except per share data)
Year ended December 31, 1997

<TABLE>
<CAPTION>
Actual Pro Forma
--------------------------- ------------------------
Memco AbirNet N.I.T. Adjustment Combined
---------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 30,591 $ 655 $ 87 $ 31,333
Cost of revenues.......... 3,087 52 5 486 (1) 3,630
---------- ------- ------- ------- ----------
Gross profit............ 27,504 603 82 (486) 27,703
---------- ------- ------- ------- ----------
Operating expenses........
Research and
development, net....... 4,066 567 838 5,471
Marketing and selling,
net.................... 13,628 1,464 783 15,875
General and
administrative......... 2,995 273 3,268
Amortization of excess
of cost over net assets
acquired, net.......... 3,086 (1) 3,086
---------- ------- ------- ------- ----------
Total operating
expenses............. 20,689 2,304 1,621 3,086 27,700
---------- ------- ------- ------- ----------
Operating income (loss)... 6,815 (1,701) (1,539) (3,572) 3
Financial income, net..... 3,196 54 30 (684)(2) 2,596
---------- ------- ------- ------- ----------
Income before taxes on
income................... 10,011 (1,647) (1,509) (4,256) 2,599
Income taxes.............. 935 3 938
---------- ------- ------- ------- ----------
Net income (loss)..... $ 9,076 $(1,650) $(1,509) $(4,256) $ 1,661
========== ======= ======= ======= ==========
Net income per share....
Basic................. $ 0.58 $ 0.10
========== ==========
Diluted............... $ 0.55 $ 0.09
========== ==========
Weighted average number of
shares
Basic................... 15,573,886 17,021,751
========== ==========
Diluted................. 16,647,697 18,524,447
========== ==========
</TABLE>
- --------
(1) Aggregate purchase price of both acquisitions and expensed transaction
costs was approximately $56 million. The amount of purchase price in excess
of the in-process research and development acquired is approximately $25
million. Such excess amount is composed of both goodwill, which is
amortized over a 7-year period, and tangible assets, which are amortized
over a 5-year period.
(2) Reflects the elimination of interest earned, assuming an interest rate of
5%.

F-83
<PAGE>

PRO FORMA COMBINED STATEMENT OF OPERATIONS

(In thousands, except per share data)
Three months ended March 31, 1998

<TABLE>
<CAPTION>
Actual Pro Forma
------------------------- ------------------------
Memco AbirNet N.I.T. Adjustment Combined
---------- ------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 8,401 $ 496 $ 25 $ 8,922
Cost of revenues............ 870 195 1 $ 121 (1) 1,187
---------- ----- ----- ------- ----------
Gross Profits............. 7,531 301 24 (121) 7,735
---------- ----- ----- ------- ----------
Operating expenses
Research and development,
net...................... 1,071 248 270 1,589
Marketing and selling..... 3,770 587 370 4,727
General and
administrative........... 797 124 921
Amortization of excess of
cost over net assets
acquired, net............ 772 (1) 772
---------- ----- ----- ------- ----------
Total operating
expenses............... 5,638 959 640 772 8,009
---------- ----- ----- ------- ----------
Operating income (loss)..... 1,893 (658) (616) (893) (274)
Financial income (expense),
net........................ 799 (1) 18 (171)(2) 645
---------- ----- ----- ------- ----------
Income before taxes on
income..................... 2,692 (659) (598) (1,064) 371
Income taxes................ 550 550
---------- ----- ----- ------- ----------
Net income (loss)....... $ 2,142 $(659) $(598) $(1,064) $ (179)
========== ===== ===== ======= ==========
Net income per share
Basic..................... $ 0.14 $ (0.01)
========== ==========
Diluted................... $ 0.13 $ (0.01)
========== ==========
Weighted average number of
shares
Basic..................... 15,815,629 17,263,494
========== ==========
Diluted................... 16,986,753 17,263,494
========== ==========
</TABLE>
- --------
(1) Aggregate purchase price of both acquisitions and expensed transaction
costs was approximately $56 million. The amount of purchase price in excess
of the in-process research and development acquired is approximately $25
million. Such excess amount is composed of both goodwill, which is
amortized over a 7-year period, and tangible assets, which are amortized
over a 5-year period.
(2) Reflects the elimination of interest earned, assuming an interest rate of
5%.

F-84
<PAGE>

PRO FORMA COMBINED BALANCE SHEETS

As at March 31, 1998
(In thousands)

<TABLE>
<CAPTION>
Actual Pro Forma
------------------------- ----------------------
Memco AbirNet N.I.T. Adjustment Combined
------- ------- ------- ---------- --------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents............. $16,294 $ 265 $ 167 $(12,435)(1) $ 4,291
Short-term investments... 49,109 49,109
Trade receivables........ 7,817 446 8,263
Other receivables and
prepaid expenses........ 1,199 21 1,220
------- ------- ------- -------- --------
Total current assets... 74,419 732 167 (12,435) 62,883
------- ------- ------- -------- --------
Property and Equipment
Cost..................... 3,881 424 45 4,350
Less accumulated
depreciation............ 936 91 6 1,033
------- ------- ------- --------
2,945 333 39 3,317
------- ------- ------- --------
Long-Term Investment....... 775 775
Excess of cost over net
assets acquired and other
assets, net............... 1,298 30 6 25,002 (2) 26,336
------- ------- ------- -------- --------
Total assets............. $79,437 $ 1,095 $ 212 $ 12,567 $ 93,311
======= ======= ======= ======== ========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
Current Liabilities
Short-term credits and
current maturities...... $ 30 $ 100 $ 130
Accounts payable--trade.. 1,412 101 124 1,637
Other current
liabilities............. 10,445 701 26 11,172
------- ------- ------- --------
Total current
liabilities........... 11,887 902 150 12,939
------- ------- ------- --------
Long-Term Liabilities
Deferred income.......... 941 941
Loans from banks and
others.................. 46 46
Accrued severance pay.... 818 818
------- --------
Total long-term
liabilities........... 1,805 1,805
------- --------
Shareholders' Equity
Preferred Stock.......... 2,005 (2,005)(3)
Common Stock............. 50 19 870 (889)(3) 50
Share premium............ 54,125 2,619 6 40,940 (4) 97,690
Deferred compensation.... (77) (77)
Retained earnings........ 11,647 (2,445) (2,819) (25,479)(3) (19,096)
------- ------- ------- -------- --------
Total shareholders'
equity................ 65,745 193 62 12,567 78,567
------- ------- ------- -------- --------
Total liabilities and
shareholders' equity.. $79,437 $ 1,095 $ 212 $ 12,567 $ 93,311
======= ======= ======= ======== ========
</TABLE>
- --------
(1) Reflects the cash portion of the consideration paid in connection with the
AbirNet Merger and related expenses for both acquisitions.
(2) Aggregate purchase price of both acquisitions and expensed transaction
costs was approximately $56 million. The amount of purchase price in excess
of the in-process research and development acquired is approximately $25
million. Such excess amount is composed of both goodwill, which is
amortized over a 7-year period, and tangible assets, which are amortized
over a 5-year period.
(3) Reflects the elimination of the shareholders' equity for both acquisitions,
and the expense of the in-process research and development acquired.
(4) Reflects the adjustments to increase share premium arising from the
issuance of Ordinary Shares in connection with the acquisitions.

F-85
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

Under date of May 28, 1998, we reported on the consolidated balance sheets of
PLATINUM technology International, inc. and subsidiaries as of December 31,
1997 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, 1997. 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. 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 the 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.

/s/ KPMG LLP

Chicago, Illinois
May 28, 1998

F-86
<PAGE>

SCHEDULE II

PLATINUM technology International, inc.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Allowance for
Doubtful
Accounts for
Trade and
Installment Beginning Bad Debt Ending
Receivables Balance Expense Write-Offs Balance
------------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997... $6,626,000 $13,095,000 $(12,439,000) $7,282,000
Year ended December 31, 1996... 4,643,000 3,303,000 (1,320,000) 6,626,000
Year ended December 31, 1995... 2,020,000 3,942,000 (1,319,000) 4,643,000
</TABLE>

F-87
<PAGE>

APPENDIX A

AGREEMENT

Between

PLATINUM technology, inc.

and

MEMCO Software Ltd.

Dated as of: August 13, 1998

A-1
<PAGE>

Agreement (the "Agreement") dated as of the 13th day of August, 1998 by and
between PLATINUM technology International, inc., a public company organized
under the laws of Delaware (the "Buyer"), and MEMCO Software, Ltd., a
corporation organized under the laws of the State of Israel (the "Company").

Whereas, Buyer is a public company duly organized and existing under the
laws of the United States, and has an authorized capital stock of 180,000,000
shares of Common Stock, $.001 par value, (the "Buyer Stock") of which
85,757,918 shares were issued and outstanding as of August 10, 1998 (excluding
any shares issued or issuable on or after such date upon exercise of options
outstanding on such date) and 10,000,000 shares of Class II Preferred Stock,
$.01 par value, 1,000,000 shares of which (subject to adjustment upward or
downward by the Buyer's Board of Directors) have been designated Series A
Junior Participating Preferred Stock and 1,775,000 of which (subject to
adjustment upward or downward in accordance with the Buyer's Certificate of
Incorporation, as amended) have been designated as Class II Series B Preferred
Stock;

Whereas, the Company is a corporation organized and existing under the laws
of the State of Israel, and has an authorized capital stock of 30,000,000
Ordinary Shares, NIS 0.01 par value, of which 17,462,324 shares were issued and
outstanding as of August 10, 1998 (the Ordinary Shares are hereinafter referred
to as the "Company Stock");

Whereas, the Board of Directors of the Company deems it desirable and in the
best interests of the Company and its shareholders that the Company and its
shareholders enter into an arrangement pursuant to Section 233 ("Section 233")
of the Companies Ordinance (New Version) 5743-1983, whereby, inter alia, all
the issued and outstanding shares of the Company Stock not already owned by
Buyer shall be deemed transferred to Buyer in exchange for newly issued shares
of the Buyer Stock (the "Arrangement");

Whereas, the Board of Directors of the Company deems it desirable and in the
best interests of the Company and its shareholders, as part of the Arrangement,
that the Company and Buyer enter into this Agreement, pursuant to which all the
issued and outstanding shares of the Company Stock not already owned by Buyer
shall be deemed transferred to Buyer in exchange for newly issued shares of the
Buyer Stock and options to purchase the Buyer Stock, on the terms and
conditions hereinafter set forth;

Whereas, the Board of Directors of Buyer deems it desirable and in the best
interests of Buyer and its shareholders that Buyer and the Company enter into
this Agreement, pursuant to which all the issued and outstanding shares of the
Company Stock not already owned by Buyer shall be deemed transferred to Buyer
in exchange for newly issued shares of the Buyer Stock and options to purchase
the Buyer Stock, on the terms and conditions hereinafter set forth; and

Whereas, concurrently with the execution of this Agreement, Israel Mazin,
Eliahu Mashiah, Izaak Mashiah, Ori Mazin, Jules Marilus, Esriel Sternbuch and
Ophir Holdings, Ltd shall have executed an agreement to vote all shares of the
Company Stock "beneficially owned" (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), by each
of them in favor of the transactions contemplated by this Agreement.

Now, Therefore, the parties hereto, in consideration of the premises and of
the mutual covenants and agreements contained herein, hereby agree as follows:

PLAN OF
REORGANIZATION

This Agreement is intended to constitute a plan of reorganization within the
meaning of Section 368 of the United States Internal Revenue Code of 1986, as
amended (the "Code"). It is also intended that the transactions contemplated by
this Agreement be recorded for accounting purposes as a pooling of interests.

A-2
<PAGE>

1. THE EXCHANGE.

1.1 The Exchange. Pursuant to this Agreement, as of the time of the Filing
(as hereinafter defined) (the "Closing Date"), by virtue of the Filing and
without any action on the part of the holders thereof, all issued and
outstanding shares of the Company Stock not already owned by Buyer will be
deemed transferred to in exchange for newly-issued, shares of the Buyer Stock
in the aggregate amount and in the manner set forth in Section 2 below (the
"Exchange"), and all outstanding options to purchase shares of the Company
Stock will either be exercised prior to the date and time of the filing (the
"Filing") of the Final Court Order (as defined in Section 7.1(c)) with the
Registrar of Companies in Israel, or will be deemed assumed by Buyer by the
exchange of equivalent options to purchase shares of the Buyer Stock, as set
forth in Section 2 below. Thereupon, the corporate existence of the Company,
with all its purposes, powers and objects, shall continue unaffected and
unimpaired by the Arrangement under the laws of the State of Israel.

1.2 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the
provisions of Section 12, the closing of the Exchange (the "Closing") shall
take place on the Closing Date which shall occur no later than five (5)
business days after the satisfaction of all of the conditions set forth in
Sections 9, 10 (or waiver of such conditions to the extent such condition may
be waived), but not earlier than January 1, 1999, or such other date upon which
the parties hereto may agree in writing. The Closing shall take place at the
offices of Buyer's counsel or such other place upon which the parties hereto
may agree.

2. MANNER AND BASIS FOR EXCHANGING THE COMPANY STOCK AND OPTIONS.

2.1 Exchange of the Company Stock. Subject to the provisions of this Section
2, each share of the Company Stock issued and outstanding immediately prior to
the Closing Date (other than shares of the Company Stock owned by Buyer or by
any subsidiary of Buyer and shares of the Company Stock owned by the Company or
any subsidiary of the Company) shall, as of the Closing Date, by virtue of the
Filing and without any action on the part of the holders thereof, be converted
into the right to receive 0.836 (the "Exchange Ratio") of an authorized validly
issued, fully paid and non-assessable share of the Buyer Stock (the
"Consideration"). If prior to the Closing Date, Buyer should split or combine
the Buyer Stock, or pay a share dividend or other distribution in shares of the
Buyer Stock, or otherwise change the Buyer Stock into any other securities, the
Exchange Ratio will be appropriately adjusted to reflect such split,
combination, dividend or other distribution or change.

2.2 Conversion of Options. (a) As of the Closing Date, each outstanding
option to purchase the Company Stock (each, an "Option"), whether or not vested
or exercisable, shall be assumed by Buyer and shall be deemed to constitute an
option to acquire, on the same terms and conditions (including treatment as an
incentive stock option or a non-qualified stock option, as the case may be), as
were applicable under such Option, the same number of shares of the Buyer Stock
as the holder of such Option would have been entitled to receive pursuant to
the Agreement had such holder exercised such Option in full immediately prior
to the Closing Date (not taking into account whether such Option was in fact
exercisable at such time), at a per share exercise price equal to (i) the
aggregate exercise price for the Company Stock subject to such Option divided
by (ii) the number of full shares of the Buyer Stock (rounded up to the next
full share of the Buyer Stock) purchasable pursuant to such Option as provided
in this Section 2.2. As soon as practicable after the Closing Date, Buyer
either shall amend the Company plan to provide for the issuance of the Buyer
Stock in lieu of the Company Stock and advise each holder of an Option in
writing of such holder's right to acquire shares of the Buyer Stock and the
Option agreements of each such holder shall be deemed to be appropriately
amended so that such Options shall represent rights to acquire shares of the
Buyer Stock on substantially the same terms and conditions as contained in the
outstanding Options (subject to any adjustments required by the preceding
sentence) or deliver to each holder of an Option an amended option agreement
under a comparable Buyer stock option plan.

A-3
<PAGE>

2.3 Surrender and Exchange Procedure. As soon as practicable after the
Closing Date, each holder of any outstanding certificate or certificates
theretofore representing shares of the Company Stock shall be entitled, upon
surrender of such certificate or certificates to American Stock Transfer and
Trust Company, acting in its capacity as exchange agent, or such successor
agent or agents as may be appointed by Buyer (the "Exchange Agent"), to receive
therefor a certificate or certificates representing the number of full shares
of the Buyer Stock into which the shares of the Company Stock theretofore
represented by the certificate or certificates so surrendered shall be required
to be exchanged as aforesaid, as shall be more particularly provided in the
Exchange Agent Agreement to be entered into by Buyer and the Exchange Agent
(the "Exchange Agent Agreement"). At or prior to the Closing Date, Buyer shall
deliver to the Exchange Agent a sufficient number of certificates representing
the Buyer Stock and cash in lieu of fractional shares to effect delivery of the
aggregate Consideration required to be issued pursuant to the Exchange.

(a) Action of Exchange Agent. On or before the third business day
following the Closing Date, the Exchange Agent will send a notice and a
transmittal form to each holder of record of an outstanding certificate or
certificates which immediately prior to the Closing Date represented shares
of the Company Stock, at the address of each such holder as it appears on
the books of American Stock Transfer and Trust Company, the Company's
registrar and transfer agent (the "Company Transfer Agent"), advising such
holder of the terms of the Exchange and the procedure for the surrender and
exchange of certificates. Upon surrender of the certificates for
cancellation to the Exchange Agent, together with such transmittal form
duly executed and any other required documents, the holder of such
certificates shall be entitled to receive for each share of the Company
Stock formerly represented by such certificates, the Consideration and the
certificates so surrendered shall forthwith be canceled.

(b) Rights Prior to Surrender. Until so surrendered, each such
outstanding certificate which prior to the Closing Date represented shares
of the Company Stock shall be deemed to evidence ownership of the number of
full shares of the Buyer Stock and any cash in lieu of any fractional share
of the Buyer Stock into which such shares of the Company Stock shall have
been so exchanged. After the Closing Date there shall be no further
registry of transfers of shares of the Company Stock, and, if certificates
representing such shares are presented to Buyer or its transfer agent, or
to the Company Transfer Agent, they shall be canceled and exchanged for
certificates representing shares of the Buyer Stock and any cash in lieu of
any fractional share of the Buyer Stock as provided in the Exchange Agent
Agreement.

(c) No Dividends. No dividends or distributions payable after the
Closing Date will be paid on shares of the Buyer Stock issuable to persons
entitled to shares of the Buyer Stock in exchange for the Company Stock
until such persons shall have surrendered their certificates representing
the Company Stock, provided, however, that when certificates shall have
been so surrendered, there shall be paid to the holders thereof, but
without interest thereon, except to the extent paid to all holders of the
Buyer Stock, any dividends and other distributions payable subsequent to
the Closing Date and prior to the surrender of such certificates for the
shares of the Company Stock.

(d) No Fractional Shares. No fractional shares of the Buyer Stock and no
scrip certificates therefor shall be issued to represent any fractional
share interests in the Buyer Stock to be delivered hereunder in exchange
for shares of the Company Stock. In lieu thereof, each holder of the
Company Stock shall be entitled to receive at the time the certificates for
the Buyer Stock are issued pursuant to this Section 2, an amount in cash
equal to the product obtained by multiplying the fractional share interest
to which such holder would otherwise be entitled by the share value as of
the Closing Date. For purposes of this Agreement, the "share value" means,
as of the date of determination, the average of the closing sale price per
share of the Buyer Stock, as reported on the Nasdaq National Market System
("Nasdaq") for the most recent five (5) days that the shares of the Buyer
Stock have traded ending on the trading day immediately prior to the
Closing Date.

3. PUBLICITY.

Except as otherwise required by applicable law, Buyer and the Company agree
that no publicity, release or announcement concerning the transactions
contemplated hereby shall be issued without the advance approval of the form
and substance of the same by the parties hereto, and their respective legal
counsel.

A-4
<PAGE>

4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY.

The Company represents and warrants to Buyer, subject to the exceptions
disclosed in writing in the disclosure letter supplied by the Company to Buyer
(the "Company Schedules") which sets forth the Schedules referenced in this
Article 4 and which is dated as of the date hereof, as follows:

4.1 Organization of the Company. The Company is a corporation duly organized
and validly existing under the laws of the State of Israel and has all
requisite power and authority to carry on its business as now conducted, and to
own its assets. The Company is duly qualified to do business and is in good
standing in the jurisdictions in which the Company is required to be qualified
in order to carry on its business, and is duly authorized and licensed under
all laws, regulations, ordinances or orders of public authorities, or
otherwise, to carry on its business in the places and in the manner presently
conducted, except for qualifications, authorizations or licenses of which would
not have a Material Adverse Effect on the Company. In this Agreement, the term
"Material Adverse Effect" used in reference to the Company or any of its
Subsidiaries (as hereinafter defined) means any event, change or effect
materially adverse to the business or financial condition, assets, liabilities,
results of operations of the Company and its Subsidiaries, taken as a whole,
other than changes resulting solely from changes in general economic or
software industry conditions. The Company has heretofore delivered to Buyer
true and complete copies of its Memorandum of Association and its Articles of
Association certified by the Secretary of the Company, as in effect on the date
hereof. The minute books of the Company contain substantially accurate records
of all meetings of its Board of Directors, all committees of its Board of
Directors, and of its shareholders since its incorporation and accurately
reflect all material transactions referred to in such minutes.

4.2 Capitalization. Except as set forth on Schedule 4.2 hereto, the
authorized capital stock of the Company consists of 30,000,000 Ordinary Shares,
NIS 0.01 par value, of which there were 17,462,324 shares issued and
outstanding as of the date hereof plus any shares issued on the date hereof
upon exercise of options outstanding as of August 10, 1998. All outstanding
shares of the Company Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Memorandum of Association or Articles of Association of the Company or any
agreement or document to which the Company is a party or by which it is bound.

4.3 Subsidiaries. The subsidiaries of the Company (the "Subsidiaries")
consists of Memco Software, Inc., a Delaware corporation ("Memco US"), AbirNet
Ltd., a corporation organized under the laws of the State of Israel, Memco
Software Europe Ltd., a corporation organized under the laws of the United
Kingdom, Abirnet, Inc., a Delaware corporation and Network Information
Technology, Inc., a California corporation ("NIT"). Schedule 4.3 sets forth the
percentage and numbers of the outstanding shares of each subsidiary owned by
the Company, or any other person, firm or corporation. Except for the
Subsidiaries, there exists no other corporation, joint venture, partnership or
other entity of which the Company, directly or indirectly, through other
corporations or otherwise, owns 50% or more of the outstanding capital stock or
interest. Each of the Subsidiaries is qualified to do business in the
jurisdictions in which each such Subsidiary is required to be qualified in
order to carry on its business, and is duly authorized, and licensed under all
laws, regulations, ordinances or orders of public authorities, or otherwise, to
carry on its business in the places and in the manner presently conducted,
except for authorizations, qualifications or licenses of which the failure to
obtain would not have a Material Adverse Effect on the Company. The outstanding
shares of capital stock, or other evidence of ownership, of each of the
Subsidiaries are validly issued, fully paid and non-assessable, and the shares
of each of the Subsidiaries, to the extent owned by the Company or another
Subsidiary, are owned by the Company or such other Subsidiary free of any
claims, liens, charges or encumbrances of any nature whatsoever, except as set
forth in Schedule 4.3. Each of the Subsidiaries is duly organized and validly
existing in good standing under the laws of the jurisdiction of its
organization and has the power to carry on its business as now conducted and to
own its assets. The Company has delivered to Buyer, true and complete copies of
the Certificate of Incorporation (or similar instrument) and By-Laws (or
similar instrument) of each Subsidiary, as in effect on the date hereof. The
minute books of each Subsidiary contain substantially accurate records of all
meetings of its Board of Directors and its shareholders since the time of its
incorporation and accurately reflect

A-5
<PAGE>

all material transactions referred to in such minutes. Except as set forth in
Schedule 4.3, the Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any interest in, any corporation, partnership, joint venture or
other business association or entity.

