VIASOFT INC /DE/, 10-K, 1997-09-29

VIASOFT INC /DE/
10-K, 1997-09-29
PREPACKAGED SOFTWARE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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<TABLE>
<CAPTION>
(MARK ONE)
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-25472

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

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<TABLE>
<S> <C>
DELAWARE 94-2892506
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

3033 NORTH 44TH STREET, PHOENIX, ARIZONA 85018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 952-0050

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $0.001 par value per share
(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

At August 29, 1997, the aggregate market value of common stock held by
non-affiliates of the Registrant was approximately $942,950,000 based upon the
closing sale price of the common stock on such date, as reported on The Nasdaq
Stock Market.

At August 29, 1997, the number of shares of common stock outstanding was
17,798,170.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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VIASOFT, INC.

TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................................. 1
Item 2. Properties................................................................ 19
Item 3. Legal Proceedings......................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders....................... 20
Executive Officers of the Registrant...................................... 20
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.. 21
Item 6. Selected Consolidated Financial Data...................................... 22
Item 7. Management's Discussion and Analysis of Consolidated Financial Condition 25
and Results of Operations...............................................
Item 8. Consolidated Financial Statements and Supplementary Data.................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 55
Disclosures.............................................................
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 55
Item 11. Executive Compensation.................................................... 55
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 55
Item 13. Certain Relationships and Related Transactions............................ 55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 56
SIGNATURES.............................................................................
</TABLE>

VIASOFT(R), Analytical Engine(TM), Application Knowledge Repository(TM),
Existing Systems Workbench(R), ESW(R), VIA/Insight(R), Visual Recap(TM),
VIA/SmartEdit(R), VIA/SmartTest(R), VIA/Renaissance(TM), VIA/SmartDoc(R),
VIA/Alliance(R), VIA/SmartAccess(R), VIASOFT's Insourcing(TM), US2000(TM),
VIASOFT's Enterprise 2000(TM), VIASOFT's Estimate 2000(TM), VIASOFT's FastPath
2000(SM), VIASOFT's Impact 2000(SM), VIASOFT's Operation 2000(SM), VIASOFT's
Plan 2000(SM), Bridge 2000(TM), ESW/PC(TM), VIASOFT's Legacy Transitions(SM) and
Rochade(TM) are trademarks and service marks of the Company. This Prospectus
also includes trade names, trademarks and references to intellectual property
owned by other companies. Fortune 1000 is a trademark of Time, Inc.
<PAGE> 3

PART I

ITEM 1. BUSINESS

Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below in "Factors That May Affect Future Results,"
as well as those discussed elsewhere in this Form 10-K or incorporated herein by
reference. See "Special Note on Forward-Looking Statements."

GENERAL

VIASOFT, Inc. ("VIASOFT" or the "Company") provides enterprise application
management solutions that help large organizations worldwide understand, manage
and evolve the large-scale software applications that support their fundamental
business processes. These business solutions are provided through a highly
integrated suite of software products and specialized professional consulting
services. The Company's products and services are designed to reduce
substantially the cost of maintaining and redeveloping existing mainframe
applications, improve the quality and maintainability of these applications and
assist in implementing specialized or complex redevelopment initiatives, such as
the year 2000 century date conversion.

The Company's principal business solutions are based on VIASOFT's
proprietary technology, the Existing Systems Workbench, an integrated suite of
software development tools. ESW, which is also the Company's primary software
product line, supports the IBM MVS operating system and includes products that
are available individually or as a complete suite. VIASOFT's business solutions,
which combine the Company's products and professional services offerings,
include (i) VIASOFT's Enterprise 2000, including its FastPath 2000 solution and
Bridge 2000 product, for addressing the year 2000 problem, (ii) VIASOFT's
Insourcing for reducing the costs and improving the productivity of managing
enterprise applications and (iii) VIASOFT's Legacy Transitions for reusing and
evolving enterprise applications for the implementation of distributed computing
environments and packaged software applications. As part of the Company's
strategy to broaden its enterprise application management solutions, the Company
acquired R&O in December 1996 and is in the process of integrating R&O's
repository technology into VIASOFT's solutions offerings.

VIASOFT was founded in 1983 under the name Software Renovation Technology
as a California corporation. In 1986, the Company changed its name to VIASOFT,
Inc. and reincorporated in Delaware. The Company's executive offices are located
at 3033 North 44th Street, Phoenix, Arizona 85018, and its telephone number is
(602) 952-0050.

INDUSTRY BACKGROUND

Worldwide, large business and governmental organizations rely on
large-scale computer applications to help manage their businesses. These
applications, many of which are mission-critical, contain the core knowledge and
processes that support the major operations of these organizations. Examples of
such applications include insurance claims processing systems, on-line banking
systems, manufacturing systems and utility and telephone billing systems.

Mission-critical applications are primarily run on large, mainframe
computers using programs written in COBOL and a variety of other mainframe
programming languages. According to industry estimates, there are over 13,000
IBM and IBM-compatible MVS mainframe sites worldwide.

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Organizations that rely on mainframe systems must continuously modify, maintain
and redevelop existing software applications to address changing information
requirements resulting from the ongoing evolution of business practices. The
cost of these efforts is enormous.

In addition to ongoing maintenance and redevelopment requirements,
organizations periodically have a need to implement specialized, complex
application redevelopment initiatives to accommodate changed circumstances or
business requirements. In recent years, many large businesses and governmental
organizations have begun to address the year 2000 century date conversion
problem, which is a large-scale redevelopment requirement. Many existing
software applications employ date representations limited to the last two digits
of the year. For example, the year 1997 is typically stored as "97." These
two-digit representations create problems for existing systems that perform
calculations using dates after 1999. For example, "00" may be interpreted as
"1900," rather than "2000." These existing applications must be modified to
implement date representations that identify the correct century.

Large organizations are also seeking to leverage investments in existing
systems by integrating their mainframe systems with distributed computing
environments. The Company believes that this integration will continue to be
gradual, especially as it relates to mission-critical applications, because
mainframes have the demonstrated capability to run complex applications with
speed, security and reliability. Organizations have made large investments in
mainframe systems and the personnel to maintain and redevelop these systems, and
much of the core business knowledge of large organizations is already embedded
in existing mainframe applications. As a result, the Company expects many large
organizations will continue to pursue a strategy to retain many key
mission-critical applications on the mainframe, migrate all or part of other
existing applications to distributed computing environments and pursue new
application development in both mainframe and distributed computing
environments. In addition, the