4.4 Grants, Incentives and Subsidies. Schedule 4.4 hereto provides a
complete list of all grants, incentives and subsidies ("Grants") from the
Government of the State of Israel or any agency thereof to the Company or any
Subsidiary, including, without limitation, (a) Approved Enterprise Status and
(b) grants from the office of the Chief Scientist. Correct copies of all
applications submitted by the Company or any Subsidiary to the Investment
Center for receipt of Approved Enterprise Status in accordance with the
Encouragement of Capital Investments Law--1959 ("Investment Center") and of all
letters of approval, and supplements thereto, granted to the Company or to any
Subsidiary by the Investment Center have been provided to Buyer. Schedule 4.4
details the nature of the Grants, all material terms and conditions thereof and
all material undertakings of the Company or its Subsidiaries given in
connection with the Grants. Schedule 4.4 lists with respect to each grant that
the Company or any of its Subsidiaries received or is entitled to receive from
(x) the Chief Scientist and (y) the Israel-United States Binational Industrial
Research and Development Foundation ("BIRD"), the following information: (i)
the total amount of the grant received by the Company or any of its
Subsidiaries and the amount available for future use by the Company or any of
its Subsidiaries; (ii) the time period in which the Company or any of its
Subsidiaries received, or will be entitled to receive, each grant; (iii) a
general description of the research and development program for which such
grant was approved; (iv) the royalty repayment schedule applicable to such
grant and the total repayment due; (v) the type of revenues from which royalty
payments should be made; and (vi) the total amount of royalties paid as of an
unidentified recent date and the total royalty obligations which accrue as of
such date. The Company and its Subsidiaries are in compliance, in all material
respects, with the terms and conditions of the Grants and, except as disclosed
in Schedule 4.4 hereto, has duly fulfilled, in all material respects, all the
undertakings relating thereto. The Company is unaware of any event which might
lead to the annulment or material limitation of any of the Grants.

4.5 Options, Warrants, Etc. Schedule 4.5 hereto contains a complete and
correct list of all plans under which options to purchase Company Shares have
or may be granted ("Option Plans"). Schedule 4.5 includes a list by Option Plan
for each outstanding option, as of the date hereof, of the following: (a) the
name of the holder of such option, (b) the number of shares subject to such
option and (c) the exercise price of such option. As of the date hereof, the
Company had reserved 5,813,614 shares of the Company Stock, net of exercises,
for issuance to employees pursuant to the Option Plans, under which options are
outstanding for 3,645,133 shares of the Company Stock minus any options
exercised on the date hereof. No repricing of options has taken place. All
shares of the Company Stock subject to issuance under the Option Plans, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Schedule 4.5, there are no
outstanding options, warrants, rights, calls, commitments or agreements calling
for the issuance or transfer, sale or disposition by the Company or any
Subsidiary of any shares, issued or unissued, of the capital stock of the
Company or any Subsidiary, or of any securities convertible or exchangeable,
actually or contingently, into any such capital stock, to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary is bound,
or of which the Company has knowledge.

4.6 Officers and Directors. The Company Schedule contains a complete and
correct list of the names and business addresses of all officers and directors
of the Company and each of the Subsidiaries.

4.7 Financial Statements. Except as set forth on Schedule 4.7 hereto, the
books of account of the Company and its Subsidiaries are correct and complete
in all material respects and fairly present their income, expenses, assets and
liabilities in accordance with United States generally accepted accounting
principles consistently applied. The audited consolidated financial statements
of the Company and its consolidated Subsidiaries, if any, for each of the years
in the three year period ended December 31, 1997, together with the reports and
opinions thereon of Luboshitz, Kasierer & Co., Member Firm of Andersen
Worldwide, and Chaikin, Cohen, Rubin, Certified Public Accountants (Israel),
and the unaudited consolidated financial

A-6
<PAGE>

statements of the Company and its consolidated Subsidiaries, if any, for the
six months ended June 30, 1998, all of which have previously been delivered to
Buyer, present fairly, in all material respects, the consolidated financial
position of the Company and its consolidated Subsidiaries, if any, as of said
dates and the consolidated results of their operations for such periods, and
were prepared in conformity with United States generally accepted accounting
principles consistently applied throughout the periods covered thereby (except
as may be indicated in the notes thereto and subject, in the case of unaudited
statements, to normal recurring audit adjustments not material in scope or
amount), such unaudited financial statements include and will include all
adjustments (consisting only of normal accruals) necessary for a fair
presentation, in all material respects, of the financial condition and results
of operations of the Company in accordance with United States generally
accepted accounting principles consistently applied throughout the periods
covered thereby. The Company Financial Statements (as hereinafter defined) are
true and complete as of their respective dates comply as to form in all
respects with all applicable accounting requirements and with the published
rules and regulations of the United States Securities and Exchange Commission
("SEC"). The audited consolidated financial statements of the Company and its
consolidated Subsidiaries, if any, for the fiscal year ended December 31, 1997
and the unaudited consolidated financial statements of the Company and its
consolidated Subsidiaries, if any, for the six months ended June 30, 1998, are
herein called the "Company Financial Statements". Except (a) for normal or
ordinary recurring liabilities incurred in the ordinary course of business
consistent with past practice, (b) for transaction expenses incurred in
connection with this Agreement, (c) for liabilities set forth on the most
recent balance sheet included in the Company Financial Statements, or (d) as
set forth in the Schedule 4.7, neither the Company nor any of its Subsidiaries
has any material liabilities or material obligations of any nature, whether or
not accrued, contingent or otherwise, and there is no existing condition,
situation or set of circumstances which would reasonably be expected to result
in a material liability or material obligation that either (i) would be
required to be reflected or reserved against in a consolidated balance sheet of
the Company and its Subsidiaries prepared in accordance with generally accepted
accounting principles as applied in preparing the Company Financial Statements
or (ii) could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.

4.8 Absence of Changes. Except as set forth on Schedule 4.8 hereto, since
June 30, 1998, except with respect to the actions contemplated by this
Agreement, each of the Company and its Subsidiaries has conducted its business
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (a) any Material Adverse Effect on the
Company or any development that could reasonably be expected to have a Material
Adverse Effect on the Company; (b) any material change by the Company or any of
its Subsidiaries in its accounting methods, principles or practices; (c) any
material revaluation by the Company or any of its Subsidiaries of any of its
assets, including, without limitation, writing down the value of capitalized
software or inventory or deferred tax assets or writing off notes or accounts
receivable other than in the ordinary course of business; or (d) any other
action or event that would have required the consent of Buyer pursuant to
Section 8.1.1 had such action or event occurred after the date of this
Agreement.

4.9 Taxes.

(a) All taxes, including, without limitation, income, property, gross
receipts, sales, use, franchise, excise, value added, capital, social
security, withholding, and employees' withholding taxes imposed by the
State of Israel, by the U.S., by any other foreign country, and by any
political subdivision of the State of Israel, the U.S. and any foreign
country ("Taxes"), which have become due and payable by the Company or any
of its Subsidiaries, including any Taxes for which the Company or any of
its Subsidiaries is liable under a tax sharing agreement, indemnification
agreement, contract and other arrangement, together with any interest or
penalties thereon ("Company Taxes"), whether disputed or not, have, to the
extent material, been paid in full or adequately provided for by reserves
shown on the books of account of the Company; all material deposits
required by law to be made by the Company and its Subsidiaries with respect
to Company Taxes have been duly made, and all material returns with respect
to Company Taxes are materially complete and correct and have been timely
filed with, and where indicated, have been examined by the relevant tax
authorities through the fiscal years set forth on Schedule 4.9 hereto and
no extension of time for the assessment of deficiencies with respect to
such taxes is in effect for any fiscal

A-7
<PAGE>

year. As of the date of this Agreement, neither the Company nor any
Subsidiary is liable for the payment of Company Taxes (other than sales and
franchise taxes) in any jurisdiction other than those listed on Schedule
4.9 hereto. No material deficiency or adjustment in respect of any Company
Taxes has been assessed against the Company or any Subsidiary and remains
unpaid, other than such Company Taxes which are being contested in good
faith and disclosure of which has been previously made in writing to Buyer
in writing, and the Company has no knowledge of any proposed or threatened
assessment of additional liability for Company Taxes against the Company or
any Subsidiary for any period ending prior to the date of this Agreement.
The Company has delivered to Buyer copies of all material tax returns filed
for Company Taxes for the fiscal years ended December 31, 1995 and 1996 and
a draft of the Company's tax return to be filed for Company Taxes for the
fiscal year ended December 31, 1997.

(b) Schedule 4.4 hereto, together with the Company's 1997 20-F, lists
each tax incentive to which the Company is entitled under the laws of the
State of Israel, the period for which such tax incentive applies, and the
nature of such tax incentive. To the Company's knowledge, the Company has
complied with all material requirements of Israeli law to be entitled to
claim the tax incentive. To the Company's knowledge, subject to the receipt
of the approvals set forth in Section 10.8 below, except as disclosed on
Schedule 4.4, the consummation of the Arrangement will not adversely affect
the ability of the Company to claim the benefit of any tax incentive for
the remaining duration of the incentive or require any recapture of any
previously claimed incentive, and no consent or approval of any
governmental authority is required, other than as contemplated by Section
10.8, prior to consummation of the Arrangement in order to preserve the
entitlement of the Company to any such incentive. Except as set forth on
Schedule 4.9 hereto, no Subsidiary of the Company is entitled to any
benefit of the type described in this Section 4.9(b).

4.10 Ownership of Assets. Except as set forth in Schedules under Section
4.10 hereto, the Company and its Subsidiaries have good and valid title to, all
of their respective owned assets and properties, tangible and intangible
(including all assets reflected in the Company's Financial Statements, except
those disposed of in the ordinary course of business since June 30, 1998), and
good title to their leasehold estates, in each case free and clear of all
claims, liens, mortgages, pledges, conditional sales agreements, restrictions
on transfer or other encumbrances or charges ("Encumbrances") except, in each
case, for (a) liens for current taxes not delinquent, or taxes being protested
in good faith (such protests being expressly set forth in a Schedule hereto),
and (b) such imperfections in the title thereto and Encumbrances, if any, as do
not materially detract from the value, or interfere with the present or
continued use, of the property of the Company or its Subsidiaries, or otherwise
impair their business or operations. Except as set forth in the Company's
Financial Statements, the notes thereto and the Company's Schedules attached
hereto, none of the properties or assets, the value of which is reflected in
the Company's Financial Statements, is held by the Company or any Subsidiary as
lessee or subject to any lease or as conditional vendee under conditional sale
or other title retention agreement or as optionee under any option to purchase.

4.11 Intangible Assets.

(a) Schedules 4.11.1 (patents) and 4.11.2 (trademarks and tradenames)
hereto set forth a list, including the title of all patents and patent
applications, and all registered trademarks and trade names and
applications therefor, owned by the Company or any Subsidiary (other than
Commercial Software or intellectual property in the public domain). Except
as set forth in Schedules 4.11.1 and 4.11.2, the Company or its
Subsidiaries owns, or is licensed, or otherwise possesses legally
enforceable rights, to use, sell or license, as applicable, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, schematics, technology, trade secrets, know-how,
computer software (in both source code for all software owned by the
Company or its Subsidiaries and object code form), and tangible or
intangible proprietary information or material (excluding in each case
Commercial Software (as defined below)) that are material to the business
of the Company and its Subsidiaries, taken as a whole, as currently
conducted (the "Company Intellectual Property Rights"). Each of the Company
and its Subsidiaries has licenses for all Commercial Software used in its
business and neither the Company nor

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any Subsidiary has any obligation to pay fees, royalties and other amounts
at any time pursuant to any such license other than payments which are in
amounts and terms which are generally commercially charged for such
Commercial Software. "Commercial Software" means commercially available
software programs available to the public which have been licensed to the
Company or any of its Subsidiaries pursuant to end-user licenses and which
are used in the Company's or any of its Subsidiaries' respective internal
business operations or which are broadly available to the public on a
royalty free basis.

(b) Schedules 4.11.3 (as licensor or under which the Company otherwise
grants rights) and 4.11.4 (as licensee or under which the Company receives
rights) set forth a complete list of all licenses, sublicenses and other
agreements as to which the Company or any of its Subsidiaries is a party
and which are material to the Company and its Subsidiaries taken as a whole
(as licensor, licensee or otherwise) and pursuant to which the Company or
any of its Subsidiaries or any other person is authorized to use, sell,
distribute or license any Company Intellectual Property Rights (excluding
object code end-user licenses granted to end-users which in some cases
includes standard third party commercial source code escrows), in the
ordinary course of business that permit use of software products without a
right to modify, distribute or sublicense the same ("End-User Licenses").
To the Company's knowledge, neither the Company nor any of its Subsidiaries
is in violation of any such license, sublicense or agreement, except for
such violations that could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company.

(c) Except for the third party intellectual property which is
incorporated in any existing product or service of the Company (the
"Embedded Products") for which the Company has valid non-exclusive licenses
which are disclosed in Schedule 4.11.4 and except as otherwise set forth in
Schedules 4.11.3 and 4.11.4, the Company or one of its Subsidiaries is the
sole and exclusive owner of the Company Intellectual Property Rights (free
and clear of any liens or encumbrances) listed on Schedule 4.11.5, and has
sole and exclusive rights to the use and distribution therefor or the
material covered thereby in connection with the services or products in
respect of which such Company Intellectual Property Rights are currently
being used, sold, licensed or distributed. Schedule 4.11.4 lists all
material written licenses, sublicenses and other agreements as to which the
Company or any of its Subsidiaries is a party and pursuant to which the
Company or any such subsidiary is authorized to use any Embedded Products.
Neither the Company nor any of its Subsidiaries is contractually obligated
to pay compensation to any third party with respect to any Company
Intellectual Property Rights, except pursuant to the agreements disclosed
on Schedules 4.11.3 and 4.11.4.

(d) To the Company's knowledge, neither the Company nor any of its
Subsidiaries has infringed, in any material respect, on any intellectual
property rights of any third persons.

(e) Except as disclosed in Schedule 4.11.5, no claims with respect to
the Company Intellectual Property Rights are pending or, to the knowledge
of the Company, threatened by the Company or any third party, (i) alleging
that the manufacture, sale, licensing or use of any Company Intellectual
Property Rights as now manufactured, sold, licensed or used by the Company
or any of its Subsidiaries or any third party infringes on any intellectual
property rights of any third party or the Company, (ii) against the use by
the Company or any of its Subsidiaries or any third party of any
technology, know-how or computer software used in the Company's business as
currently conducted or (iii) challenging the ownership by the Company or
any of its Subsidiaries, validity or effectiveness of any such Company
Intellectual Property Rights; provided, however, no disclosure pursuant to
this paragraph (e) shall be required with respect to any Company
Intellectual Property Rights which are licensed to the Company or any of
its Subsidiaries on a non-exclusive basis, unless the Company has knowledge
of the pending or threatened claim and such claim, if true, could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.

(f) Except as disclosed in Schedule 4.11.6 hereto or as required by the
Office of the Chief Scientist, neither the Company nor any of its
Subsidiaries has entered into any agreement under which the Company or its
Subsidiaries is restricted from selling, licensing or otherwise
distributing any products to any class or type of customers, in any
geographic area or during any period of time.

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<PAGE>

(g) The Company or one of its Subsidiaries has taken reasonable security
measures to safeguard and maintain their respective property rights in, all
Company Intellectual Property Rights owned by the Company or any of its
Subsidiaries. To the knowledge of the Company, no current or prior
officers, employees or consultants of the Company or any of its
Subsidiaries claim, and neither the Company nor any of its Subsidiaries is
aware of any grounds to assert a claim to, any ownership interest in any
Company Intellectual Property Right as a result of having been involved in
the development of such property while employed by or consulting to the
Company or one of its Subsidiaries, or otherwise. Except as disclosed in
Schedule 4.11.7 and except for Embedded Products, all of the computer
software products within the Company Intellectual Property Rights have been
developed by employees of the Company or its Subsidiaries within the scope
of their employment or by consultants who have assigned all rights to such
products to the Company or its Subsidiaries.

(h) To the knowledge of the Company (and except with respect to the
software products licensed to Buyer under the OEM Licensing Agreement dated
July 13, 1995 by and between the Company and Buyer as to which the Company
does not make the representation), as of the date hereof, there are no
defects in the Company's or any of its Subsidiaries' software products, and
there are no errors in any documentation, specifications, manuals, user
guides, promotional material, internal notes and memos, technical
documentation, drawings, flow charts, diagrams, source language statements,
demo disks, benchmark test results, and other written materials related to,
associated with or used or produced in the development of the Company's or
any of its Subsidiaries' software products (collectively, the "Design
Documentation"), which defects or errors would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company. Except as disclosed in Schedule 4.11.8, the occurrence in or use
by any computer software included in the Company Intellectual Property
Rights, of dates on or after January 1, 2000 (the "Millennial Dates") will
not materially adversely affect the performance of such software with
respect to date dependent data, computations, output or other functions
(including without limitation, calculating, computing and sequencing) and
such software will create, sort and generate output data related to or
including Millennial Dates without any material errors or omissions;
provided, however, that the foregoing warranty does not apply to any
Millennial Date defect or any other deficiency in any product (other than
Embedded Products) or other item or service not developed, acquired, sold,
provided or performed by the Company or its Subsidiaries.

(i) Except for the matters disclosed in Section 4.4, no government
funding or university or college facilities were used in the development of
the computer software programs or applications owned by the Company or one
of its Subsidiaries.

(j) Except as disclosed in Schedule 4.11.9, to the knowledge of the
Company, neither the Company nor any of its Subsidiaries has made any
material oral or written representations or warranties which it believes to
be legally binding and which are outside of its normal practice.

(k) The consummation of the transactions contemplated hereby will not
result in the loss or impairment, in any material respect, of the Company's
rights to own or use any of the Company Intellectual Property Rights nor
will it require the consent of any governmental entity or third party in
respect of any such Company Intellectual Property Rights.

4.12 Insurance. Schedule 4.12 hereto provides a complete list and brief
description of all policies of fire, liability (including officers' and
directors' liability), title, key-man life insurance and other forms of
insurance held by the Company and Memco US as of the date hereof. Such policies
are in amounts, and against such losses and risks, as have generally been
maintained by the Company and its Subsidiaries in prior years. Except as set
forth in Schedule 4.12 hereto, neither the Company nor any Subsidiary has any
knowledge of any state of facts or of the occurrence of any event, which
reasonably might (a) form the basis for any claim against the Company or any
Subsidiary, not fully covered by insurance, or not provided for in Company's
Financial Statements, and which may exceed U.S. $100,000 in liability, or (b)
increase the insurance premiums paid by the Company or any Subsidiary, in
excess of U.S. $200,000 per annum in the aggregate, or affect the availability
of the insurance coverage currently maintained by the Company and its
Subsidiaries on substantially the same terms (other than premiums or deductible
amounts) as now in effect.

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<PAGE>

4.13 Litigation. Except as set forth on Schedule 4.13 hereto, there are no
actions, suits, proceedings or investigations, pending before any court or
governmental agency or before any arbitrator of any kind, or any order,
injunction or decree outstanding, or, to the knowledge of the Company or any
Subsidiary, threatened, against the Company or any Subsidiary or against or
relating to their property, assets or business, that, if adversely determined
would have a Material Adverse Effect on the Company. Neither the Company nor
any Subsidiary have been, or is in violation of any applicable law, rule,
regulation, statute, ordinance, order, injunction, decree, award, judgment or
other requirement of any governmental body, court, or arbitrator ("Law or
Order") relating to its property, assets, or business, except for such Law or
Order, or other requirement of which the Company is unaware, or which would not
have a Material Adverse Effect on the Company. The Company has made available
to Buyer or its counsel correct and complete copies of all correspondence
prepared by its counsel for the Company's auditors in connection with the last
two completed audits of the Company's financial statements and any such
correspondence since the date of the last such audit.

4.14 Agreements and Obligations. Except as set forth in the Company
Schedules or Schedule 4.14, and except for agreements, arrangements and
contracts which are filed as exhibits to the Company Securities Reports (as
hereinafter defined) (the "SEC Exhibits"), neither the Company nor any of its
Subsidiaries is a party to nor is it or its assets bound by any Listed
Agreement. For purposes of this Agreement, "Listed Agreement" means the
following:

(a) any union or collective bargaining agreements;

(b) any employment or consulting agreement, contract or binding
commitment (including royalty agreements with employees) providing for
compensation or payments in excess of $150,000 in any year not terminable
by the Company or its subsidiary on thirty days notice without liability,
except to the extent general principles of wrongful termination or other
employment law may limit the Company's or its subsidiary's ability to
terminate employees at will;

(c) any partnership agreement or joint venture agreement to establish an
entity or other similar arrangement to share in profits from an activity;

(d) any agreement of indemnification or guaranty not entered into in the
ordinary course of business with any party in excess of $100,000
individually or in the aggregate, and any agreement of indemnification or
guarantee between the Company or any of its Subsidiaries and any of its
officers or directors, irrespective of the amount of such agreement and
guarantee;

(e) any agreement, contract or binding commitment containing any
covenant directly or indirectly limiting the freedom of the Company or any
of its Subsidiaries to engage in any line of business, compete with any
person, or sell any product, or following the consummation of the
Arrangement would so limit Buyer, the Company or any of the Subsidiaries;

(f) any agreement, contract or binding commitment relating to capital
expenditures and involving future obligations in excess of $250,000;

(g) any agreement, contract or binding commitment relating to the
disposition or acquisition of assets not in the ordinary course of business
(since October 1996) or any ownership interest in any corporation,
partnership, joint venture or other business enterprise;

(h) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit (other than extensions of credit in the
ordinary course of business from vendors);

(i) any development agreement (including any agreements with independent
contractors);

(j) any material (which for these purposes shall include any agreement
which grants any exclusivity or limits the Company's ability to conduct its
business in any way) distribution, sales representative, reseller, or
value-added reseller agreement which cannot be terminated on thirty (30)
days notice without cost or expense to the Company or its Subsidiaries,
including in such Company Schedules an indication of

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<PAGE>

those distributors, sales representatives, resellers or value-added
resellers who have not met the quotas established in accordance with those
agreements or whose agreements are otherwise currently terminable;

(k) other than in connection with the transactions contemplated by this
Agreement, any other agreement, contract or binding commitment which
involves payment by the Company or any of its Subsidiaries of $100,000 or
more in any twelve (12) month period or $250,000 in the aggregate and which
cannot, by its terms, be terminated on thirty (30) days notice without cost
or expense to the Company or its Subsidiaries;

(l) any escrow agreements involving Company Intellectual Property Rights
(including source codes);

(m) any agreements to register its securities;

(n) any agreement required to be disclosed in Section 4.11;

(o) any voting trust or shareholders' agreement;

(p) any tax sharing or tax indemnification agreements; or

(q) any other agreements, contracts or binding commitments, which
materially affects the business, properties or assets of the Company and
its Subsidiaries taken as a whole.

The numerical thresholds set forth in this Section 4.14 shall not be
deemed in any respects to define materiality for other purposes of this
Agreement. The Company has provided or made available to Buyer true and
complete copies of all Listed Agreements as amended to date.

Except as set forth on Schedule 4.14 hereto, to the Company's knowledge,
the Company and its Subsidiaries have, in all material respects, performed all
obligations required to be performed by them to date under all Listed
Agreements (a true and correct copy of each of which written agreements has
been filed with the SEC or has been provided to Buyer), are not in default in
any material respect under any of the Listed Agreements which would permit the
other party to terminate or would give rise to a claim for material damages by
the other party, and neither the Company nor any Subsidiary knows of any
default or alleged default in any material respect thereunder by any other
party, or of any event which, with the giving of notice or the passage of
time, would become such a default by the Company or any of its Subsidiaries
which would permit such other party, to terminate, or would give rise to a
claim for material damages against the defaulting party, or such other party.
All of the Listed Agreements are valid and in full force and effect and, to
the best of the knowledge of the Company, none is subject to rescission or
reformation and there are no circumstances or writings extrinsic to any of
such Listed Agreements which would materially modify their terms, prevent
their assignment or create an encumbrance thereon. Notwithstanding the
foregoing, the Company makes no representation regarding the Listed Agreements
between the Company and Buyer.

4.15 Condition of Assets. All accounts receivable reflected on the Company
Financial Statements have arisen in the ordinary course of business and
represent valid obligations due to the Company or its Subsidiaries, in the
aggregate recorded amounts thereof, except to the extent set forth in the
Company Financial Statements as reserves for bad debts. All tangible assets
owned by the Company or any Subsidiary or otherwise used in the conduct of
their business is in good operating condition and repair, except for normal
breakdowns, reasonable wear and use, damage by fire or unavoidable casualty,
not materially affecting the business of the Company, except as set forth in
the Company Schedules.

4.16 Permits. The Company and its Subsidiaries have all permits, licenses,
orders, approvals, franchises and other rights and privileges ("Permits")
necessary in order for them to carry on their business as presently conducted,
except such Permits which no governmental authority has demanded be obtained,
or of which the Company is unaware, or which the failure to obtain, if
required, would not have a Material Adverse Effect on the Company, except as
set forth in the Company Schedules. Schedule 4.16 hereto sets forth a list of
all such material Permits from all Israeli and other governmental and
regulatory bodies held by the Company and its Subsidiaries, including all
Permits from the Israeli Ministry of Defense for the export or import of
encryption

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<PAGE>

software. The Company and its Subsidiaries has and currently conducts business
in compliance, in all material respects, with such Permits, except as set forth
in the Company Schedules.

4.17 Banking Arrangements. Schedule 4.17 hereto sets forth the name of each
bank in or with which the Company or a Subsidiary has an account, credit line
or safety deposit box and the names of all persons presently authorized to draw
thereon or have access thereto, and a brief statement describing the purpose of
each such account.

4.18 No Breach; Consents. The transactions contemplated by this Agreement
and the Arrangement will not give rise to a right to terminate by the other
party thereto or result in a breach of the terms or conditions of or constitute
a default under, or violate, as the case may be, (a) the Memorandum of
Association or Articles of Association, or similar instrument, of the Company
or any Subsidiary, (b) any agreement or other document or undertaking listed or
referred to on Schedule 4.14 or Schedule 4.11, to which the Company or a
Subsidiary is a party or by which any of them is bound, (c) any Permit, Law or
Order applicable to the Company and its Subsidiaries, except as set forth on
Schedules 4.14 or 4.18 or for violations or breaches which could not reasonably
be expected, in the aggregate, have a Material Adverse Effect on the Company or
adversely affect the ability of the Company to consummate the transactions
contemplated hereby.

4.19 Authority for Agreement. All corporate and other proceedings required
to be taken by or on behalf of the Company, other than shareholder approval and
receipt of the Final Court Order (as defined in Section 7.1) and Filing, to
authorize the Company and its shareholders to enter into and carry out this
Agreement and the Arrangement have been duly and properly taken. This Agreement
has been duly executed and delivered by the Company and subject to such
shareholder approval and receipt of the Final Court Order and Filing, and
assuming the due authorization, execution and delivery hereof by Buyer, is
valid and binding upon the Company and the exchange of shares of the Buyer
Stock for all of the outstanding shares of the Company Stock under the
Arrangement will be binding upon the Company shareholders, subject as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
equitable or fiduciary principles. The Company has all requisite corporate
power and authority to enter into this Agreement. No consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity"), is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except (a) in connection, or in compliance, with the provisions of the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended ("HSR Act"),
the Exchange Act of 1934, (b) applicable requirements, if any, of Nasdaq, (c)
the filing of the Final Court Order with the Registrar of Companies in Israel,
(d) the required approvals of the Arrangement and this Agreement by the
Company's shareholders pursuant to Israeli law, (e) filings with the SEC, (f)
filings with the Israel Investment Center of the Israeli Ministry of Trade &
Industry, (g) filings with the Chief Scientist of the Israeli Ministry of Trade
& Industry, (h) filings with and the approval of the Israeli Commissioner of
Restrictive Trade Practices, if necessary, (i) filings with the Israeli
Securities Authority and (j) such other consents, approvals, orders,
authorizations, registrations, declarations and filings, the failure of which
to be obtained or made would not have, individually or in the aggregate, a
Material Adverse Effect on the Company.

The required vote for the approval of the Arrangement is the affirmative
vote of the majority of shareholders represented at the Company Shareholder
Meeting (as defined in Section 7.1(a)) in person or by proxy and the holders of
not less than 75% of the voting power of each class of shares represented at
such meeting in person or by proxy. The required vote for the approval of the
Agreement is a simple majority of the voting power of the shares held by
shareholders participating in the Company Shareholder Meeting in person or by
proxy. No other vote of the securityholders of the Company is required by law,
the Company's Memorandum of Association and Articles of Association or
otherwise in order for the Company to consummate the Arrangement and the
transactions contemplated hereby.

4.20 Relationships with Related Persons. Except as disclosed in the Company
Securities Reports filed with the SEC prior to the date hereof and except as
set forth and identified on the Company Schedules and

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<PAGE>

except for this Agreement and the transactions contemplated hereby, there are
no, and since December 31, 1997 have not been any, undischarged contracts or
agreements or other material transactions between the Company or any of its
Subsidiaries, on the one hand, and any director or executive officer of the
Company or any of their respective Related Persons (as defined below), on the
other hand, and no director or executive officer of the Company or any of their
respective Related Persons have any interest in any of the assets of the
Company or any of its Subsidiaries. No executive officer, director of the
Company or any of their respective Related Persons has any claim, charge,
action or cause of action against the Company or any of its Subsidiaries,
except for claims for accrued vacation pay, accrued benefits under the Benefit
Plans (as hereinafter defined), claims for compensation, expense reimbursement
and similar obligations and similar matters and agreements. For purposes
hereof, the term "Related Persons" shall mean:

(a) each other member of such individual's Family; and

(b) any person or entity that is directly or indirectly controlled by
any one or more members of such individual's Family. For purposes of this
definition, the "Family" of an individual includes (i) such individual,
(ii) the individual's spouse, siblings, or ancestors (iii) any lineal
descendant of such individual, or their siblings, or ancestors or (iv) a
trust for the benefit of the foregoing.

4.21 Powers of Attorney. Schedule 4.21 hereto sets forth the names of all
persons now holding powers of attorney from the Company or any Subsidiary, and
a summary of the terms thereof.

4.22 Brokers. Except with respect to the engagement of Lehman Brothers, Inc.
by the Company, the terms of which have been presented to Buyer all
negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on directly by the Company with Buyer without the
intervention of any broker or investment banker or third party. Except for the
engagement of Lehman Brothers, Inc., neither the Company nor any of its
officers or directors has engaged, consented to, or authorized any broker,
investment banker or third party to act on its or his behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.

4.23 Real Estate. Except as set forth on Schedule 4.23 hereto, the Company
owns no real property. Schedule 4.23 hereto sets forth a brief description of
all real properties which are leased to the Company or its Subsidiaries,
including all plants and structures located thereon. The Company's and its
Subsidiaries facilities are in good operating condition for the purposes used
by the Company and its Subsidiaries, reasonable wear and tear excepted. None of
the properties occupied by the Company or its Subsidiaries, or the occupancy or
operation thereof, is in violation of any law or any building, zoning or other
ordinance, code or regulation in such a manner as to materially interfere with
the use and occupancy thereof in the ordinary course of the business of the
Company and its Subsidiaries. Except as set forth on Schedule 4.23, no notice
from any governmental body has been served upon the Company or any of its
Subsidiaries claiming any violation of any such law, ordinance, code or
regulation, of the type described in the preceding sentence, or requiring any
substantial work, repairs, construction, alterations or installation on or in
connection with said properties which has not been complied with.

4.24 Securities Filings.

(a) The Company has filed all forms, reports and documents required to
be filed with the SEC, Nasdaq, and the Israel Securities Authority
(collectively, the "Securities Regulators") since October 1996. All such
required forms, reports and documents are referred to herein as the
"Company Securities Reports". The Company has provided to Buyer true and
correct copies of the Company Securities Reports. As of their respective
dates, the Company Securities Reports (i) complied, when filed, in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act of 1934, the regulations
of Nasdaq, and the securities laws of Israel, as the case may be, and the
rules and regulations applicable to such Company Securities Reports, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact

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<PAGE>

required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Subsidiaries is required to file any forms, reports
or other documents with the Securities Regulators.

(b) As of the date hereof, there are no material amendments or
modifications to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the
Securities Act or the Exchange Act of 1934 or any other agreements,
documents or other instruments, which have not yet been filed with the SEC
but which are required to be filed by the Company.

4.25 Proxy Statement Disclosures. No information supplied by the Company to
Buyer for inclusion or incorporation in the S-4 Registration Statement and the
Proxy Statement/Prospectus (both as defined in Section 8.2 below) shall, at the
time such Proxy Statement/Prospectus is mailed or such S-4 Registration
Statement becomes effective contain an untrue statement of a material fact, or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not false or
misleading. The Proxy Statement will comply (with respect to the Company) as to
form in all material respects with the provisions of the Exchange Act of 1934,
the rules and regulations thereunder, except that no representation or warranty
is made by the Company with respect to statements made or incorporated by
reference therein based on information supplied by Buyer specifically for
inclusion or incorporation by reference in the Proxy Statement/Prospectus.

4.26 Environmental Matters. To the Company's knowledge, the Company and its
Subsidiaries are in compliance with all applicable environmental regulations
and standards relating to the conduct of the business of the Company and there
exists no toxic waste or other environmental hazard that has not previously
been publicly disclosed by the Company or otherwise disclosed in writing to
Buyer which would have a Material Adverse Effect on the Company.

4.27 Restrictions on Business Activities. Except as set forth in the Company
Schedules, there is no agreement, judgment, injunction, order or decree binding
upon the Company or its Subsidiaries or their properties (including, without
limitation, their intellectual properties) which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any material
acquisition of property by the Company or any of its Subsidiaries or the
conduct of the business by the Company or any of its Subsidiaries including any
exclusive distribution or licensing agreements which cannot be terminated on
less than 30 days notice without any cost or expense to the Company or its
Subsidiaries.

4.28 Intentionally Omitted.

4.29 Labor Matters. Except as set forth in Schedule 4.14, the Company is not
a party to or bound by any collective bargaining agreement or other
understanding with a labor organization, including, without limitation, any
collective employment agreements to which the Company is subject by law,
regulation or administrative order, and the Company has not experienced any
strikes, grievances, other collective bargaining disputes or, claims of unfair
labor practices. There is no organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Company.

4.30 Employee Benefits.

(a) Schedule 4.30.1 contains a true and complete list of each (i)
written, deferred compensation and each bonus or other incentive
compensation, stock purchase, stock option and other equity compensation
plan, program, agreement or arrangement; (ii) severance or termination pay,
medical or surgical, hospitalization, life insurance and other "welfare"
plan, fund or program, profit-sharing, stock bonus or other "pension" plan,
fund or program; (iii) employment, termination, consulting or severance
agreement; and (iv) other employee benefit plan, fund, program, agreement
or arrangement, in each case, that is sponsored, maintained or contributed
to or required to be contributed to by the Company or any Subsidiary
("Benefit Plans").

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<PAGE>

(b) With respect to each Benefit Plan, the Company has heretofore
provided to Buyer true and complete copies of the Benefit Plan and any
amendments thereto (or if the Benefit Plan is not a written Benefit Plan, a
description thereof), any related trust or other funding vehicle, any
reports or summaries required under any Law or Order applicable to such
Benefit Plan.

(c) Except (i) as set forth on Schedule 4.30.2, (ii) for the
acceleration of vesting of outstanding stock options to the extent required
in accordance with the terms of the Option Plans (but not otherwise) and
set forth in Schedule 4.30.2, and (iii) except for employment agreements
with directors and officers entered into before the date of this Agreement
and filed with the SEC, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming
due to any current or former director or employee of the Company or any of
its Subsidiaries from the Company or any of its Subsidiaries, under any
Benefit Plan or otherwise, (ii) materially increase any benefits otherwise
payable under any Benefit Plan, (iii) result in the acceleration of the
time of payment or vesting of any such benefits or (iv) create a right to
receive payments upon a subsequent termination of employment.

(d) There are no pending, or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Benefit Plan, by
any employee or beneficiary covered under any such Benefit Plan or
otherwise involving any such Benefit Plan (other than routine claims for
benefits).

(e) Except a set forth in Schedule 4.30.3, neither the Company nor any
of its Subsidiaries operates any profit sharing scheme for the benefit of
any of their officers or employees. Each Benefit Plan has been operated and
administered in all material respects in accordance with its terms and
applicable Law.

(f) All of the material benefits to which any officer, former officer,
employee or former employee of the Company and the Subsidiaries is or may
be entitled including, inter alia, severance pay, leave and health, have
been paid, to the extent due, or adequately provided for in the Company
Financial Statements to the extent required by United States generally
accepted accounting principles, and neither the Company nor its
Subsidiaries has any unfunded liability with respect to such Benefits.

(g) The Company has complied in all material respects with all
applicable laws relating to labor, including any provisions thereof
relating to wages, termination pay, vacation pay, fringe benefits,
collective bargaining and the payment and/or accrual of the same and all
Company Taxes, insurance and all other costs and expenses applicable
thereto, and the Company is not liable for any arrearage, or any Company
Taxes, costs or penalties for failure to comply with any of the foregoing,
except as set forth in the Company Schedules.

4.31 Pooling of Interests. To the best knowledge of the Company, based on
consultation with its independent accountants, neither the Company nor its
directors, officers or stockholders has taken any action which would preclude
(a) Buyer's ability to account for the Arrangement as a pooling of interests or
(b) Buyer's or the Company's ability to continue to account for as a pooling of
interests any past acquisition by the Company currently accounted for as a
pooling of interests.

4.32 Board Approvals. The Board of Directors of the Company, has, on or
prior to the date hereof, unanimously approved this Agreement and the
Arrangement by those permitted to vote thereon.

4.33 Fairness Opinion. The Board of Directors of the Company has received a
written opinion from Lehman Brothers, Inc. dated no later than the date hereof,
that the Exchange Ratio contemplated by this Agreement is fair to the Company's
shareholders from a financial point of view and has delivered to Buyer a copy
of such opinion.

4.34 Releases. General releases of all claims from each of Israel Mazin,
Eliahu Mashiah, Ori Mazin, Izaak Mashiah, Yirmivahu Kaplan, Shalom Berkowitz,
Moshe Allon, Jules Marilus and Dov Gal may have through the Closing Date, or if
earlier, the date Buyer obtains control of the Board of Directors of the
Company

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pursuant to Section 8.17 of this Agreement against the Company and its
Subsidiaries, substantially in the form set forth in Exhibit 4.35, have been
executed and delivered by such persons to the Company.

4.35 Non-Competition Agreements. Non-Competition Agreements have been
executed by Israel Mazin and Eliahu Mashiah.

4.36 Schedules. The Company Schedules when delivered in final form to Buyer
will not reflect any agreements, arrangements or conditions which are
materially inconsistent with the due diligence information provided to Buyer
prior to the execution of this Agreement and the announcement of the
Arrangement.

5. REPRESENTATIONS AND WARRANTIES BY THE BUYER.

Buyer represents and warrants to the Company, subject to the exceptions
disclosed in writing in the disclosure letter supplied by Buyer to the Company
(the "Buyer Schedules") which sets forth the Schedules referenced in this
Article 5 and which is dated as of the date hereof, as follows:

5.1 Organization of Buyer. Buyer is a corporation duly organized and validly
existing under the laws of the State of Delaware and has full power and
authority to carry on its business as now conducted, and to own its assets.
Buyer is duly qualified to do business and is in good standing in the
jurisdictions in which Buyer is required to be qualified in order to carry on
its business, and is duly authorized, and licensed under all laws, regulations,
ordinances or orders of public authorities, or otherwise, to carry on its
business in the places and in the manner presently conducted, except for
qualifications, authorizations or licenses of which would not have a Material
Adverse Effect on Buyer. In this Agreement, the term "Material Adverse Effect"
used in reference to Buyer or any of its Subsidiaries means any event, change
or effect materially adverse to the financial condition, assets, liabilities,
results of operations or business of Buyer and its Subsidiaries, taken as a
whole, other than changes resulting solely from changes in general economic or
software industry conditions. Buyer has heretofore delivered to the Company
true and complete copies of its Articles of Incorporation certified by the
Secretary of the Buyer, as in effect on the date hereof. The minute books of
the Buyer contain substantially accurate records of all meetings of its Board
of Directors, all committees of its Board of Directors and of its shareholders
since its incorporation and accurately reflect all material transactions
referred to in such minutes.

5.2 Capitalization. The authorized capital stock of the Buyer consists of
180,000,000 common shares $.001 par value of which there were 85,757,918 shares
issued and outstanding as of August 10, 1998 plus any shares issued on the date
hereof upon exercise of options outstanding on such date and 10,000,000 shares
of Class II Preferred Stock, $.01 par value, 1,000,000 shares of which (subject
to adjustment upward or downward by the Buyer's Board of Directors) have been
designated Series A Junior Participating Preferred Stock and 1,775,000 of which
(subject to adjustment upward or downward in accordance with the Buyer's
Certificate of Incorporation, as amended) have been designated as Class II
Series B Preferred Stock. No shares of the Series A Junior Participating
Preferred Stock are issued or outstanding as of the date hereof. The shares of
the Buyer Stock to be issued pursuant to the Arrangement and upon the exercise
of the Options will include a corresponding number of rights (such rights being
hereinafter referred to collectively as "Buyer Rights") to purchase shares of
Series A Junior Participating Stock pursuant to the Rights Agreement dated as
of December 21, 1995 (the "Buyer Rights Agreement") between Buyer and Harris
Trust and Savings Bank, as Rights Agent. All outstanding shares of the Buyer
Stock are duly authorized, validly issued, fully paid and non-assessable and
are not subject to preemptive rights created by statute, the Articles of
Incorporation of Buyer or any agreement or document to which Buyer is a party
or by which it is bound.

5.3 Subsidiaries. For purposes of this Agreement, any corporation, joint
venture, partnership or other entity of which Buyer, directly or indirectly,
through other corporations or otherwise, owns 50% or more of the outstanding
capital stock or interest in shall be deemed to be a Subsidiary of Buyer. Each
of the Subsidiaries is qualified to do business in the jurisdictions in which
each such Subsidiary is required to be qualified in order to carry on its
business, and is duly authorized, and licensed under all laws, regulations,
ordinances or orders of public authorities, or otherwise, to carry on its
business in the places and in the manner presently conducted,

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except for authorizations, qualifications or licenses of which the failure to
obtain would not have a Material Adverse Effect on Buyer. The outstanding
shares of capital stock, or other evidence of ownership, of each of the
Subsidiaries are validly issued, fully paid and non-assessable, and the shares
of each of the Subsidiaries, to the extent owned by Buyer or another
Subsidiary, are owned by the Buyer or such other Subsidiary free of any claims,
liens, charges or encumbrances of any nature whatsoever, except as set forth in
Schedule 5.3.1. Each of the Subsidiaries is duly organized and validly existing
in good standing under the laws of the jurisdiction of its organization and has
the power to carry on its business as now conducted and to own its assets.

5.4 Options, Warrants, Etc. Schedule 5.4 hereto contains a complete and
correct list of all plans under which options to purchase the Buyer Stock have
or may be granted ("Option Plans") and the number of options to purchase the
Buyer Stock or the stock of any of the Subsidiaries. To the Buyer's knowledge,
the options granted under the Option Plans have been granted at fair market
value. Except as set forth in Schedule 5.4 and in connection with the
acquisition of businesses or technology, there are no outstanding options,
warrants, rights, calls, commitments or agreements calling for the issuance or
transfer, sale or disposition by Buyer or any Subsidiary of any shares, issued
or unissued, of the capital stock of Buyer or any Subsidiary, or of any
securities convertible or exchangeable, actually or contingently, into any such
capital stock, to which Buyer or any Subsidiary is a party or by which Buyer or
any Subsidiary is bound, or of which Buyer has knowledge.

5.5 Financial Statements. The books of account of Buyer and its Subsidiaries
are correct and complete in all material respects and fairly present their
income, expenses, assets and liabilities in accordance with United States
generally accepted accounting principles consistently applied. The audited
consolidated financial statements of Buyer and its consolidated Subsidiaries,
if any, for each of the years in the three year period ended December 31, 1997,
together with the reports and opinions thereon of KPMG Peat Marwick, Certified
Public Accountants (United States), and the unaudited consolidated financial
statements of Buyer and its consolidated Subsidiaries, if any, for the six
months ended June 30, 1998, all of which have previously been delivered to
Company, present fairly, in all material respects, the consolidated financial
position of the Buyer and its consolidated Subsidiaries, if any, as of said
dates and the consolidated results of their operations for such periods, and
were prepared in conformity with United States generally accepted accounting
principles consistently applied throughout the periods covered thereby (except
as may be indicated in the notes thereto and subject, in the case of unaudited
statements, to normal recurring audit adjustments not material in scope or
amount), such unaudited financial statements include and will include all
adjustments (consisting only of normal accruals) necessary for a fair
presentation, in all material respects, of the financial condition and results
of operations of the Buyer in accordance with United States generally accepted
accounting principles consistently applied throughout the periods covered
thereby. The Buyer Financial Statements (as hereinafter defined) are true and
complete as of their respective dates comply as to form in all respects with
all applicable accounting requirements and with the published rules and
regulations of the SEC. The audited consolidated financial statements of Buyer
and its consolidated Subsidiaries, if any, for the fiscal year ended December
31, 1997 and the unaudited consolidated financial statements of the Buyer and
its consolidated Subsidiaries, if any, for the six months ended June 30, 1998,
are herein called the "Buyer Financial Statements". Except (a) for normal or
ordinary recurring liabilities incurred in the ordinary course of business
consistent with past practice, (b) for transaction expenses incurred in
connection with this Agreement, (c) for liabilities set forth on the most
recent balance sheet included in the Buyer Financial Statements, (d)
liabilities which have or may be incurred in connection with acquisitions of
other businesses or technology by Buyer or its Subsidiaries, whether or not in
the ordinary course of business, or (e) as set forth in the Schedule 5.5,
neither Buyer nor any of its Subsidiaries has any material liabilities or
material obligations of any nature, whether or not accrued, contingent or
otherwise, and there is no existing condition, situation or set of
circumstances which would reasonably be expected to result in a material
liability or material obligation that either (i) would be required to be
reflected or reserved against in a consolidated balance sheet of Buyer and its
Subsidiaries prepared in accordance with generally accepted accounting
principles as applied in preparing the Buyer Financial Statements or (ii) could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Buyer. Notwithstanding anything in this Section 5.5 to the
contrary, the financial statements for

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Buyer and its consolidated Subsidiaries for the six months ended June 30, 1998
have been delivered to Company in draft form, and the representations made with
respect to such June 30, 1998 financial statements are made with respect to the
final form of such financial statements which will be filed on August 14, 1998
and which will not vary from the draft provided to Company in any materially
adverse respect.

5.6 Absence of Changes. Since June 30, 1998, except with respect to the
actions contemplated by this Agreement and except for liabilities which have or
may be incurred in connection with acquisitions of other businesses or
technology by Buyer or its Subsidiaries, whether or not in the ordinary course
of business, each of Buyer and its Subsidiaries has conducted its business only
in the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (a) any Material Adverse Effect on Buyer or any
development that could reasonably be expected to have a Material Adverse Effect
on Buyer; (b) any material change by Buyer or any of its Subsidiaries in its
accounting methods, principles or practices; or (c) any material revaluation by
Buyer or any of its Subsidiaries of any of its assets, including, without
limitation, writing down the value of capitalized software or inventory or
deferred tax assets or writing off notes or accounts receivable other than in
the ordinary course of business.

5.7 Litigation. Except as set forth in the Buyer Securities Reports (as
hereinafter defined) there are no actions, suits, proceedings or
investigations, pending before any court or governmental agency or before any
arbitrator of any kind, or any order, injunction or decree outstanding, or, to
the knowledge of Buyer or any Subsidiary, threatened, against Buyer or any
Subsidiary or against or relating to their property, assets or business, that,
if adversely determined would have a Material Adverse Effect on Buyer. Neither
Buyer nor any Subsidiary have been, or is in violation of any Law or Order
relating to its property, assets, or business, except for such Law or Order, or
other requirement of which Buyer is unaware, or which would not have a Material
Adverse Effect on Buyer. Buyer has provided to the Company or its counsel
correct and complete copies of all correspondence prepared by its counsel for
Buyer's auditors in connection with the last two completed audits of the
consolidated financial statements of the Company and any such correspondence
since the date of the last such audit.

5.8 No Breach; Consents. The transactions contemplated by this Agreement and
the Arrangement will not give rise to a right to terminate by the other party
thereto or result in a breach of the terms or conditions of or constitute a
default under, or violate, as the case may be, (a) the Certificate of
Incorporation, or similar instrument, of Buyer or any Subsidiary, (b) any
material agreement or other document or undertaking, to which Buyer or a
Subsidiary is a party or by which any of them is bound, (c) any Permit, Law or
Order applicable to Buyer and its Subsidiaries, except for violations or
breaches which could not reasonably be expected, in the aggregate, to have a
Material Adverse Effect on Buyer or adversely affect the ability of Buyer to
consummate the transactions contemplated hereby.

5.9 Authority for Agreement. All corporate proceedings required to be taken
by or on behalf of Buyer, authorize Buyer to enter into and carry out this
Agreement and the Arrangement have been duly and properly taken. This Agreement
has been duly executed and delivered by Buyer and subject as to enforceability,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity. Buyer has all requisite corporate power and authority to
enter into this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Buyer or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except (a) in connection, or in compliance,
with the provisions of the HSR Act and the Exchange Act of 1934, (b) applicable
requirements, if any, of Nasdaq, (c) filings with the SEC, (d) filings with the
Israeli Investment Center of the Israeli Ministry of Trade & Industry, (e)
filings with the Chief Scientist of the Israeli Ministry of Trade & Industry,
(f) filings with and the approval of the Israeli Commissioner of Restrictive
Trade Practices, if necessary, (g) filings with the Israeli Securities
Authority and (h) such other consents, approvals, orders, authorizations,
registrations, declarations and filings, the failure of which to be obtained or
made could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Buyer.

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5.10 Brokers. Except with respect to the engagement of Credit Suisse First
Boston Corporation by Buyer, the terms of which have been presented to Buyer
all negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on directly by Buyer with Buyer without the
intervention of any broker or investment banker or third party. Except for the
engagement of Credit Suisse First Boston Corporation, neither Buyer nor any of
its officers or directors has engaged, consented to, or authorized any broker,
investment banker or third party to act on its or his behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.

5.11 Securities Filings. Buyer has filed all forms, reports and documents
required to be filed with the SEC or Nasdaq since January 1, 1995. All such
required forms, reports and documents are referred to herein as the "Buyer
Securities Reports." As of their respective dates, the Buyer Securities Reports
(a) complied in all material respects with the requirements of the Securities
Act or the Exchange Act of 1934, the regulations of Nasdaq, as the case may be,
and the rules and regulations applicable to such the Buyer Securities Reports,
and (b) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Subsidiaries is required to file any forms, reports or
other documents with the Securities Regulators. As of the date hereof, there
are no material amendments or modifications to agreements, documents or other
instruments which previously had been filed by Buyer with the SEC pursuant to
the Securities Act or the Exchange Act of 1934 or any other agreements,
documents or other instruments, which have not yet been filed with the SEC but
which are or will be required to be filed by Buyer.

5.12 Proxy Statement Disclosures. No information supplied by Buyer to
Company for inclusion in the Proxy Statement/Prospectus (as defined in Section
8.2 below) shall, at the time such Proxy Statement/Prospectus is mailed be
false or misleading with respect to any material fact, or will omit to state
any material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not false or misleading.

5.13 Pooling of Interests. To the knowledge of Buyer, based on consultation
with its independent accountants, neither Buyer nor its directors, officers or
stockholders has taken any action which would preclude (i) Buyer's ability to
account for the Arrangement as a pooling of interests or (ii) Company's or
Buyer's ability to continue to account for as a pooling of interests any past
acquisition by the Buyer currently accounted for as a pooling of interests.

5.14 Board Approvals. The Board of Directors of Buyer, has, on or prior to
the date hereof, unanimously approved this Agreement and the Arrangement.

5.15 Fairness Opinion. The Board of Directors of the Buyer has received an
opinion from Credit Suisse First Boston Corporation as of the date hereof, that
the Exchange Ratio contemplated by this Agreement is fair to Buyer's
shareholders from a financial point of view and has delivered to Buyer a copy
of such opinion.

5.16 Employee Benefits.

(a) Except as could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Buyer, (i) each Buyer Plan
complies with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Code and all other applicable statutes and
governmental rules and regulations and (ii) there has been no failure to
make any contribution or pay any amount due to any Buyer Plan as required
by Section 412 of the Code or Section 302 of ERISA and no Buyer Plan, no
any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.

(b) To the knowledge of Buyer, there are no actions, suits or claims
pending or threatened (other than routine claims for benefits) with respect
to any Buyer Plan which would reasonably be expected to

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have, individually or in the aggregate, a Material Adverse Effect on Buyer.
Neither Buyer nor any of its ERISA Affiliates has incurred or would
reasonably be expected to incur any material liability under or pursuant to
Title IV of ERISA. No prohibited transactions described in Section 406 of
ERISA or Section 4975 of the Code have occurred which could reasonably be
expected to result in material liability to Buyer or its subsidiaries.

(c) As used herein, "Buyer Plan" means a "pension plan" (as defined in
Section 3(2) of ERISA), a "welfare plan" (as defined in Section 3(1) of
ERISA), or any bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established, maintained or contributed to by
Buyer or any of its ERISA Affiliates or as to which Buyer or any of its
ERISA Affiliates or otherwise may have any material liability.

(d) As used herein, "ERISA Affiliate" means (i) any entity which is a
member of a "controlled group of corporations" with or under "common
control" (as such terms are defined in Sections 414(b) or (c) of the Code)
with the Company, (ii) any entity which is (or at any relevant time was) a
member of an "affiliated service group" (as such term is defined in Section
414(m) of the Code) which includes the Company, or (iii) any other entity
or person which, with respect to the Company, must be treated as a single
employer under any other provision of Code Section 414 or ERISA Section
4001.

5.17 Taxes. Except as set forth in Schedule 5.17:

(a) Buyer and each of its subsidiaries has timely filed all Returns
required by applicable Tax law to be filed by Buyer and each of its
subsidiaries, except where any such failure to file that could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Buyer. All Taxes imposed on Buyer or any of its
subsidiaries by a taxing authority or for which Buyer or any of its
subsidiaries is or could be liable, whether to a taxing authority or to
other persons or entities, to the extent required to be paid by Buyer or
any of its subsidiaries have been paid, except for any such failure to pay
that could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Buyer.

(b) Except to the extent that any such failure to withhold could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Buyer, as of the Closing Date, Buyer and each of
its subsidiaries, will have withheld with respect to its employees all
federal and state taxes, FICA, FUTA and other Taxes required to be
withheld.

(c) There is no Tax deficiency outstanding, proposed or assessed against
Buyer or any of its subsidiaries, except any deficiency that, if paid,
could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Buyer.

5.18 Intellectual Property. Buyer and its subsidiaries have all patents,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary Buyer intellectual property rights (collectively, "Buyer
Intellectual Property Rights") as are necessary in connection with the business
of Buyer and its subsidiaries, taken as a whole, except where the failure to
have such Intellectual Property Rights could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Buyer.
Neither Buyer nor any of its subsidiaries has infringed any Intellectual
Property Rights of any third party, other than any infringements that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Buyer.

6. CONFIDENTIAL INFORMATION.

6.1 Confidentiality. Each party agrees that, the terms of the
Confidentiality Agreement dated August 7, 1998 (the "Confidentiality
Agreement") between the Buyer and the Company shall remain in full force and
effect, other than those set forth in clauses (a) through (f) on page 3.

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6.2 Non-Solicitation. Without the prior written consent of the other party,
neither Buyer nor the Company, will for a period of two (2) years from the date
of this Agreement, solicit or cause to be solicited the employment of any
person who is employed by the other during such time.

7. REQUIRED APPROVALS AND CLOSING.

7.1 Shareholders and Court Approvals.

(a) The Company undertakes to take appropriate action to file a motion
(the "First Motion") with the Tel Aviv-Jaffa District Court or any other
competent court in Israel (the "Court") to order that an extraordinary
meeting of the Company's shareholders be convened at the earliest
practicable date for the purpose of considering and approving (if they deem
fit) the Arrangement and this Agreement, including the Exchange and the
other transactions contemplated by this Agreement (the "Company
Shareholders Meeting"), which shall have been recommended for approval by
the Company's Board of Directors unless based upon the written advice of
its Israeli counsel that such recommendation is not consistent with its
fiduciary obligations, in which case the Company's Board of Directors shall
make no recommendation with regard to the Arrangement, the Agreement or any
other Acquisition Proposal (as defined in Section 8.6).

(b) Subsequent to approval of the First Motion by the Court, the Company
shall take appropriate action to convene the Company Shareholders Meeting,
in accordance with the Court's instructions and applicable law.

(c) Subsequent to approval of the Agreement and the Arrangement at the
Company Shareholders Meeting, by the requisite vote required under law, the
Company shall as soon as practicable file with the Court a motion (the
"Second Motion") requesting that the Court issue an order approving the
Arrangement (the "Final Court Order").

(d) As soon as possible subsequent to the issuance of the Final Court
Order and the satisfaction of all Closing conditions, but not earlier than
January 1, 1999, the Company shall file the Final Court Order with the
Registrar of Companies in Israel. The First Motion, the Second Motion and
any related motions and the description of the Arrangement to the Israeli
court shall be reviewed and approved by Buyer prior to the filing thereof
by the Company. In connection with the Company Shareholders Meeting, the
Company will duly solicit the vote of the shareholders of the Company, for
their approval, as set forth above in this Section 7.1, by mailing or
delivering to each such shareholder the Proxy Statement/Prospectus in the
form included in the S-4 Registration Statement, as soon as practicable
after the date said Registration Statement is declared effective by the SEC
and after Court approval of the First Motion.

7.2 Closing. The Closing of this Agreement shall take place simultaneously with
the Filing.

8. COVENANTS.

8.1 Conduct of Business of the Company Prior to Closing Date.

8.1.1 Conduct by the Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms and the Closing Date, the Company (which for the purposes
of this Section 8.1 shall include the Company and each of the Subsidiaries)
agrees, except as set forth on Schedule 8.1 hereto and except to the extent
that Buyer shall otherwise consent in writing (which consent shall not be
unreasonably withheld or delayed), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to timely pay its debts and Taxes, subject to good faith disputes
over such debts or Taxes, on the same payment terms such debts and Taxes have
historically been paid, to collect its receivables in the same manner and on
the same terms such receivables have historically been collected, to timely pay
or perform other material obligations when due and to use all commercially
reasonable efforts consistent with past practices and policies to preserve
intact the Company's present business organizations, keep available the
services of its present officers and employees and preserve its

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relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with the Company, to the end that the
Company's goodwill and ongoing businesses be unimpaired at the Closing Date.
The Company shall promptly notify Buyer of any event or occurrence not in the
ordinary course of business of the Company. Except as expressly provided for by
this Agreement or as set forth on the Company Schedules, the Company shall not,
prior to the Closing Date or earlier termination of this Agreement pursuant to
its terms, without the prior written consent of Buyer (which consent shall not
be unreasonably withheld or delayed):

(a) Except as required by the Company's benefit plans and agreements,
accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options granted under the Option Plans or
authorize cash payments in exchange for any options granted under any of
such plans;

(b) Enter into any material partnership agreements, joint development
agreements or strategic alliance agreements;

(c) Except as required by the Benefit Plans or under Israeli Law, grant
any severance or termination pay (i) to any executive officer or (ii) to
any other employee except payments made in connection with the termination
of employees who are not executive officers in amounts consistent with
Company's policies and past practices or pursuant to written agreements
outstanding, or policies existing, on the date hereof and as previously
disclosed in writing to Buyer;

(d) Other than in the ordinary course of business consistent with past
practices, transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property Rights
(including rights to resell or relicense the Company Intellectual Property
Rights) or enter into grants to future patent rights, other than the
Company's standard forms of End-User Licenses entered into in the ordinary
course of business consistent with past practices;

(e) Commence any litigation other than (i) for the routine collection of
bills, (ii) for software piracy or (iii) in such cases where the Company in
good faith determines that failure to commence suit would result in the
material impairment of a valuable aspect of the Company's business,
provided that the Company consults with Buyer prior to the filing of such a
suit (except that the Company shall not require the approval of, and shall
not be required to consult with, Buyer with respect to any claim, suit or
proceeding by the Company against Buyer or any of its affiliates);

(f) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company;

(g) Repurchase or otherwise acquire, directly or indirectly, any shares
of its capital stock;

(h) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options
to acquire, or enter into other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the issuance of shares of the Company Stock pursuant to the
exercise of Company Stock options outstanding as of the date of this
Agreement and (ii) the grant of options to purchase at fair market value at
the time of grant up to 700,000 shares of the Company Stock, in the
aggregate and 30,000 shares of Company Stock, in the aggregate, to any one
other individual, to newly hired employees or in the ordinary course of
business and in accordance with the Company's standard policies consistent
with past practice.

(i) Except as set forth on Schedule 8.1, cause, permit or propose any
amendments to the Company's Articles of Association or amend any Listed
Agreement;

(j) Sell, lease, license, encumber or otherwise dispose of any of the
Company's properties or assets which are material, individually or in the
aggregate, to the business of the Company, except in the ordinary course of
business consistent with past practice;

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(k) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities
of the Company or guarantee any debt securities of others;

(l) Except as required by law and as set forth on Schedule 8.1, adopt or
amend any Benefit Plan or increase the salaries or wage rates of any of its
employees (except for wage increases in the ordinary course of business and
consistent with past practices), including but not limited to (but without
limiting the generality of the foregoing), the adoption or amendment of any
stock purchase or option plan, the entering into of any employment contract
or the payment of any special bonus or special remuneration to any director
or employee other than the bonuses reflected on the Company Financial
Statements;

(m) Revalue any of the Company's assets, including without limitation
writing down the value of inventory, writing off notes or accounts
receivable other than in the ordinary course of business consistent with
past practice or waive any right of material value;

(n) Pay, discharge or satisfy in an amount in excess of $50,000 (in any
one case) or $250,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), including, without limitation, under any employment contract or
with respect to any bonus or special remuneration, other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
of the type reflected or reserved against in the Company Financial
Statements (or the notes thereto);

(o) Except as required by applicable tax law, make or change any
material election in respect of Company Taxes, adopt or change in any
material respect any accounting method in respect of Company Taxes, file
any material tax return or any amendment to a material tax return, enter
into any closing agreement, settle any claim or assessment in respect of
Company Taxes (except settlements effected solely through payment of
immaterial sums of money), or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of
Company Taxes;

(p) Intentionally take any action, including the acceleration of vesting
(except as contemplated under the Option Plans) of any options, warrants,
restricted stock or other rights to acquire shares of the Company Stock,
which would be reasonably likely to interfere with Buyer's ability to
account for the Arrangement as a pooling of interests;

(q) Enter into any Listed Agreement other than in the usual, regular and
ordinary course of business consistent with past practices and policies; or

(r) Take, or agree in writing or otherwise to take, any of the actions
described in clauses (a) through (q) above, or any action which would cause
or would be reasonably likely to cause any of the conditions to the
Arrangement set forth in Sections 9 or 10, not to be satisfied.

8.1.2 Conduct by Buyer. Except as expressly provided for by this Agreement,
Buyer shall not, prior to the Closing Date or earlier termination of this
Agreement pursuant to its terms, without the prior written consent of the
Company (which consent shall not be unreasonably withheld or delayed), adopt
any amendments to its Certificate of Incorporation or take any other action
requiring a vote of the holders of the Buyer Stock, which would materially
adversely affect the terms and provisions of the Buyer Stock or take or agree
in writing or otherwise to take, any of the foregoing actions.

8.2 Registration Statement/Proxy Statement. The Company and Buyer will, as
promptly as practicable hereafter, prepare and file with the SEC a proxy
statement/prospectus and form of proxy, in connection with the vote of the
Company's shareholders with respect to the Arrangement, and the issuance of the
Buyer Stock and Buyer Rights pursuant to this Agreement (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's
Shareholders, is herein called the "Proxy Statement/Prospectus"). Buyer will,
as promptly as practicable, prepare and file with the SEC a registration
statement on Form S-4 (the "S-4 Registration Statement"), containing the Proxy

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Statement/Prospectus, in connection with the registration under the United
States Securities Act of 1933, as amended (the "Act") of the shares of the
Buyer Stock and Buyer Rights issuable upon exchange of the Company Stock. The
Company and Buyer will, and will cause their accountants and legal counsel to,
use their best efforts to have or cause the S-4 Registration Statement declared
effective as promptly as practicable, including, without limitation, causing
their accountants to deliver necessary or required instruments such as opinions
and certificates, and will take any other action required or necessary to be
taken under United States federal or state securities laws or otherwise in
connection with the registration process. The Company will use its best efforts
to cause the Proxy Statement/Prospectus to be mailed to shareholders of the
Company at the earliest practicable date after approval by the Court of the
First Motion and to hold the Company Shareholders Meeting as soon as
practicable after approval by the Court of the First Motion. The Proxy
Statement/Prospectus will, when prepared pursuant to this Section 8.2 and
mailed to the Company's Shareholders, to the extent required by the SEC be
substantially in accordance with the requirements of Regulation 14A under the
Exchange Act of 1934. No filing of or amendment or supplement to the S-4
Registration Statement will be made by Buyer without providing the Company with
the opportunity to review and comment thereon. Buyer will advise the Company
promptly after it received notice thereby, of the time when the S-4
Registration Statement has become effective or any amendment or any supplement
has been filed, the issuance of any stop order, the suspension of the
qualification of the Buyer Stock issuable in connection with the Arrangement
for offering or sale in any jurisdiction or any request by the SEC for
amendment of the Proxy Statement/Prospectus or the S-4 Registration Statement
or comments thereon and responses thereto and requests by the SEC for
additional information. The Proxy Statement/Prospectus and the S-4 Registration
Statement shall not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading. In the Proxy Statement/Prospectus, the Company's Board of
Directors shall state that the directors permitted to vote thereon unanimously
recommend that shareholders of the Company approve the Arrangement, unless
based upon the written advice of its Israeli counsel that such recommendation
is not consistent with its fiduciary obligations, in which case the Company's
Board of Directors shall make no recommendation with regard to the Arrangement,
this Agreement or any other Acquisition Proposal (as defined in Section 8.6).
Each party shall use its best effort to cause its respective outside accounting
firms to conduct customary agreed upon procedures with respect to the Proxy
Statement/Prospectus and deliver written reports thereon, dated no earlier than
five (5) business days prior to the effective date of the Proxy
Statement/Prospectus.

8.3 Information for the Buyer Registration Statement. The Company will
furnish Buyer with all information concerning the Company required for
inclusion or incorporation by reference in (a) the S-4 Registration Statement,
(b) the Nasdaq listing application to be filed with respect to the shares of
the Buyer Stock to be delivered hereunder or (c) any statements or applications
made by Buyer to any governmental body in connection with the transactions
contemplated by this Agreement, and all information furnished to Buyer for such
applications and statements shall be true and correct in all material respects
without omission of any material fact required to be stated to make such
information, in light of the circumstances under which they are made, not
misleading.

8.4 Inclusion of the Buyer Stock on Nasdaq. As promptly as practicable after
the date hereof, and in any event prior to the Closing Date, Buyer shall use
its best efforts to cause the shares of the Buyer Stock to be issued pursuant
to this Agreement to be included on Nasdaq, subject to notice of official
issuance thereof.

8.5 Affiliates; Pooling of Interests. Neither the Company nor Buyer nor
their respective affiliate shareholders as hereinafter defined, shall take or
cause to be taken any action, whether before or after the Closing Date, which
would disqualify the transaction contemplated herein as a pooling of interests
for accounting purposes.

(a) The Company has advised Buyer that Israel Mazin, Eliahu Mashiah, Ori
Mazin, Izaak Mashiah and Ophir Holdings Ltd. may be deemed "affiliates" of
the Company for purposes of Rule 145 under the Act and for purposes of
qualifying for "pooling of interests" accounting treatment (each such
person is herein referred to as an "Affiliate Shareholder"). The Company
shall cause each person who is identified

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<PAGE>

as an Affiliate Shareholder to deliver to Buyer, on or prior to the Closing
Date, a written agreement, to the effect that such Affiliate Shareholder
will not sell, pledge, transfer or otherwise dispose of any shares of the
Buyer Stock issued to such Affiliate Shareholder pursuant to the
Arrangement, except pursuant to an effective registration statement or in
compliance with Rule 145 or an exemption from the registration requirements
of the Act. The Company shall promptly advise Buyer if any person becomes
or ceases to be such an Affiliate Shareholder.

(b) Each person who is identified as an Affiliate Shareholder has
delivered to Buyer a written agreement, to the effect that such Affiliate
Shareholder will not thereafter sell or in any other way reduce such
Affiliate Shareholder's risk relative to any shares of the Company Stock
during the period commencing 30 days prior to the Closing Date and will not
sell or otherwise reduce such person's risk relative to any shares of the
Buyer Stock acquired under the Agreement until publication of financial
results covering at least 30 days of combined operations of Buyer and the
Company as required by the SEC so as to ensure that the transactions
contemplated by this Agreement qualify as a "pooling of interests". Buyer
shall publish such financial results covering at least 30 days of combined
operations of Buyer and the Company following the end of Buyer's fiscal
quarter in which the Closing occurs and in which there have been at least
30 days of combined operations, but not later than 45 days following the
end of such quarter. During the period between the date of this Agreement
and the thirtieth day prior to the Closing Date, the Company shall cause
each person who is identified as an Affiliate Shareholder to formally
notify Buyer of any and all proposed sales or acquisitions of the Company
Stock or the Buyer Stock in advance of any such acquisition or sale. Such
notification will permit Buyer to review the circumstances of the proposed
transaction with its advisors to ensure that pooling of interests
accounting is not compromised by such sales or purchases.

8.6 No Solicitation.

(a) From and after the date of this Agreement until the Closing Date or
the earlier termination of this Agreement in accordance with its terms, the
Company and its Subsidiaries will not, and will not permit their respective
directors, officers, investment bankers and affiliates to, and will use
their best efforts to cause their respective employees, representatives and
other agents not to, directly or indirectly, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably
be expected to lead to, any Acquisition Proposal (as defined below), (ii)
engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity in connection with, any Acquisition
Proposal, or (iii) agree to, approve, recommend or otherwise endorse or
support any Acquisition Proposal. As used herein, the term "Acquisition
Proposal" shall mean any proposal, offer or expression of interest relating
to a possible (i) merger, consolidation or similar transaction involving
the Company or any Subsidiary of Company, (ii) sale, lease, license or
other disposition, directly or indirectly, by merger, consolidation, share
exchange or otherwise, of any assets of Company or any subsidiary of
Company representing 20% or more of the assets of Company on a consolidated
basis, (iii) issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase or securities
convertible into, such securities) representing 20% or more of the votes
attached to the outstanding securities of Company, (iv) transaction in
which any person shall acquire beneficial ownership (as such term is
defined in Rule 13d-3 under the Exchange Act of 1934), or the right to
acquire beneficial ownership, or any "group" (as such term is defined under
the Exchange Act of 1934) shall have been formed which beneficially owns or
has the right to acquire beneficial ownership of, 20% or more of the
outstanding shares of Company Stock, (v) liquidation, dissolution, or other
similar type of transaction with respect to Company or any subsidiary of
Company, or (vi) transaction which is similar in form, substance or purpose
to any of the foregoing transactions, provided, however, that the term
"Acquisition Proposal" shall not include the Arrangement and the
transactions contemplated thereby. The Company will immediately cease any
and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing.

(b) Notwithstanding the provisions of paragraph (a) above, prior to the
approval of this Agreement and the Arrangement by the shareholders of the
Company at the Company Shareholders meeting, nothing

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<PAGE>

contained in this Agreement shall prevent Company or its Board of
Directors, directly or through representatives or agents on behalf of the
Board, from complying with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act of 1934 with regard to an Acquisition Proposal.
Notwithstanding the foregoing, the Company will provide to Buyer, within 24
hours of providing any non-public information to any third party, such non-
public information if the Company has not previously provided such
information to Buyer.

(c) The Company will (i) notify Buyer within 24 hours if any proposal is
made or any information or access is requested in connection with an
Acquisition Proposal and (ii) within 24 hours communicate to Buyer the
principal terms and conditions of any such Acquisition Proposal or
potential Acquisition Proposal or inquiry, the identity of the offeror or
potential offeror, and a list and description of any information provided
to the offeror or potential offeror.

8.7 Break-Up Fee.

(a) If this Agreement is terminated pursuant to (i) Section 12.2(b)
under circumstances that the failure to close by June 30, 1999 was due to a
not immaterial breach of this Agreement by the Company, or the Company
failed to convene the Company Shareholders Meeting to vote upon the
Agreement and the Arrangement prior to June 30, 1999 and such failure was
not caused by Buyer, (ii) 12.2(d), or (iii) 12.2(e) and Buyer is not then
in material breach of the terms of this Agreement, the Company shall pay to
Buyer, within five (5) business days following Buyer's written request
therefor, the aggregate sum of $15,000,000 U.S. (the "Initial Payment")
plus Expenses (as hereinafter defined). In addition, if within twelve
months after termination of this Agreement for any reason other than
pursuant to Section 12.2(f) there shall be consummated a transaction in
which a shareholder or group other than the Company's current principal
shareholders shall acquire 50.1% of the Company's Stock or its assets, then
Section 6.2 shall terminate and the Company shall either, at the sole
option of Buyer (x) pay to Buyer, $30,000,000 U.S., minus the Initial
Payment to the extent previously paid or (y) provide the non-exclusive
royalty-free license (the "License Option") in the form set forth in
Exhibit 8.7 (the "License") and pay to Buyer $5,000,000; provided however
that if the Initial Payment has previously been paid, Buyer shall pay to
the Company $10,000,000. "Expenses" shall mean all of the reasonable out-
of-pocket expenses of Buyer, including but not limited to attorneys' fees,
accounting fees, financial printing fees, filing fees and fees and expenses
of financial advisors, in each case incurred in connection with this
Agreement and the Arrangement up to a maximum of $3,000,000.

(b) If this Agreement is terminated (i) pursuant to Section 12.2(f) and
the Company is not then in material breach of this Agreement, or (ii)
pursuant to Section 12.2(b) under circumstances that the failure to close
by June 30, 1999 was due to Buyer's not immaterial breach of this
Agreement, Buyer shall pay to Company within five (5) business days
following the Company's written request therefor the Initial Payment plus
Expenses.

(c) If a party hereto fails to promptly pay to the other party any fee
or expense due hereunder, the defaulting party shall pay the costs and
expenses (including reasonable documented legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of American
National Bank & Trust Company from the date such fee was required to be
paid.

(d) Any payment required to be made pursuant to this Section 8.7 shall
be made by wire transfer of immediately available funds to an account
designated by the party entitled to the payment.

8.8 Legal Requirements. Each of Buyer and the Company will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any Governmental Entity, and prompt resolution of any litigation
prompted hereby) and will promptly cooperate with and furnish information

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<PAGE>

to any party hereto necessary in connection with any such requirements imposed
upon any of them or their respective subsidiaries in connection with the
consummation of the transactions contemplated by this Agreement, and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other public or private third party required to be obtained or made in
connection with the Arrangement or taking of any action contemplated by this
Agreement.

8.9 Blue Sky Laws. Buyer shall take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of the Buyer Stock pursuant hereto. The Company shall use its
reasonable commercial efforts to assist Buyer as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of the Buyer Stock pursuant hereto.

8.10 Reasonable Commercial Efforts and Further Assurances. Each of the
parties to this Agreement shall each use its reasonable commercial efforts to
effectuate the transactions contemplated hereby as expeditiously as reasonably
practicable and to fulfill and cause to be fulfilled the conditions to closing
under this Agreement (including resolution of any litigation prompted hereby).
Each party hereto, at the reasonable request of another party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.

8.11 Indemnification. From and after the Closing Date, Buyer shall
indemnify, defend and hold harmless (and advance expenses to) all past and
present officers, directors and employees (each, an "Indemnified Person") of
the Company and of its subsidiaries to the same extent such persons are
indemnified as of the date of this Agreement by the Company pursuant to any
resolutions of the Company, agreements between the Company and any such person,
the Company's Articles of Association or applicable law, from and against all
claims, damages, losses, obligations or liabilities with respect to acts or
omissions (each, a "Claim") occurring at or prior to the Closing Date. In the
event of any dispute regarding whether a director, officer or employee has met
the standards of conduct set forth therein, such question shall be conclusively
determined by the written opinion of reputable disinterested legal counsel
selected by the Company's Board of Directors. The provisions of this Section
8.11 are for the benefit of the Indemnified Persons, any of whom shall have all
rights at law and in equity to enforce the rights hereunder. Buyer shall
maintain in effect for not less than six years from the Closing Date the
current policies of directors' and officers' liability insurance maintained by
the Company and the Subsidiaries (provided that Buyer may substitute therefor
policies of at least the same coverage containing terms and conditions which
are no less advantageous to the Indemnified Persons in all material respects so
long as no lapse in coverage occurs as a result of such substitution) with
respect to all matters, including the transactions contemplated hereby
occurring prior to, and including the Closing Date, provided that, in the event
that any Claim is asserted or made within such six year period, such insurance
shall be continued in respect of any such Claim until final disposition of any
and all such Claims, provided, further, that Buyer shall not be obligated to
make annual premium payments for such insurance to the extent such premiums
exceed 200% of the premiums paid as of the date hereof by the Company for such
insurance (provided that in such case Buyer shall purchase as much coverage as
possible for 200% of the premiums paid as of the date hereof for such
insurance.

8.12 Notification. Between the date of this Agreement and the Closing Date,
each party will promptly notify the other party in writing if such party
becomes aware of any development, fact or condition that causes or constitutes
a breach of any agreement or covenant under this Agreement applicable to such
party or of such party's representations and warranties as of the date of this
Agreement, or if such party becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would cause or constitute a breach
of any such representation or warranty had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition.

8.13 S-8 Registration Statement. Buyer shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of the Buyer
Stock and Buyer Rights for delivery upon exercise of the Options

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assumed. Buyer shall file a Registration Statement on Form S-8 (or any
successor form) or any other appropriate form, effective within one (1)
business day after the Closing Date, with respect to shares of the Buyer Stock
subject to such Options and shall use all reasonable efforts to maintain the
effectiveness of such registration statement or registration statements, and
maintain the current status of the prospectuses contained therein, for so long
as such Options remain outstanding.

8.14 Israeli Prospectus. Buyer shall use its reasonable best efforts and the
Company cooperate as reasonably necessary to either (a) obtain an exemption
from the Israeli Securities Authority from any prospectus requirements with
respect to the exchange of the Company Stock with the Israeli shareholders of
the Company or (b) comply with the prospectus requirements of the Israeli
Securities Law of 1968.

8.15 Employee Benefits. (a) Buyer agrees that it will honor, from and after
the Closing Date, all Benefit Plans and all employment agreements entered into
by the Company prior to the date hereof; provided, however, that nothing in
this Agreement shall be interpreted as limiting the power of Buyer to amend or
terminate any Benefit Plan or any other individual employee benefit plan,
program, agreement or policy or as requiring Buyer to offer to continue (other
than as required by its terms) any written employment contract. As soon as
administratively practicable following the Closing Date, Buyer shall cause all
employees of the Company and its Subsidiaries then actually at work (the
"Company Employees") to be covered under employee benefit and fringe benefit
plans, programs, policies and arrangements that are substantially the same as
the employee benefit plans, programs, policies and arrangements that Buyer
maintains for similarly situated employees of Buyer (the "Buyer-Provided
Plans").

(b) All service of a Company Employee taken into account prior to the
Closing Date under any Benefit Plan shall, on and after the Closing Date,
be taken into account as service with Buyer or any of its Subsidiaries (as
applicable) for purposes of eligibility to participate and vesting and
accrual of benefits under any similar Buyer-Provided Plan; provided,
however, that a Company Employee's service prior to the Closing Date shall
not be taken into account as service for purposes of the accrual of
benefits under any defined benefit pension plan maintained by Buyer or any
of its Subsidiaries on or after the Closing Date. Buyer shall cause all
Buyer-Provided Plans to (A) waive any pre-existing condition limitations
otherwise applicable on and after the Closing Date to the extent that such
conditions are covered under the Benefit Plans immediately prior to the
Closing Date and (B) provide that any expenses incurred by the Company
Employees (and their dependents) during the plan year within which the
Closing Date occurs shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions
(and like adjustments or limitations on coverage) under the Buyer-Provided
Plans. Any salary deduction elections of the Company Employees under a
flexible spending plan maintained by the Company pursuant to section 125 of
the Code prior to the Closing Date shall continue in effect under any
similar Buyer-Provided Plan on and after the Closing Date, and any amounts
credited and debited to accounts of such employees under such Benefit Plan
as of the Closing Date shall be credited and debited to such employees'
accounts under such Buyer-Provided Plan.

(c) If a Company Employee is terminated by Buyer for reasons other than
such Employee's failure to perform his or her duties or responsibilities to
the reasonable satisfaction of Buyer within six (6) months following the
Closing Date and such Employee's Options did not otherwise vest as a
consequence of the Arrangement, any unvested stock options owned by such
Company Employee shall become vested upon such termination. Notwithstanding
the foregoing, no Options shall vest as a result of this provision if in
the opinion of Buyer's accountants or the SEC such vesting will interfere
with the Company's ability to account for the acquisition of the Company as
a "pooling of interests".

8.16 Non-Competition Agreements. The Company shall use its best efforts to
cause each of Kathleen Andonian, Gadi Maier and Eliahu Singer to execute a Non-
Competition Agreement substantially in the form set forth in Exhibit 8.16.

8.17 Company Directors. After issuance of the Final Court Order, assuming
all of the conditions in Section 9 have been satisfied or waived, and Buyer
agrees that no further conditions to Closing exist other than

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the Filing, the Company and its directors shall promptly (but no later than
three (3) business days thereafter) take such actions as are necessary for
persons nominated by Buyer to constitute a majority of the Company's Board of
Directors until the Closing Date. In order to obtain such majority, a current
Director of the Company may appoint an alternative to himself (hereinafter
referred to as an "Alternate Director"). The appointment of any such Alternate
Director shall be irrevocable and the scope of authority of such Alternate
Director shall not be limited in any manner. Any director who appoints an
Alternate Director shall agree not to attend any meeting of the Board or
committee after the date of such designation. If the Closing does not occur and
this Agreement is terminated, any person acting as a director or Alternate
Director nominated by Buyer (other than Andrew J. Filipowski) shall resign.

8.18 Technology Escrow Agreement. With five (5) business days of the date of
this Agreement, the Company and Buyer shall have entered into a Technology
Escrow Agreement with an Escrow Agent located in Israel, in the form set forth
in Exhibit 8.18.

8.19 Company Schedules/Affiliate Opinion. Within five (5) business days of
the date of this Agreement, the Company shall deliver to Buyer (a) the Company
Schedules required pursuant to Article 4 and (b) the legal opinion of
Chadbourne & Parke LLP, without any material condition, in form and substance
satisfactory to Buyer and Buyer's accountants which identifies the persons who
may be deemed to be "affiliates" of the Company for purpose of Rule 145 under
the Act and states that each such person has executed and delivered to Buyer an
agreement to the effect set forth in Section 8.5.

9. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE.

The obligations of Buyer to enter into and complete this Agreement are
subject to the fulfillment in all respects, prior to or at the Closing Date, of
each of the following conditions, any one or more of which may be waived by
Buyer (except when the fulfillment of such condition is a requirement of law):

9.1 Representations and Warranties. All representations and warranties of
the Company contained in this Agreement and in any written statement (including
financial statements), certificate, Exhibit, Schedule, or other document
delivered pursuant hereto or in connection with the transactions contemplated
hereby, that are qualified by materiality or "Material Adverse Effect" shall
have been true and correct in all respects on and as of the date hereof and the
representations and warranties that are not so qualified shall have been true
and correct in all material respects on and as of the date hereof.

9.2 Covenants. The Company shall have performed and complied, in all
material respects, with all covenants and agreements required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.

9.3 Shareholder Authorization. The shareholders of the Company shall have
approved the Arrangement by the vote required under Israeli law.

9.4 Registration Statement Effective. The S-4 Registration Statement shall
have been declared effective under the Act and shall not be subject to a "stop
order" and no proceedings shall have been instituted or threatened by the SEC
to suspend the effectiveness thereof.

9.5 No Injunctions. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the consummation
of this Agreement or the Arrangement shall be in effect.

9.6 Certificates. The Company shall have delivered to Buyer, in form
satisfactory to Buyer and its counsel, and dated the Closing Date, a
certificate signed by the President and the Vice President-Finance of the
Company, for and on behalf of the Company setting forth the following:

(a) The names of the officers of the Company authorized to execute and
deliver the documents and instruments deliverable hereunder;

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(b) The due adoption by the Board of Directors and shareholders of the
Company, in accordance with its Memorandum of Association and Articles of
Association and with the applicable laws of the State of Israel, of
resolutions: (i) approving the Arrangement, including the execution and
delivery of this Agreement, the consummation of the Arrangement and the
carrying out of the transactions contemplated hereby and thereby, and (ii)
authorizing and directing the officers of the Company to take such other
and further action as may be required to consummate the transactions
contemplated hereby, together with copies of the foregoing resolutions;

(c) That all of the conditions set forth in Sections 9.1, 9.2, 9.3 and
9.5 hereof have been fulfilled, at or prior to the Closing Date, and that
the Company is not otherwise in default under any of the provisions of this
Agreement;

(d) The number of outstanding shares of the Company Stock as of the
Closing Date; and

(e) That such certificate or certificates are being executed and
delivered in order to induce Buyer to consummate the Agreement.

9.7 Company Counsel Opinion. The Company shall have delivered to Buyer
opinions of the Company's Israeli counsel, Meitar, Littman & Co., and the
Company's United States counsel, Chadbourne & Parke LLP, in the form set forth
in Exhibits 9.7(a) and 9.7(b) hereto, respectively.

9.8 Intentionally Omitted.

9.9 Intentionally Omitted.

9.10 Resignations. Each of the directors of the Company and the Subsidiaries
shall have submitted their resignation as directors of the Company and the
Subsidiaries.

9.11 Intentionally Omitted.

9.12 Other Approvals. The following approvals, orders or permits shall have
been received in form and substance reasonably satisfactory to Buyer:

(a) Issuance of Final Court Order;

(b) Approval of Israel Chief Scientist for change in control of the
Company;

(d) (i) Exemption from the Israel Securities Authority from any
prospectus requirement with respect to the exchange of the Buyer Stock with
the Israeli shareholders of the Company or (ii) compliance with the
prospectus requirements of the Israel Securities Law of 1968;

(e) The applicable waiting period under HSR Act shall have expired.

10. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO CLOSE.

The obligations of the Company to enter into and consummate the Arrangement
are subject to the fulfillment in all respects, prior to or on the Closing
Date, of each of the following conditions, any one or more of which may be
waived by the Company (except when the fulfillment of such condition is a
requirement of law):

10.1 Representations and Warranties. All representations and warranties of
the Company contained in this Agreement and in any written statement (including
financial statements), certificate, Exhibit, Schedule, or other document
delivered pursuant hereto or in connection with the transactions contemplated
hereby, that are qualified by materiality or "Material Adverse Effect" shall
have been true and correct in all respects on and as of the date hereof and the
representations and warranties that are not so qualified shall have been true
and correct in all material respects on and as of the date hereof.

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<PAGE>

10.2 Covenants. Buyer shall have performed and complied, in all material
respects, with all covenants, agreements and conditions required in this
Agreement to be performed or complied with by it prior to or at the Closing
Date.

10.3 Registration Statement Effective. The S-4 Registration Statement shall
have become effective and shall not be subject to a "stop order" and no
proceedings shall have been instituted or threatened by the SEC to suspend the
effectiveness thereof.

10.4 No Injunction. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the consummation
of this Agreement or the Arrangement shall be in effect.

10.5 Certificates. Buyer shall have delivered to the Company, in form
satisfactory to the Company and its counsel and dated as of the Closing Date, a
certificate or certificates signed by the President or Vice President and the
Chief Financial Officer of Buyer, for and on behalf of Buyer setting forth the
following:

(a) The names of the officers of Buyer authorized to execute and deliver
the documents and related instruments deliverable hereunder;

(b) The due adoption by the Board of Directors of Buyer, in accordance
with its Certificate of Incorporation and the applicable laws of the United
States, of resolutions approving the execution, delivery and consummation
of this Agreement and the carrying out of the transactions contemplated
hereby, and also authorizing and directing the officers of Buyer to take
such other and further actions as may be required to consummate the
transactions contemplated hereby, together with copies of the foregoing
resolutions;

(c) All of the conditions set forth in Sections 10.1, 10.2 and 10.4
hereof have been satisfied at or prior to the Closing Date, and that Buyer
is not in default under any of the provisions of this Agreement; and

(d) That such certificate or certificates are being executed and
delivered in order to induce the Company to consummate the Arrangement,
including the transactions contemplated by this Agreement.

10.6 Listing. Nasdaq shall have approved for listing, upon official notice
of issuance, the Buyer Stock to be issued upon the Closing pursuant to the
Arrangement.

10.7 Shareholder Authorization. The shareholders of the Company shall have
approved the Arrangement by the requisite votes required under Israeli law.

10.8 Other Approvals. The following approvals, orders and permits shall have
been received in form and substance reasonably satisfactory to the Company:

(a) Issuance of Final Court Order;

(b) Israeli Trade Commission Approval.

(d) Approval of the Israel Investment Center for the change in control
of the Company.

(e) The applicable waiting period under the HSR Act shall have expired.

10.9 Affiliate Letters. The affiliate shareholders of Buyer shall each have
executed and delivered to Buyer an agreement with respect to pooling of
interests substantially in the form set forth in Exhibit 10.9 hereto.

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<PAGE>

11. ACTIONS AFTER THE CLOSING DATE.

11.1 Survival of Representations and Warranties. Except for the agreements
set forth in this Agreement which by their terms are to be carried out
subsequent to the date hereof or the Closing Date, none of the representations,
warranties, covenants and agreements made in this Agreement, or in any Exhibit,
Schedule, certificate or document delivered pursuant to this Agreement, shall
survive the Closing Date.

11.2 Further Acts. Each of the parties hereto shall perform such further
acts and execute such additional documents as may be reasonably required to
effectuate the transactions contemplated hereby.

12. MODIFICATION OR TERMINATION; WAIVERS.

12.1 Modifications and Waivers. This Agreement may be amended or modified at
any time before or after approval of this Agreement by the Company's
shareholders, by a written instrument executed by the Company and Buyer, and
any of the terms, covenants, representations, warranties or conditions hereof
may be waived by a written instrument executed by the party waiving compliance,
provided, however, that after such vote by the shareholders of the Company,
Section 2 hereof shall not be amended to change the terms of the Exchange,
provided, further, that after such vote by the shareholders of the Company,
there shall not be made any amendment that by law requires further approval by
such shareholders or the Court without the further approval of such
shareholders or the Court. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same. No waiver by any party of
the breach of any term, covenant, representation or warranty contained in this
Agreement as a condition to such party's obligations hereunder shall release or
affect any liability resulting from such breach, and no waiver of any nature,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
of any breach of any other term, covenant, representation or warranty of this
Agreement.

12.2 Termination. This Agreement may be terminated at any time prior to the
Closing Date (notwithstanding that approval by the shareholders of the Company
may have been obtained) under any of the following circumstances:

(a) By mutual consent of the Company and Buyer or by mutual action of
their respective Boards of Directors;

(b) By the Company or Buyer, if the Closing Date shall not have occurred
on or before June 30, 1999, unless such delay shall have been caused by the
breach of the party seeking to terminate;

(c) By the Company or Buyer, if any court of competent jurisdiction or
other governmental body shall have issued an order, decree, or ruling, or
taken any other action permanently restraining, enjoining, or otherwise
prohibiting the Arrangement and/or the Agreement and such order, license,
ruling or other action shall have become final and non-appealable;

(d) By the Company or Buyer, if the Arrangement, this Agreement or the
issuance of the shares of the Buyer Stock pursuant to this Agreement, as
the case may be, shall have been voted on by shareholders of the Company at
a meeting duly convened therefor and such shareholders did not approve the
Arrangement, this Agreement or the issuance of shares of the Buyer Stock
pursuant to this Agreement, as the case may be, by the requisite vote, or
if the court does not issue the First Court Order or the Final Court Order
by June 15, 1999;

(e) By Buyer, if there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
the Company and such breach has not been cured within ten (10) business
days after written notice to the Company (provided, that Buyer is not in
material breach of the terms of this Agreement; and provided further, that
no cure period shall be required for a breach which by its nature cannot be
cured) such that the conditions set forth in Section 9 or Section 10, as
the case may be, will not be satisfied; and

A-33
<PAGE>

(f) By the Company, if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of the Buyer and such breach has not been cured within ten (10)
business days after written notice to Buyer (provided, that the Company is
not in material breach of the terms of this Agreement; and provided
further, that no cure period shall be required for a breach which by its
nature cannot be cured) such that the conditions set forth in Section 9 or
Section 10, as the case may be, will not be satisfied.

Any such termination shall first be approved by the Board of Directors of
the party seeking termination and shall, except for termination effected
pursuant to Section 12.1(a) or 12.2(b) be upon at least ten days' notice of
termination given to the other party by the party seeking termination.

Upon termination of this Agreement pursuant to this Section 12.2, none of
the Company, or Buyer, nor the directors, officers, or shareholders of any of
such parties shall have any liability to the other, and the only right or
remedy of Buyer or the Company in connection with such termination shall be to
terminate this Agreement; provided, however that the provisions of Sections
6.1, 6.2 and 8.7 shall remain in full force and effect and survive any
termination of this Agreement. Notwithstanding the foregoing to the contrary,
nothing in this Section 12.2 shall relieve any party to this Agreement of
liability for any willful or intentional breach of this Agreement.

13. GENERAL PROVISIONS

13.1 Expenses. Each of the parties hereto shall pay their own respective
expenses (including, without limitation, the fees, disbursements and expenses
of their attorneys, accountants and investment advisors), in connection with
the negotiation and preparation of this Agreement and the transactions
contemplated hereby.

13.2 Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and delivered (a) personally, (b) via
telecopy, (c) via overnight courier (providing proof of delivery) or (d) via
registered or certified mail (return receipt requested). Such notice shall be
deemed to be given, dated and received (i) when so delivered personally, via
telecopy upon confirmation, or via overnight courier upon actual delivery or
(ii) two days after the date of mailing, if mailed by registered or certified
mail. Any notice pursuant to this section shall be delivered as follows:

If to Buyer to:

PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
Attention: Michael P. Cullinane
Larry S. Freedman
Telecopy: 630-691-0704

With copies to:

Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661
Attention: Matthew S. Brown, Esq.
Telecopy: 312-902-1061

If to the Company, to:
MEMCO Software Ltd.
24 Raoul Wallenberg Street
Tel Aviv, 69719, Israel
Attention: Israel Mazin
Telecopy: 972 3 645 0001

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<PAGE>

With copies to:

Meitar, Littman & Co.
16 Abba Hillel Silver Road
Ramat-Gan 52506
Tel Aviv, Israel
Attention: Dan Geva, Adv.
Telecopy: 972 3 610 3111

Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: Dennis J. Friedman
Telecopy: 212-489-5303

or to such other persons or addresses as may be designated in writing by the
party to receive such notice.

13.3 Governing Law. This Agreement shall be construed and governed by the
laws of the State of Delaware applicable to agreements made and to be performed
entirely in that jurisdiction; provided, however, that matters affecting the
validity of corporate action taken by the Company or matters relating to the
Arrangement shall be governed by the laws of Israel.

13.4 Entire Agreement. This Agreement and the Confidentiality Agreement
contain the entire agreement between the parties hereto with respect to the
subject matter hereof, and there are no representations, warranties,
understandings or agreements other than those expressly set forth herein.

13.5 Schedules and Exhibits. All Schedules or Exhibits annexed hereto and
the documents and instruments delivered at the Closing are expressly made a
part of this Agreement as fully as though completely set forth herein, and all
references to this Agreement herein or in any of such documents (whether or not
such references include a specific reference to such documents) shall be deemed
to refer to and include all such documents. Any breach of, or default under,
any provision of any of such documents shall for all purposes constitute a
breach or default under this Agreement.

All Schedules and Exhibits provided herein by the Company to Buyer or Buyer
to the Company shall be in the English language, except such agreements not in
English already existing between the Company or Buyer and third parties.

13.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute
one and the same instrument.

13.7 Section Headings. The section headings contained in this Agreement are
inserted for purposes of convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.

13.8 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.

13.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the parties.

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<PAGE>

In Witness Whereof, each of the parties hereto has executed this Agreement
as of the date first above written.

Buyer:

/s/ Larry Freedman
By __________________________________
Name: Larry Freedman
Title: General Counsel

Company:

/s/ Israel Mazin
By __________________________________
Name: Israel Mazin
Title: Chairman and CEO

A-36
<PAGE>

PLAN OF ARRANGEMENT

<TABLE>
<S> <C> <C>
Between The Company Of the First Part
And The holders of the Ordinary Shares, Of the Second Part
NIS 0.01 par value per share
</TABLE>

In this Arrangement the following terms shall have the meanings assigned to
them respectively hereunder:

<TABLE>
<C> <S>
"Arrangement": This Plan of Arrangement, as drafted, or
with such amendments, supplements or
conditions that the competent court may
determine or require.
"Arrangement Effective Time": The time that this Arrangement shall become
effective in accordance with Section 5
hereinafter.
"Board": The Board of Directors of the Company.
"Companies Ordinance": The Companies Ordinance [New Version],
1983.
"Company": MEMCO Software Ltd.
"Exchange": The Exchange of Ordinary Shares in
accordance with the preamble below.
"Extraordinary General Meeting": The Extraordinary General Meeting of the
Company's shareholders, and any
adjournments or postponements thereof, in
which the Companys shareholders will be
requested to approve this Arrangement.
"Nasdaq": The National Association of Securities
Dealers, Inc. Automated Quotation
System/National Market, in the United
States.
"Ordinary Shares": The issued and outstanding Ordinary Shares,
NIS 0.01 par value per share, of the
Company.
</TABLE>

Whereas, as of the date hereof, the Company has an authorized capital stock
of 30,000,000 Ordinary Shares, of which 17,462,324 shares were issued and
outstanding as of August 10, 1998; and

Whereas, the Ordinary Shares are listed for trading on Nasdaq; and

Whereas, the Board deems it desirable and in the best interests of the
Company and its shareholders that the Company and its shareholders enter into
the Arrangement, pursuant to which, (i) all of the Ordinary Shares will be
deemed transferred to PLATINUM technology International, inc. (the "Buyer"),
other than those already owned by Buyer, in exchange (the "Exchange") for
shares of Common Stock, par value $0.001 per share, of Buyer (the "Buyer
Stock"); and (ii) the Agreement, dated as of August 13, 1998 between the
Company and Buyer, attached hereto as Annex A (the "Agreement"), shall be
approved; and

Whereas, under the Agreement, Buyer agreed that, (i) in the Exchange, each
Ordinary Share will be deemed transferred to Buyer in exchange for 0.836
shares of the Buyer Stock; and (ii) each such share of the Buyer Stock shall
be listed for trading on Nasdaq; and

Whereas, the Company granted to certain employees and directors options to
purchase Ordinary Shares (the "Options"), under certain stock option plans
(the "Options Plans"); and

Whereas, each Option Plan includes a provision to the effect that in the
event that, upon a merger, reorganization, recapitalization or similar
transaction, the Ordinary Shares underlying the Options shall be exchanged for
other securities of another corporation, each Option holder shall be entitled
to purchase such number of such other securities as were exchangeable for the
number of Ordinary Shares which such Option holder would have been entitled to
purchase, except for such action, and appropriate adjustments shall be made in
the purchase price per share to reflect such combination or exchange; and

Whereas, under the Agreement, Buyer agreed that each Option shall be
assumed by Buyer and shall be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such

A-37
<PAGE>

Option, the same number of shares of the Buyer Stock as the holder of such
Options would have been entitled to receive pursuant to the Exchange had such
holder exercised such option in full immediately prior to the Exchange (not
taking into account whether such Option was in fact exercisable at such time);
and

Whereas, on August 12, 1998, the Board approved in principle entering into a
definitive agreement, based, among other things, on an opinion of Lehman
Brother, the Company's financial advisor in connection with the Arrangement,
that, as of the date of such opinion, the consideration to be offered to the
Company's shareholders in the Arrangement was fair to such shareholders from a
financial point of view. Lehman Brothers' written opinion, dated August 12,
1998, is attached hereto as Annex B (the "Opinion"); and

Whereas, on August 12, 1998, the Board approved the terms of the
Arrangement, the Agreement and the Exchange, and determined, (i) that the terms
of the Agreement, the Arrangement and the Exchange are fair to, and in the best
interests of, the Company and its shareholders; and (ii) that the Company
commence proceedings under Section 233 of the Companies Ordinance, under which
proceedings the District Court would be requested to convene the Extraordinary
General Meeting and to approve the Arrangement.

Now Therefore, it was agreed between the parties, as follows:

1. The preamble and Annexures of this Arrangement constitute an integral
part hereof.

2. As of the Arrangement Effective Time, the Ordinary Shares shall be
deemed transferred to Buyer in exchange for the Buyer Stock, in accordance
with the Exchange.

3. As of the Arrangement Effective Time the Company shall become a
private corporation within the meaning of the Companies Ordinance.

4. As of the Arrangement Effective Time the Company's Articles of
Association shall be altered and shall be in the form attached to this Plan
of Arrangement as Annex C.

5. The Agreement shall be approved, effective as of the Arrangement
Effective Time.

6. The above constitutes one integral Arrangement, is not separable, and
cannot be partially performed.

7. This Arrangement will become effective upon the filing with the
Registrar of Companies in Israel of a copy of the District Court Order
approving the Arrangement in accordance with Section 233 of the Companies
Ordinance.

8. The Company is entitled to agree, on behalf of all the parties to
this Arrangement, to any amendment or revision of, or supplement to, this
Arrangement, or to any term or condition that the District Court will deem
fit to determine or require.

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<PAGE>

APPENDIX B

LEHMAN BROTHERS

August 12, 1998

Board of Directors
Memco Software Ltd.
Atidim Industrial Park
Building 7
Neve Sharet, Tel Aviv 61581

Members of the Board:

We understand that PLATINUM technology, inc. ("PLATINUM technology"), a
Delaware corporation, and Memco Software Ltd. ("Memco Software" or the
"Company"), an Israeli corporation, are proposing to enter into an Agreement,
dated as of August 13, 1998 (the "Agreement") which provides, among other
things, for the acquisition of each issued and outstanding share of Memco
Software's Ordinary Shares, NIS 0.01 per share, in exchange for 0.836 shares of
common stock of PLATINUM technology (the "Exchange Ratio"), based on the
average closing price of PLATINUM technology's common stock for the ten trading
days prior to and including August 12, 1998 (the "Proposed Transaction"). The
terms and conditions of the Proposed Transaction are set forth in more detail
in the Agreement.

We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to
the stockholders of the Company of the Exchange Ratio to be offered to such
stockholders in the Proposed Transaction. We have not been requested to opine
as to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.

In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning PLATINUM technology and the Company that we believe to
be relevant to our analysis, including SEC Forms 10-K, 10-Q, 20-F and 6-K,
press releases and other relevant public documents, (3) financial and operating
information with respect to the business, operations and prospects of Memco
Software furnished to us by Memco Software, (4) financial and operating
information with respect to the business, operations and prospects of PLATINUM
technology furnished to us by PLATINUM technology, (5) a trading history of
Memco Software's Ordinary Shares from November 1, 1996 to the present and a
comparison of that trading history with those of other companies that we deemed
relevant, (6) a trading history of PLATINUM technology's common stock from
August 10, 1993 to the present and a comparison of that trading history with
those of other companies that we deemed relevant, (7) a comparison of the
historical financial results and present financial condition of Memco Software
with those of other companies that we deemed relevant, (8) a comparison of the
historical financial results and present financial condition of PLATINUM
technology with those of other companies that we deemed relevant, (9) publicly
available estimates of the future financial performance of PLATINUM technology
prepared by third-party research analysts, (10) a comparison of the financial
terms of the Proposed Transaction with the financial terms of certain other
recent transactions that we deemed relevant, (11) the relative contribution of
Memco Software and PLATINUM technology to the historical and pro forma
financial condition and operating results of PLATINUM technology following
consummation of the Proposed Transaction, and (12) the results of our efforts
to solicit indications of interest and proposals from third parties with
respect to an acquisition of the Company. In addition, we have had discussions
with the managements of PLATINUM technology and the Company concerning their
respective businesses, operations, assets, financial conditions and prospects,
including with respect to cost savings, operating synergies, revenue
enhancements and other strategic benefits expected to result from a combination
of the businesses of Memco Software and PLATINUM technology, and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.

B-1
<PAGE>

In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of the managements of Memco Software and
PLATINUM technology that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of Memco Software prepared by management of the Company
(including, without limitation, revenues projected to be received from
distributors of the Company), we have assumed that such projections have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Memco Software as to the future
financial performance of the Company and we relied upon such projections in
arriving at our opinion. In arriving at our opinion, we were not provided with
and did not have access to any financial forecasts or projections prepared by
the management of PLATINUM technology as to the future financial performance of
PLATINUM technology and accordingly, in performing our analysis, based upon
advice of PLATINUM technology and with the consent of the Company, we have
assumed that the publicly available estimates of third party research analysts
are a reasonable basis upon which to evaluate the future financial performance
of PLATINUM technology and that PLATINUM technology will perform substantially
in accordance with such estimates. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of PLATINUM
technology or the Company and have not made or obtained any evaluation or
appraisals of the assets or liabilities of PLATINUM technology and the Company.
Upon advice of the Company and its legal and accounting advisors, we have
assumed that the merger will qualify (i) for pooling-of-interests accounting
treatment and (ii) as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended, and therefore as a tax-free
transaction to the U.S. stockholders of the Company. Our opinion necessarily is
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.

Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the stockholders of Memco Software in the Proposed Transaction is
fair to such stockholders.

We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out
of the rendering of this opinion. We also have performed various investment
banking services for the Company in the past, including acting as underwriter
for the Company's initial public offering in 1996, and have received customary
fees for such services. In the ordinary course of our business, we may trade in
the debt and equity securities of PLATINUM technology and Memco Software for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.

This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as
to how such stockholder should vote with respect to the Proposed Transaction.

Very truly yours,

Lehman Brothers

By: /s/ Lehman Brothers
----------------------------------

B-2
<PAGE>

APPENDIX C

FORM OF

ARTICLES OF ASSOCIATION

MEMCO SOFTWARE LTD.

A COMPANY LIMITED BY SHARES

PRELIMINARY

1. TABLE "A" EXCLUDED

The regulations contained in the second schedule to the Companies Ordinance
(New Version), 5743-1983 (the "Companies Ordinance") shall not apply to the
Company.

2. INTERPRETATION

(a) In these Articles, the words standing in the first column of the table
next hereinafter contained shall bear the meaning set opposite to them
respectively in the second column thereof, if not inconsistent with the subject
or context.

"The Company"--Memco Software Ltd.

"The Companies Ordinance" or "The Statutes"--The Companies Ordinance, and
every other Israeli Ordinance or statute in force concerning companies limited
by shares and affecting the Company.

"These Articles"--These Articles of Association as originally adopted or as
amended from time to time by Special Resolution.

"The Office"--The current registered office from time to time of the
Company.

"Year" and "Month"--a Gregorian month or year.

3. PRIVATE COMPANY

The Company is a private company and accordingly:

(a) the number of members for the time being of the Company (exclusive
of persons who are in the employment of the Company and of persons who
having been formerly in the employment of the Company were, while in such
employment, and have continued after termination of such employment to be,
members of the Company), shall not exceed fifty (50), but where 2 or more
persons jointly own one or more shares in the Company, they shall, for the
purpose of this Article be treated as a single member;

(b) any invitation to the public to subscribe for any shares or
debentures or debenture stock of the Company is prohibited; and

SHARE CAPITAL

4. SHARE CAPITAL

(a) The authorized share capital of the Company is NIS 850,000 divided into
85,000,000 (eighty-five million) Ordinary Shares, par value NIS 0.01 per share.

C-1
<PAGE>

(b) The Ordinary Shares all rank pari passu in all respects.

5. INCREASE OF AUTHORIZED SHARE CAPITAL

(a) The Company may, from time to time, by Special Resolution (as defined in
Article 28(a) below), whether or not all the shares then authorized have been
issued and whether or not all the shares theretofore issued have been called up
for payment, increase its authorized share capital. Any such increase shall be
in such amount and shall be divided into shares of such nominal amounts, and
such shares shall confer such rights and preferences, and shall be subject to
such restrictions, as such Special Resolution shall provide.

(b) Except to the extent otherwise provided in such Special Resolution, any
new shares included in the authorized share capital increased as aforesaid
shall be subject to all the provisions of these Articles which are applicable
to shares of the same class included in the existing share capital (and, if
such new shares are of the same class as a class of shares included in the
existing share capital, to all of the provisions which are applicable to shares
of such class included in the existing share capital).

6. SPECIAL RIGHTS; MODIFICATION OF RIGHTS

(a) Subject to the provisions of the Memorandum of Association of the
Company, and without prejudice to any special rights previously conferred upon
the holders of existing shares in the Company, the Company may, from time to
time, by Special Resolution, provide for shares with such preferred or deferred
rights or rights of redemption or other special rights and/or such
restrictions, whether in regard to dividends, voting, repayment of share
capital or otherwise, as may be stipulated in such Special Resolution.

(b) (i) If at any time the share capital is divided into different classes
of shares, the rights attached to any class, unless otherwise provided by these
Articles, may be modified or abrogated by the Company, by Special Resolution,
subject to the consent in writing of the holders of seventy-five percent (75%)
of the issued shares of such class or the adoption of a Special Resolution
passed at a separate General Meeting of the holders of the shares of such
class.

(ii) The provisions of these Articles relating to General Meetings shall,
mutatis mutandis, apply to any separate General Meeting of the holders of the
shares of a particular class, provided, however, that the requisite quorum at
any such separate General Meeting shall be two or more members present in
person or by proxy and holding not less than thirty-three and a third per cent
(33 1/3%) of the issued shares of such class.

(iii) Unless otherwise provided by these Articles, the enlargement of an
authorized class of shares, or the issuance of additional shares thereof out of
the authorized and unissued share capital, shall not be deemed, for purposes of
this Article 6(b), to modify or abrogate the rights attached to previously
issued shares of such class or of any other class.

7. CONSOLIDATION, SUBDIVISION, CANCELLATION AND REDUCTION OF SHARE CAPITAL

(a) The Company may, from time to time, by Special Resolution (subject,
however, to the provisions of Article 6(b) hereof and to applicable law):

(i) consolidate and divide all or part of its issued or unissued
authorized share capital into shares of a per share nominal value which is
larger than the per share nominal value of its existing shares;

(ii) subdivide its shares (issued or unissued) or any of them, into
shares of smaller nominal value than is fixed by the Memorandum of
Association (subject, however, to the provisions of Section 144(4) of the
Companies Ordinance);

(iii) cancel any shares which, at the date of the adoption of such
Special Resolution, have not been taken or agreed to be taken by any
person, and diminish the amount of its share capital by the amount of the
shares so canceled; or

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(iv) reduce its share capital in any manner, and with and subject to any
incident authorized, and consent required, by law.

(b) With respect to any consolidation of issued shares into shares of a
larger nominal value per share, and with respect to any other action which may
result in fractional shares, the Board of Directors may settle any difficulty
which may arise with regard thereto, as it deems fit, and, in connection with
any such consolidation or other action which could result in fractional shares,
may, without limiting its aforesaid power:

(i) determine, as to the holder of shares so consolidated, which issued
shares shall be consolidated into a share of a larger nominal value per
share;

(ii) allot, in contemplation of or subsequent to such consolidation or
other action, shares or fractional shares sufficient to preclude or remove
fractional share holdings;

(iii) redeem, in the case of redeemable preference shares, and subject
to applicable law, such shares or fractional shares sufficient to preclude
or remove fractional share holdings;

(iv) cause the transfer of fractional shares by certain shareholders of
the Company to other shareholders thereof so as to most expediently
preclude or remove any fractional shareholdings, and cause the transferees
of such fractional shares to pay the transferors thereof the fair value
thereof, and the Board of Directors is hereby authorized to act in
connection with such transfer, as agent for the transferors and transferees
of any such fractional shares, with full power of substitution, for the
purposes of implementing the provisions of this sub-Article 7(b)(iv).

8. ISSUANCE OF SHARE CERTIFICATES; REPLACEMENT OF LOST CERTIFICATES

(a) Share certificates shall be issued under the corporate stamp of the
Company and shall bear the signature of one Director, or of any other person or
persons authorized therefor by the Board of Directors.

(b) Each member shall be entitled to one or several numbered certificate for
all the shares of any class registered in his name, each for one or more of
such shares. Each certificate shall specify the serial numbers of the shares
represented thereby and may also specify the amount paid up thereon.

(c) A share certificate registered in the names of two or more persons shall
be delivered to the person first named in the Register of Members in respect of
such co-ownership.

(d) A share certificate which has been defaced, lost or destroyed, may be
replaced, and the Company shall issue a new certificate to replace such
defaced, lost or destroyed certificate upon payment of such fee, and upon the
furnishing of such evidence of ownership and such indemnity, as the Board of
Directors in its discretion deems fit.

9. REGISTERED HOLDER

Except as otherwise provided in these Articles, the Company shall be
entitled to treat the registered holder of each share as the absolute owner
thereof, and accordingly, shall not, except as ordered by a court of competent
jurisdiction, or as required by statute, be obligated to recognize any
equitable or other claim to, or interest in, such share on the part of any
other person.

10. ALLOTMENT OF SHARES

The unissued shares from time to time shall be under the control of the
Board of Directors, who shall have the power to allot, issue or otherwise
dispose of shares to such persons, on such terms and conditions (including
inter alia terms relating to calls as set forth in Article 12(f) hereof), and
either at par or at a

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premium, or, subject to the provisions of the Companies Ordinance, at a
discount and/or with payment of commission, and at such times, as the Board of
Directors deems fit, and the power to give to any person the option to acquire
from the Company any shares, either at par or at a premium, or, subject as
aforesaid, at a discount and/or with payment of commission, during such time
and for such consideration as the Board of Directors deems fit.

11. PAYMENT IN INSTALLMENTS

If pursuant to the terms of allotment or issue of any share, all or any
portion of the price thereof shall be payable in installments, every such
installment shall be paid to the Company on the due date thereof by the then
registered holder(s) of the share or the person(s) then entitled thereto.

12. CALLS ON SHARES

(a) The Board of Directors may, from time to time, as it, in its discretion,
deems fit, make calls for payment upon members in respect of any sum which has
not been paid up in respect of shares held by such members and which is not
pursuant to the terms of allotment or issue of such shares or otherwise,
payable at a fixed time, and each member shall pay the amount of every call so
made upon him (and of each installment thereof if the same is payable in
installments), to the Company at the time(s) and place(s) designated by the
Board of Directors, as any such time(s) may be thereafter extended or place(s)
changed. Unless otherwise stipulated in the resolution of the Board of
Directors (and in the notice hereafter referred to), each payment in response
to a call shall be deemed to constitute a pro rate payment on account of all
the shares in respect of which such call was made.

(b) Notice of any call for payment by a member shall be given in writing to
such member not less than fourteen (14) days prior to the time of payment fixed
in such notice, and shall specify the time and place of payment. Prior to the
time for any such payment fixed in a notice of a call given to a member, the
Board of Directors may in its absolute discretion, by notice in writing to such
member, revoke such call in whole or in part, extend the time fixed for payment
thereof, or designate a different place of payment. In the event of a call
payable in installments, only one notice thereof need be given.

(c) If pursuant to the terms of allotment or issue of a share or otherwise,
an amount is made payable at a fixed time (whether on account of such share or
by way of premium), such amount shall be payable at such time as if it were
payable by virtue of a call made by the Board of Directors and for which notice
was given in accordance with paragraphs (a) and (b) of this Article 12, and the
provisions of these Articles with regard to calls (and the non-payment thereof)
shall be applicable to such amount (and the non-payment thereof).

(d) Joint holders of a share shall be jointly and severally liable to pay
all calls for payment in respect of such share and all interest payable
thereon.

(e) Any amount called for payment which is not paid when due shall bear
interest from the date fixed for payment until actual payment thereof, at such
rate (not exceeding the then prevailing debitory rate charged by leading
commercial banks in Israel), and payable at such time(s) as the Board of
Directors may prescribe.

(f) Upon the allotment of shares, the Board of Directors may provide for
differences among the allottees of such shares as to the amounts and times for
payment of calls in respect of such shares.

13. PREPAYMENT

With the approval of the Board of Directors, any member may pay to the
Company any amount not yet payable in respect of his shares, and the Board of
Directors may approve the payment by the Company of interest on any such amount
until the same would be payable if it had not been paid in advance, at such
rate and time(s) as may be approved by the Board of Directors. The Board of
Directors may at any time cause the

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Company to repay all or any part of the money so advanced, without premium or
penalty. Nothing in this Article 13 shall derogate from the right of the Board
of Directors to make any call for payment before or after receipt by the
Company of any such advance.

14. FORFEITURE AND SURRENDER

(a) If any member fails to pay an amount payable by virtue of a call, or
interest thereon as provided for in accordance herewith, on or before the day
fixed for payment of the same, the Board of Directors may at any time after the
day fixed for such payment, so long as such amount (or any portion thereof) or
interest thereon (or any portion thereof) remains unpaid, resolve to forfeit
all or any of the shares in respect of which such payment was called for. All
expenses incurred by the Company in attempting to collect any such amount or
interest thereon, including, without limitation, attorney's fees and costs of
legal proceedings, shall be added to, and shall, for all purposes (including
the accrual of interest thereon), constitute a part of, the amount payable to
the Company in respect of such call.

(b) Upon the adoption of a resolution as to the forfeiture of a member's
share, the Board of Directors shall cause notice thereof to be given to such
member, which notice shall state that, in the event of the failure to pay the
entire amount so payable by a date specified in the notice (which date shall be
not less than fourteen (14) days after the date such notice is given and which
may be extended by the Board of Directors), such shares shall be ipso facto
forfeited, provided, however, that, prior to such date, the Board of Directors
may nullify such resolution of forfeiture, but no such nullification shall stop
the Board of Directors from adopting a further resolution of forfeiture in
respect of the non-payment of the same amount.

(c) Without derogating from Articles 54 and 59 hereof, whenever shares are
forfeited as herein provided, all dividends, if any, theretofore declared in
respect thereof and not actually paid shall be deemed to have been forfeited at
the same time.

(d) The Company, by resolution of the Board of Directors, may accept the
voluntary surrender of any share not fully paid for.

(e) Any share forfeited or surrendered as provided herein, shall become the
property of the Company, and the same, subject to the provisions of these
Articles, may be sold, re-allotted or otherwise disposed of as the Board of
Directors deems fit.

(f) Any member whose shares have been forfeited or surrendered shall cease
to be a member in respect of the forfeited or surrendered shares, but shall,
notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all
calls, interest and expenses owing upon or in respect of such shares at the
time of forfeiture or surrender, together with interest thereon from the time
of forfeiture or surrender until actual payment, at the rate prescribed in
Article 12(e) above, and the Board of Directors, in its discretion, may, but
shall not be obligated to, enforce the payment of such moneys, or any part
thereof. In the event of such forfeiture or surrender, the Company, by
resolution of the Board of Directors, may accelerate the date(s) of payment of
any or all amounts then owing to the Company by the member in question (but not
yet due) in respect of all shares owned by such member, solely or jointly with
another.

(g) The Board of Directors may at any time, before any share so forfeited or
surrendered shall have been sold, re-allotted or otherwise disposed of, nullify
the forfeiture or surrender on such conditions as it deems fit, but no such
nullification shall stop the Board of Directors from re-exercising its powers
of forfeiture pursuant to this Article 14.

15. LIEN

(a) Except to the extent the same may be waived or subordinated in writing,
the Company shall have a first and paramount lien upon all the shares
registered in the name of each member (without regard to any equitable or other
claim or interest in such shares on the part of any other person), and upon the
proceeds of the

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sale thereof, for his debts, liabilities and engagements to the Company arising
from any amount payable by such member in respect of any unpaid or partly paid
share, whether or not such debt, liability or engagement has matured. Such lien
shall extend to all dividends from time to time declared or paid in respect of
such share. Unless otherwise provided, the registration by the Company of a
transfer of shares shall be deemed to be a waiver on the part of the Company of
the lien (if any) existing on such shares immediately prior to such transfer.

(b) The Board of Directors may cause the Company to sell a share subject to
such a lien when the debt, liability or engagement giving rise to such lien has
matured, in such manner as the Board of Directors deems fit, but no such sale
shall be made unless such debt, liability or engagement has not been satisfied
within fourteen (14) days after written notice of the intention to sell shall
have been served on such member, his executors or administrators.

(c) The net proceeds of any such sale, after payment of the costs thereof,
shall be applied in or toward satisfaction of the debts, liabilities or
engagements of such member in respect of such share (whether or not the same
have matured), and the residue (if any) shall be paid to the member, his
executors, administrators or assigns.

16. SALE AFTER FORFEITURE OR SURRENDER OR IN ENFORCEMENT OF LIEN

Upon any sale of a share after forfeiture or surrender or for enforcing a
lien, the Board of Directors may appoint any person to execute an instrument of
transfer of the share so sold and cause the purchaser's name to be entered in
the Register of Members in respect of such share. The purchaser shall be
registered as the shareholder and shall not be bound to see to the regularity
of the sale proceedings, or to the application of the proceeds of such sale,
and after his name has been entered in the Register of Members in respect of
such share, the validity of the sale shall not be impeached by any person, and
the remedy of any person aggrieved by the sale shall be in damages only and
against the Company exclusively.

17. REDEEMABLE SHARES

The Company may, subject to applicable law, issue redeemable shares and
redeem the same.

18. CONVERSION OF SHARES INTO STOCK

(a) The Board of Directors may, with the approval of the members previously
given by Special Resolution, convert any paid-up shares into stock, and may,
with like sanction, reconvert any stock into paid-up shares of any
denomination.

(b) The holders of stock may transfer the same, or any part thereof, in the
same manner and subject to the same regulations, as the shares from which the
stock arose might have been transferred prior to conversion, or as near thereto
as circumstances admit, provided, however, that the Board of Directors may from
time to time fix the minimum amount of stock so transferable, and restrict or
forbid the transfer of fractions of such minimum, but the minimum shall not
exceed the nominal value of each of the shares from which such stock arose.

(c) The holders of stock shall, in accordance with the amount of stock held
by them, have the same rights and privileges as regards dividends, voting at
meetings of the Company and other matters as if they held the shares from which
such stock arose, but no such right or privilege, except participation in the
dividends and profits of the Company, shall be conferred by any such aliquot
part of such stock as would not, if existing in shares, have conferred that
right or privilege.

(d) Such of the Articles of the Company as are applicable to paid-up shares
shall apply to stock, and the words "share" and "shareholder" (or "member")
therein shall include "stock" and "stockholder".

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TRANSFER OF SHARES

19. REGISTRATION OF TRANSFER

(a) No transfer of shares shall be registered unless a proper writing or
instrument of transfer (in any customary form or any other form satisfactory to
the Board of Directors) has been submitted to the Company (or its transfer
agent), together with the share certificate(s) and such other evidence of title
as the Board of Directors may reasonably require. Until the transferee has been
registered in the Register of Members in respect of the shares so transferred,
the Company may continue to regard the transferor as the owner thereof.

(b) The Board of Directors may, in its discretion to the extent it deems
necessary, close the Register of Members for registrations of transfers of
shares during any year for a period determined by the Board of Directors, and
no registrations of transfers of shares shall be made by the Company during any
such period during which the Register of Members is so closed.

20. RECORD DATE FOR NOTICES OF GENERAL MEETINGS AND OTHER ACTION

Notwithstanding any provision of these Articles to the contrary, and to
allow the Company to determine the members entitled to notice of, or to vote
at, any Annual or Extraordinary General Meeting or any adjournment thereof, or
to express consent to or dissent from any corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of,
or to take or be the subject to, any other action, the Board of Directors may
fix in advance, a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of members of record entitled to notice of or to
vote at a meeting shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.

TRANSMISSION OF SHARES

21. DECEDENTS' SHARES

(a) In case of death of a registered holder of a share registered in the
names of two or more holders, the Company may recognize the survivor(s) as the
sole owner(s) thereof unless and until the provisions of Article 21(b) have
been effectively invoked.

(b) Any person becoming entitled to a share in consequence of the death of
any shareholder, upon producing evidence of the grant of probate or letters of
administration or declaration of succession (or such other evidence as the
Board of Directors may reasonably deem sufficient), shall be registered as a
member in respect of such share, or may, subject to the regulations as to
transfer herein contained, transfer such share.

22. RECEIVERS AND LIQUIDATORS

(a) The Company may recognize any receiver, liquidator or similar official
appointed to wind-up, dissolve or otherwise liquidate a corporate member, and a
trustee, manager, receiver, liquidator or similar official appointed in
bankruptcy or in connection with the reorganization of, or similar proceeding
with respect to a member or its properties, as being entitled to the shares
registered in the name of such member.

(b) Such receiver, liquidator or similar official appointed to wind-up,
dissolve or otherwise liquidate a corporate member and such trustee, manager,
receiver, liquidator or similar official appointed in bankruptcy or in
connection with the reorganization of, or similar proceedings with respect to a
member or its properties, upon producing such evidence as the Board of
Directors may deem sufficient as to his authority to act in such capacity or
under this Article, shall with the consent of the Board of Directors (which the
Board of Directors may grant or refuse in its absolute discretion), be
registered as a member in respect of such shares, or may, subject to the
regulations as to transfer herein contained, transfer such shares.

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GENERAL MEETINGS

23. ANNUAL GENERAL MEETING

(a) An Annual General Meeting shall be held once in every calendar year at
such time (within a period of not more than fifteen (15) months after the last
preceding Annual General Meeting) and at such place, either within or without
the State of Israel, as may be determined by the Board of Directors.

(b) Subject to the provisions of these Articles, the function of the Annual
General Meeting shall be to elect the members of the Board of Directors; to
receive the Financial Statements, the ordinary reports and accounts of the
Company's directors and auditors; to approve final annual (pursuant and subject
to Articles 52, 53, 54 and 57) dividends; to appoint the Company's auditors and
to fix their remunerations and to transact any other business which under these
Articles or the Statutes are to be transacted at a General Meeting.

24. EXTRAORDINARY GENERAL MEETINGS

All General Meetings other than Annual General Meetings shall be called
"Extraordinary General Meeting". The Board of Directors may, whenever it thinks
fit, convene an Extraordinary General Meeting, at such time and place, within
or out of the State of Israel, as may be determined by the Board of Directors,
and shall be obliged to do so upon a requisition in writing in accordance with
Section 109 of the Companies Ordinance.

25. NOTICE OF GENERAL MEETINGS; OMISSION TO GIVE NOTICE

(a) Not less than seven (7) days' prior notice shall be given of every
General Meeting, provided, however, that a Special Resolution shall not be
passed unless at least twenty-one (21) days' prior notice shall have been given
of the meeting at which it is proposed to pass the same. Each such notice shall
specify the place and the day and hour of the meeting and the general nature of
each item to be acted upon thereat, said notice to be given to all members who
would be entitled to attend and vote at such meeting. Anything therein to the
contrary notwithstanding, with the consent of all members entitled to vote
thereon, a resolution may be proposed and passed at such meeting although a
lesser notice than hereinabove prescribed has been given.

(b) The accidental omission to give notice of a meeting to any member, or
the non-receipt of notice sent to such member, shall not invalidate the
proceedings at such meeting.

PROCEEDINGS AT GENERAL MEETINGS

26. QUORUM

(a) No business shall be transacted at a General Meeting, or at any
adjournment thereof, unless the quorum required under these Articles for such
General Meeting or such adjourned meeting, as the case may be, is present when
the meeting proceeds to business.

(b) In the absence of contrary provisions in these Articles, two or more
members (not in default in payment of any sum referred to in Article 32(a)
hereof), present in person or by proxy and holding shares conferring in the
aggregate more than thirty three and a third (33 1/3%) percent of the voting
power of the Company, shall constitute a quorum of General Meetings.

(c) If within half an hour from the time appointed for the meeting a quorum
is not present, the meeting, if convened upon requisition under Section 109 of
the Companies Ordinance, shall be dissolved, but in any other case it shall be
adjourned to the same day in the next week, at the same time and place, or to
such day and at such time and place as the Chairman may determine with the
consent of the holders of a majority of the voting power present at the meeting
in person or by proxy and voting on the question of adjournment. No business
shall be transacted at any adjourned meeting except business which might
lawfully have been transacted at the

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meeting as originally called. At such adjourned meeting (other than an
adjourned separate meeting of a particular class of shares as referred to in
Article 6 of these Articles), any two (2) members (not in default as aforesaid)
present in person or by proxy, shall constitute a quorum.

27. CHAIRMAN

The Chairman, if any, of the Board of Directors, shall preside as Chairman
at every General Meeting of the Company. If at any meeting the Chairman is not
present within fifteen (15) minutes after the time fixed for holding the
meeting or is unwilling to act as Chairman, the Co-Chairman shall preside at
the meeting. If at any such meeting both the Chairman and the Co-Chairman are
not present or are unwilling to act as Chairman, the members present shall
choose someone of their number to be Chairman. The office of Chairman shall
not, by itself, entitle the holder thereof to vote at any General Meeting nor
shall it entitle such holder to a second or casting vote (without derogating,
however, from the rights of such Chairman to vote as a shareholder or proxy of
a shareholder if, in fact, he is also a shareholder or such proxy).

28. ADOPTION OF RESOLUTIONS AT GENERAL MEETINGS

(a) (i) An Ordinary Resolution shall be deemed adopted if approved by the
holders of a majority of the voting power represented at the meeting in person
or by proxy and voting thereon.

(ii) A Special or Extraordinary Resolution shall be deemed adopted if
approved by the holders of not less than seventy-five percent (75%) of the
voting power represented at the meeting in person or by proxy and voting
thereon.

(b) Every question submitted to a General Meeting shall be decided by a show
of hands, but if a written ballot is demanded by any member present in person
or by proxy and entitled to vote at the meeting, the same shall be decided by
such ballot. A written ballot may be demanded before the proposed resolution is
voted upon or immediately after the declaration by the Chairman of the results
of the vote by a show of hands. If a vote by written ballot is taken after such
declaration, the results of the vote by a show of hands shall be of no effect,
and the proposed resolution shall be decided by such written ballot. The demand
for a written ballot may be withdrawn at any time before the same is conducted,
in which event another member may then demand such written ballot. The demand
for a written ballot shall not prevent the continuance of the meeting for the
transaction of business other than the question on which the written ballot has
been demanded.

(c) A declaration by the Chairman of the meeting that a resolution has been
carried unanimously, or carried by a particular majority, or lost, and an entry
to that effect in the minute book of the Company, shall be conclusive evidence
of the fact without proof of the number or proportion of the votes recorded in
favor of or against such resolution.

29. RESOLUTIONS IN WRITING

A resolution in writing signed by all members of the Company then entitled
to attend and vote at General Meetings or to which all such members have given
their written consent (by letter, telegram, telex, facsimile or otherwise)
shall be deemed to have been unanimously adopted by a General Meeting duly
convened and held.

30. POWER TO ADJOURN

The Chairman of a General Meeting at which a quorum is present may, with the
consent of the holders of a majority of the voting power represented in person
or by proxy and voting on the question of adjournment (and shall if so directed
by the meeting), adjourn the meeting from time to time and from place to place,
but no business shall be transacted at any adjourned meeting except business
which might lawfully have been transacted at the meeting as originally called.

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31. VOTING POWER

Subject to the provisions of Article 32(a) and subject to any provision
hereof conferring special rights as to voting, or restricting the right to
vote, every member shall have one vote for each share held by him of record,
on every resolution, without regard to whether the vote thereon is conducted
by a show of hands, by written ballot or by any other means.

32. VOTING RIGHTS

(a) No member shall be entitled to vote at any General Meeting (or be
counted as a part of the quorum thereat), unless all calls then payable by him
in respect of his shares in the Company have been paid, but this Article 32(a)
shall not apply to separate General Meetings of the holders of a particular
class of shares pursuant to Article 6(b).

(b) A company or other corporate body being a member of the Company may
duly authorize any person to be its representative at any meeting of the
Company or to execute or deliver a proxy on its behalf. Any person so
authorized shall be entitled to exercise on behalf of such member all the
power which the latter could have exercised if it were an individual
shareholder. Upon the request of the Chairman of the meeting, written evidence
of such authorization (in form acceptable to the Chairman) shall be delivered
to him.

(c) Any member entitled to vote may vote either in person or by proxy (who
need not be a member of the Company), or, if the member is a company or other
corporate body, by a representative authorized pursuant to Article 32(b).

(d) If two or more persons are registered as joint holders of any share,
the vote of the senior who tenders a vote, in person or by proxy, shall be
accepted to the exclusion of the vote(s) of the other joint holder(s). For the
purpose of this Article 32(d), seniority shall be determined by the order of
registration of the joint holders in the Register of Members.

PROXIES

33. INSTRUMENT OF APPOINTMENTS

(a) An instrument appointing a proxy shall be in writing and shall be
substantially in the following form:

"I _______________________________ of ________________________________
(Name of Shareholder) (Address of Shareholder)

being a member of Memco Software Ltd. hereby appoint

_______________________________ of _______________________________
(Name of Proxy) (Address of Proxy)
as my proxy to vote for me and on my behalf at the General Meeting of
the Company to be held on the day of , 19 and at any
adjournment(s) thereof.

Signed this day of , 19 .

_________________________________
(Signature of Appointor)"

or in any usual or common form or in such other form as may be approved by the
Board of Directors. Such proxy shall be duly signed by the appointor or such
person's duly authorized attorney or, if such appointor is a company or other
corporate body, under its common seal or stamp or the hand of its duly
authorized agent(s) or attorney(s).

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(b) The instrument appointing a proxy (and the power of attorney or other
authority, if any, under which such instrument has been signed) shall either be
presented to the Chairman at the meeting at which the person named in the
instrument proposes to vote or be delivered to the Company (at its Registered
Office, at its principal place of business, or at the offices of its registrar
or transfer agent, or at such place as the Board of Directors may specify) not
less than two (2) hours before the time fixed for such meeting, except that the
instrument shall be delivered (i) twenty-four (24) hours before the time fixed
for the meeting where the meeting is to be held outside of Israel and the
instrument is delivered to the Company at its Registered Office or principal
place of business, or (ii) forty-eight (48) hours before the time fixed for the
meeting where the meeting is to be held outside of the United States of America
and the instrument is delivered to the Company's registrar or transfer agent.
Notwithstanding the above, the Chairman shall have the right to waive the time
requirement provided above with respect to all instruments of proxies and to
accept any and all instruments of proxy until the beginning of a General
Meeting.

34. EFFECT OF DEATH OF APPOINTOR OR TRANSFER OF SHARE OR REVOCATION OF
APPOINTMENT

(a) A vote cast in accordance with an instrument appointing a proxy shall be
valid notwithstanding the prior death or bankruptcy of the appointing member
(or of his attorney-in-fact, if any, who signed such instrument), or the
transfer of the share in respect of which the vote is cast, unless written
notice of such matters shall have been received by the Company or by the
Chairman of such meeting prior to such vote being cast.

(b) An instrument appointing a proxy shall be deemed revoked (i) upon
receipt by the Company or the Chairman, subsequent to receipt by the Company of
such instrument, of written notice signed by the person signing such instrument
or by the member appointing such proxy canceling the appointment thereunder (or
the authority pursuant to which such instrument was signed) or of an instrument
appointing a different proxy (and such other documents, if any, required under
Article 33(b) for such new appointment), provided such notice of cancellation
or instrument appointing a different proxy were so received at the place and
within the time for delivery of the instrument revoked thereby as referred to
in Article 33(b) hereof, or (ii) if the appointing member is present in person
at the meeting for which such instrument of proxy was delivered, upon receipt
by the Chairman of such meeting of written notice from such member of the
revocation of such appointment, or if and when such member votes at such
meeting. A vote cast in accordance with an instrument appointing a proxy shall
be valid notwithstanding the revocation or purported cancellation of the
appointment, or the presence in person or vote of the appointing member at a
meeting for which it was rendered, unless such instrument of appointment was
deemed revoked in accordance with the foregoing provisions of this Article
34(b) at or prior to the time such vote was cast.

BOARD OF DIRECTORS

35. POWERS OF BOARD OF DIRECTORS

(a) General

The management of the business of the Company shall be vested in the Board
of Directors, which may exercise all such powers and do all such acts and
things as the Company is authorized to exercise and do, and are not hereby or
by law required to be exercised or done by the Company by action of its members
at a General Meeting. The authority conferred on the Board of Directors by this
Article 35 shall be subject to the provisions of the Companies Ordinance, these
Articles and any regulation or resolution consistent with these Articles
adopted from time to time by the Company by action of its members at a General
Meeting, provided, however, that no such regulation or resolution shall
invalidate any prior act done by or pursuant to a decision of the Board of
Directors which would have been valid if such regulation or resolution had not
been adopted.

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(b) Borrowing Power

The Board of Directors may from time to time, at its discretion, cause the
Company to borrow or secure the payment of any sum or sums of money for the
purposes of the Company, and may secure or provide for the repayment of such
sum or sums in such manner, at such times and upon such terms and conditions as
it deems fit, and, in particular, by the issuance of bonds, perpetual or
redeemable debentures, debenture stock, or any mortgages, charges, or other
securities on the undertaking or the whole or any part of the property of the
Company, both present and future, including its uncalled or called but unpaid
capital for the time being.

The Board of Directors may, from time to time, set aside any amount(s) out
of the profits of the Company as a reserve or reserves for any purpose(s) which
the Board of Directors, in its absolute discretion, shall deem fit, including
without limitation, capitalization and distribution of bonus shares, and may
invest any sum so set aside in any manner and from time to time deal with and
vary such investments and dispose of all or any part thereof, and employ any
such reserve or any part thereof in the business of the Company without being
bound to keep the same separate from other assets of the Company, and may
subdivide or redesignate any reserve or cancel the same or apply the funds
therein for another purpose, all as the Board of Directors may from time to
time think fit.

36. EXERCISE OF POWERS OF BOARD OF DIRECTORS

(a) A meeting of the Board of Directors at which a quorum is present shall
be competent to exercise all the authorities, powers and discretion vested in
or exercisable by the Board of Directors.

(b) A resolution proposed at any meeting of the Board of Directors shall be
deemed adopted if approved by a majority of the Directors present when such
resolution is put to a vote and voting thereon.

(c) A resolution in writing signed by all of the Directors then in office
and lawfully entitled to vote thereon or to which all of such Directors have
given their written consent (by letter, telegram, telex, facsimile, electronic
mail or otherwise) shall be deemed to have been unanimously adopted by a
meeting of the Board of Directors duly convened and held.

37. DELEGATION OF POWERS

(a) The Board of Directors may, subject to the provisions of the Companies
Ordinance, delegate any or all of its powers to committees, each consisting of
one or more persons (who are Directors), and it may from time to time revoke
such delegation or alter the composition of any such committee. Any committee
so formed (in these Articles referred to as a "Committee of the Board of
Directors"), shall, in the exercise of the powers so delegated, conform to any
regulations imposed on it by the Board of Directors. The meetings and
proceedings of any such Committee of the Board of Directors shall, mutatis
mutandis, be governed by the provisions herein contained for regulating the
meetings of the Board of Directors, so far as not superseded by any regulations
adopted by the Board of Directors under this Article. Unless otherwise
expressly provided by the Board of Directors in delegating powers to a
Committee of the Board of Directors, such Committee shall not be empowered to
further delegate such powers.

(b) Without derogating from the provisions of Article 50, the Board of
Directors may from time to time appoint a Secretary to the Company, as well as
officers, agents, employees and independent contractors, as the Board of
Directors deems fit, and may terminate the service of any such person. The
Board of Directors may, subject to the provisions of the Companies Ordinance,
determine the powers and duties, as well as the salaries and emoluments, of all
such persons, and may require security in such cases and in such amounts as it
deems fit.

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(c) The Board of Directors may from time to time, by power of attorney or
otherwise, appoint any person, company, firm or body of persons to be the
attorney or attorneys of the Company at law or in fact for such purpose(s) and
with such powers, authorities and discretions, and for such period and subject
to such conditions, as it deems fit, and any such power of attorney or other
appointment may contain such provisions for the protection and convenience of
persons dealing with any such attorney as the Board of Directors deems fit, and
may also authorize any such attorney to delegate all or any of the powers,
authorities and discretions vested in him.

38. NUMBER OF DIRECTORS

The Board of Directors of the Company shall consist of such number of
Directors (not less than two (2) nor more than five (5)) as may be fixed, from
time to time, by Ordinary Resolution of the Company.

39. ELECTION AND REMOVAL OF DIRECTORS

Directors shall be elected at the Annual General Meeting, Extraordinary
Meeting or General Meeting of the Company by the vote of the holders of a
majority of the voting power represented at such meeting in person or by proxy
and voting on the election of directors, and each Director shall serve, subject
to Article 42 hereof, and, with respect to a Director appointed pursuant to
Article 41 hereof, subject to such Article, until the Annual General Meeting
next following the Annual General Meeting or General Meeting at which such
Director was elected pursuant to this Article or Article 41 hereof, or his
earlier removal pursuant to this Article 39. The holders of a majority of the
voting power represented at a General Meeting in person or by proxy and voting
thereon at such Meeting shall be entitled to remove any Director(s) from
office, to elect Directors instead of Directors so removed or to fill any
vacancy, however created, in the Board of Directors.

40. QUALIFICATION OF DIRECTORS

No person shall be disqualified to serve as a Director by reason of his not
holding shares in the Company or by reason of his having served as a Director
in the past.

41. CONTINUING DIRECTORS IN THE EVENT OF VACANCIES

In the event of one or more vacancies in the Board of Directors, the
continuing Directors may continue to act in every matter, and, pending the
filling of any vacancy pursuant to the provisions of Article 39, may appoint
Directors to temporarily fill any such vacancy, provided, however, that if they
number less than a majority of the number provided for pursuant to Article 38
hereof, they may only act in an emergency or to fill the office of director
which has become vacant up to the minimum number or in order to call a General
Meeting of the Company for the purpose of electing Directors to fill any or all
vacancies, so that at least a majority of the number of Directors provided for
pursuant to Article 38 hereof are in office as a result of said meeting.

42. VACATION OF OFFICE

(a) The office of a Director shall be vacated, ipso facto, upon his or her
death, or if he or she be found incompetent or become of unsound mind, or if he
or she becomes bankrupt, or if the Director is a company, upon its winding-up.

(b) The office of a Director shall be vacated by his, her or its written
resignation. Such resignation shall become effective on the date fixed therein,
or upon the delivery thereof to the Company, whichever is later.

43. REMUNERATION OF DIRECTORS

A Director shall be paid remuneration by the Company for his services as
Director to the extent such remuneration shall have been approved by a General
Meeting of the Company.

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44. CONFLICT OF INTEREST

Subject to the provisions of the Companies Ordinance, no Director shall be
disqualified by virtue of his office from holding any office or place of profit
in the Company or in any company in which the Company shall be a shareholder or
otherwise interested, or from contracting with the Company as vendor, purchaser
or otherwise, nor shall any such contract, or any contract or arrangement
entered into by or on behalf of the Company in which any Director shall be in
any way interested, be avoided, nor, other than as required under the Companies
Ordinance, shall any Director be liable to account to the Company for any
profit arising from any such office or place of profit or realized by any such
contract or arrangement by reason only of such Directors holding that office or
of the fiduciary relations thereby established, but the nature of his interest,
as well as any material fact or document, must be disclosed by him at the
meeting of the Board of Directors at which the contract or arrangement is first
considered, if his interest then exists, or, in any other case, at no later
than the first meeting of the Board of Directors after the acquisition of his
interest.

45. ALTERNATE DIRECTORS

(a) A Director may, by written notice to the Company given in the manner set
forth in Article 45(b) below, appoint any individual (whether or not such
person is then a member of the Board of directors) as an alternate for himself
(in these Articles referred to as Alternate Director), remove such Alternate
Director and appoint another Alternate Director in place of any Alternate
Director appointed by him whose office has been vacated for any reason
whatsoever. The appointment of an Alternate Director shall be subject to the
consent of the Board of Directors if the appointee is not then a member of the
Board of Directors. Unless the appointing Director, by the instrument
appointing an Alternate Director or by written notice to the Company, limits
such appointment to a specified period of time or restricts it to a specified
meeting or action of the Board of Directors, or otherwise restricts its scope,
the appointment shall be for all purposes, and for a period of time concurrent
with the term of the appointing Director.

(b) Any notice to the Company pursuant to Article 45(a) shall be given in
person to, or by sending the same by mail to the attention of the General
Manager of the Company at the principal office of the Company or to such other
person or place as the Board of Directors shall have determined for such
purpose, and shall become effective on the date fixed therein, or upon the
receipt thereof by the Company (at the place as aforesaid), whichever is later,
subject to the consent of the Board of Directors if the appointee is not then a
member of the Board of Directors, in which case the notice will be effective as
of the date of such consent.

(c) An Alternate Director shall have all the rights and obligations of the
Director who appointed him, provided however, that (i) he may not in turn
appoint an alternate for himself (unless the instrument appointing him
otherwise expressly provides), and (ii) that an Alternate Director shall have
no standing at any meeting of the Board of Directors or any committee thereof
while the Director who appointed him is present, and (iii) that the Alternate
Director is not entitled to remuneration.

(d) Any natural person, whether or not he or she be a member of the Board of
Directors, may act as an Alternate Director. One person may act as Alternate
Director for several Directors, and in such event he or she shall have a number
of votes (and shall be treated as the number of persons for purposes of
establishing a quorum) equal to the number of Directors for whom he acts as
Alternate Director. If an Alternate Director is also a Director in his own
right, his rights as an Alternate Director shall be in addition to his rights
as a Director.

(e) An Alternate Director shall alone be responsible for his or her own acts
and defaults, and he or she shall not be deemed the agent of the Director(s)
who appointed him.

(f) The office of an Alternate Director shall be vacated under the
circumstances, mutatis mutandis, set fort in Article 42, and such office shall
ipso facto be vacated if the Director who appointed such Alternate Director
ceased to be a Director.

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PROCEEDINGS OF THE BOARD OF DIRECTORS

46. MEETINGS

(a) The Board of Directors may meet and adjourn its meetings and otherwise
regulate such meetings and proceedings as the Directors think fit.

(b) Any Director may at any time, and the Secretary, upon the request of
such Director, shall, convene a meetings of the Board of Directors, but not
less than two (2) days' notice shall be given of any meetings so convened.
Notice of any such meeting shall be given to all the Directors and may be given
orally, by telephone, in writing or by mail, telex, cablegram or facsimile.
Notwithstanding anything to the contrary herein, failure to deliver notice to a
director of any such meeting in the manner required hereby may be waived by
such Director, and a meeting shall be deemed to have been duly convened
notwithstanding such defective notice if such failure or defect is waived prior
to action being taken at such meeting, by all Directors entitled to participate
at such meeting to whom notice was not duly given as aforesaid.

47. QUORUM

Until otherwise unanimously decided by the Board of Directors, a quorum at a
meeting of the Board of Directors shall be constituted by the presence in
person or by telephone conference of half (50%) of the Directors then in office
who are lawfully entitled to participate in the meeting. No business shall be
transacted at a meeting of the Board of Directors unless the requisite quorum
is present (in person or by telephone conference) when the meeting proceeds to
business.

48. CHAIRMAN OF THE BOARD OF DIRECTORS

The Board of Directors may from time to time, elect one of its members to be
the Chairman of the Board of Directors, and another of its members as Co-
Chairman, remove such Chairman and Co-Chairman from office and appoint others
in their place. The Chairman of the Board of Directors shall preside at every
meeting of the Board of Directors, but if there is no such Chairman, or if at
any meeting he is not present within fifteen (15) minutes of the time fixed for
the meeting or if he is unwilling to take the chair, the Co-Chairman shall
preside. If both the Chairman and the Co-Chairman are not present within such
fifteen (15) minutes or are unwilling to take the chair the Directors present
shall choose one of their number to be the Chairman of such meeting.

49. VALIDITY OF ACTS DESPITE DEFECTS

All acts done bona fide at any meeting of the Board of Directors, or of a
Committee of the Board of Directors, or by any person(s) acting as Director(s),
shall, notwithstanding that it may afterwards be discovered that there was some
defect in the appointment of the participants in such meetings or any of them
or any person(s) acting as aforesaid, or that they or any of them were
disqualified, be as valid as if there were no such defect or disqualification.

CHIEF EXECUTIVE OFFICER AND PRESIDENT

50. CHIEF EXECUTIVE OFFICER AND PRESIDENT

The Board of Directors may from time to time appoint one or more persons,
whether or not Directors, as Chief Executive Officer or Officers, General
Manager or Managers, or President of the Company and may confer upon such
person(s), and from time to time modify or revoke, such title(s) and such
duties and authorities of the Board of Directors as the Board of Directors may
deem fit, subject to such limitations and restrictions as the Board of
Directors may from time to time prescribe. Unless otherwise determined by the
Board of Directors, the Chief Executive Officer shall have authority with
respect of the management of the Company in the ordinary course of business.
Such appointment(s) may be either for a fixed term or without any limitation of
time, and the Board of Directors may from time to time (subject to the
provisions of the Companies Ordinance and of any contract between any such
person and the Company) fix his or their salaries and emoluments, remove or
dismiss him or them from office and appoint another or others in his or their
place or places.

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MINUTES

51. MINUTES

(a) Minutes of each General Meeting and of each meeting of the Board of
Directors shall be recorded and duly entered in books provided for that
purpose, and shall be held by the Company at its principal place of office or
its Registered Office or such other place as shall have been determined by the
Board of Directors. Such minutes shall, in all events, set forth the names of
the persons present at the meeting and all resolutions adopted thereat.

(b) Any minutes as aforesaid, if purporting to be signed by the chairman of
the meeting or by the chairman of the next succeeding meeting, shall constitute
prima facie evidence of the matters recorded therein.

DIVIDENDS

52. DECLARATION OF DIVIDENDS

The Board of Directors may from time to time declare, and cause the Company
to pay, such interim dividend as may appear to the Board of Directors to be
justified by the profits of the Company. The final dividend in respect of any
fiscal year shall be proposed by the Board of Directors and shall be payable
only after the same has been approved by Ordinary Resolution of the Company,
but no such resolution shall provide for the payment of an amount exceeding
that proposed by the Board of Directors for the payment of such final dividend,
and no such resolution or any failure to approve a final dividend shall affect
any interim dividend theretofore declared and paid. The Board of Directors
shall determine the time for payment of such dividends, both interim and final,
and the record date for determining the shareholders entitled thereto.

53. FUNDS AVAILABLE FOR PAYMENT OF DIVIDEND

No dividend shall be paid otherwise than out of the profits of the Company.

54. AMOUNT PAYABLE BY WAY OF DIVIDENDS

Subject to the provisions of these Articles and subject to any rights or
conditions attached at that time to any share in the capital of the Company
granting preferential, special or deferred rights or not granting any rights
with respect to dividends, the profits of the Company which shall be declared
as dividends shall be distributed according to the proportion of the nominal
value paid up on account of the shares held at the date so appointed by the
Company, without regard to the premium paid in excess of the nominal value, if
any. No amount paid or credited as paid on a share in advance of calls shall be
treated for purposes of this Article as paid on a share.

55. INTEREST

No dividend shall carry interest as against the Company.

56. PAYMENT IN SPECIE

Upon the recommendation of the Board of Directors approved by Ordinary
Resolution of the Company, the Company (i) may cause any monies, investments,
or other assets forming part of the undivided profits of the Company, standing
to the credit of a reserve fund, or to the credit of a reserve fund for the
redemption of capital, or in the hands of the Company and available for
dividends, or representing premiums received on the issuance of shares and
standing to the credit of the share premium account, to be capitalized and
distributed among such of the shareholders as would be entitled to receive the
same if distributed by way of dividend and in the same proportion, on the
footing that they become entitled thereto as capital, or may cause any part of
such capitalized fund to be applied on behalf of such shareholders in paying up
in full, either at par or at such premium as the resolution may provide, any
unissued shares or debentures or debenture stock of the Company which shall be
distributed accordingly or in payment, in full or in part, of the uncalled
liability on all issued shares or debentures or debenture stock if such
liability exists, on a pro rata basis; and (ii) may cause such distribution or
payment to be accepted by such shareholders in full satisfaction of their
interest in the said capitalized sum.

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57. IMPLEMENTATION OF POWERS UNDER ARTICLE 56

For the purpose of giving full effect to any resolution under Article 56,
and without derogating from the provisions of Article 7(b) hereof, the Board of
Directors may settle any difficulty which may arise in regard to the
distribution as it thinks expedient, and, in particular, may issue fractional
certificates, and may fix the value for distribution of any specific assets,
and may determine that cash payments shall be made to any members upon the
footing of the value so fixed, or that fractions of less value than the nominal
value of one share may be disregarded in order to adjust the rights of all
parties, and may vest any such cash, shares, debentures, debenture stock or
specific assets in trustees upon such trusts for the persons entitled to the
dividend or capitalized fund as may seem expedient to the Board of Directors.
Where requisite, a proper contract shall be filed in accordance with Section
129 of the Companies Ordinance, and the Board of Directors may appoint any
person to sign such contract on behalf of the persons entitled to the dividend
or capitalized fund.

58. DIVIDEND ON UNPAID SHARES

Without derogating from Article 54 hereof, the Board of Directors may give
an instruction which shall prevent the distribution of a dividend to the
registered holders of share the full nominal amount of which has not been paid
up.

59. RETENTION OF DIVIDENDS

(a) The Board of Directors may retain any dividend or other monies payable
or property distributable in respect of a share on which the Company has a
lien, and may apply the same in or towards satisfaction of the debts,
liabilities, or engagements in respect of which the lien exists.

(b) The board of Directors may retain any dividend or other monies payable
or property distributable in respect of a share in respect of which any person
is, under Article 21 or 22, entitled to become a member, or which any person,
is, under said Articles, entitled to transfer, until such person shall become a
member in respect of such share or shall transfer the same.

60. UNCLAIMED DIVIDENDS

All unclaimed dividends or other moneys payable in respect of a share may be
invested or otherwise made use of by the Board of Directors for the benefit of
the Company until claimed. The payment by the Directors of any unclaimed
dividend or such other moneys into a separate account shall not constitute the
Company a trustee in respect thereof. The principal (and only the principal) of
an unclaimed dividend or such other moneys shall be if claimed, paid to a
person entitled thereto.

61. MECHANICS OF PAYMENT

The Board of Directors may fix the mechanics for payment of dividends as it
deems fit. However, if nothing to the contrary in the resolution of the Board
of Directors, than all dividends or other moneys payable in cash in respect of
a share may be paid by check or warrant sent through the post to, or left at,
the registered address of the person entitled thereto or by transfer to a bank
account specified by such person (or, if two or more persons are registered as
joint holders of such share or are entitled jointly thereto in consequence of
the death or bankruptcy of the holder or otherwise, to the joint holder whose
name is registered first in the Register of Members or his bank account or the
person who the Company may then recognize as the owner thereof or entitled
thereto under Article 21 or 22 hereof, as applicable, or such persons bank
account), or to such person and at such other address as the person entitled
thereto may by writing direct. Every such check or warrant shall be made
payable to the order of the person to whom it is sent, or to such person as the
person entitled thereto as aforesaid may direct, and payment of the check or
warrant by the banker upon whom it is drawn shall be a good discharge to the
Company.

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62. RECEIPT FROM A JOINT HOLDER

If two or more persons are registered as joint holders of any share, or are
entitled jointly thereto in consequence of the death or bankruptcy of the
holder or otherwise, any one of them may give effectual receipts for any
dividend or other moneys payable or property distributable in respect of such
share.

ACCOUNTS

63. BOOKS OF ACCOUNT

The Board of Directors shall cause accurate books of account to be kept in
accordance with the provisions of the Companies Ordinance and of any other
applicable law. Such books of account shall be kept at the Registered Office of
the Company, or at such other place or places as the Board of Directors may
think fit, and they shall always be open to inspection by all Directors. No
member, not being a Director, shall have any right to inspect any account or
book or other similar document of the Company, except as conferred by law or
authorized by the Board of Directors or by Ordinary Resolution of the Company.

64. AUDIT

At least once in every fiscal year the accounts of the Company shall be
audited and the correctness of the profit and loss account and balance sheet
certified by one or more duly qualified auditors.

65. AUDITORS

The appointment, authorities, rights and duties of the auditor(s) of the
Company, shall be regulated by applicable law, provided, however, that in
exercising its authority to fix the remuneration of the auditor(s), the members
in General Meeting may, by Ordinary Resolution, act (and in the absence of any
action in connection therewith shall be deemed to have so acted) to authorize
the Board of Directors to fix such remuneration subject to such criteria or
standards, if any, as may be provided in such Ordinary Resolution, and if no
such criteria or standards are so provided, such remuneration shall be fixed in
an amount commensurate with the volume and nature of the services rendered by
such auditor(s).

BRANCH REGISTERS

66. BRANCH REGISTERS

Subject to and in accordance with the provisions of Sections 71 to 80,
inclusive, of the Companies Ordinance and to all orders and regulation issued
thereunder, the Company may cause branch registers to be kept in any place
outside Israel as the Board of Directors may think fit, and, subject to all
applicable requirements of law, the Board of Directors may from time to time
adopt such rules and procedures as it may think fit in connection with the
keeping of such branch registers.

INDEMNITY AND INSURANCE

67. INDEMNITY AND INSURANCE

Subject to the provisions of the Companies Ordinance, the Company may (i)
procure insurance for, or indemnify any Director or any other Office Holder or
Director to the fullest extent permitted and not prohibited by the Companies
Ordinance; provided that the procurement of any such insurance or provision of
any such indemnification, as the case may be, is approved as required by law;
or (ii) procure insurance for or indemnify any person who is not an Office
Holder, including, without limitation, any employee, agent, consultant,
Director or contractor of the Company who is not an Office Holder, as provided
by the Board of Directors.

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WINDING UP

68. WINDING UP

If the Company is wound up, then subject to applicable law and to the rights
of the holders of shares with special rights upon winding up, the assets of the
Company available for distribution among the members shall be distributed to
them in proportion to the respective holdings of the shares in respect of which
such distribution is being made.

RIGHTS OF SIGNATURE, STAMP, AND SEAL

69. RIGHTS OF SIGNATURE, STAMP, AND SEAL

(a) The Board of Directors shall be entitled to authorize any person or
persons (who need not be Directors) to act and sign on behalf of the Company,
and the acts and signature of such person(s) on behalf of the Company shall
bind the Company insofar as such person(s) acted and signed within the scope of
his or their authority.

(b) The Board of Directors may provide for a seal. If the Board of Directors
so provides, it shall also provide for the safe custody thereof. Such seal
shall not be used except by the authority of the Board of Directors and in the
presence of the person(s) authorized to sign on behalf of the Company, who
shall sign every instrument to which such seal is affixed.

(c) The Company may exercise the powers conferred by Section 102 of the
Companies Ordinance regarding a seal for use abroad, and such powers shall be
vested in the Board of Directors.

NOTICES

70. NOTICES

(a) Any written notice or other document may be served by the Company upon
any member either personally or by sending it by prepaid mail (airmail if sent
internationally) addressed to such member at his address as described in the
Register of Members. Any written notice or other document may be served by any
member upon the Company by tendering the same in person to the Secretary or the
General Manager or Chief Executive Officer of the Company at the principal
office of the Company or by sending it by prepaid registered mail (airmail if
posted outside Israel) to the Company at it Registered Address. Any such notice
or other document shall be deemed to have been served five (5) business days
after it has been posted (7 business days if posted internationally), or when
actually tendered in person, to such member ( or to the Secretary or the
General Manager). Notice sent by cablegram, telex, or facsimile shall be deemed
to have been served two business days after the notice is, sent to the
addressee, or when in fact received, whichever is earlier, notwithstanding that
it was defectively addressed or failed, in some other respect, to comply with
the provisions of this Article 71 (a).

(b) All notices to be given to the members shall, with respect to any share
to which persons are jointly entitled, be given to whichever of such persons is
named first in the Register of Members, and any notice so given shall be
sufficient notice to the holders of such share.

(c) Any member whose address is not described in the Register of Members,
and who shall not have designated in writing delivered to the Company an
address for the receipt of notices, shall not be entitled to receive any notice
from the Company.

(d) Notwithstanding anything to the contrary contained herein, notice by the
Company of a General Meeting which is published in at least two daily
newspapers in the State of Israel within the time otherwise required for giving
notice of such meeting under Article 25 hereof and containing the information
required to be set forth in such notice under such Article, shall be deemed to
notice of such meeting duly given, for purposes of these Articles, to any
member of the Company.

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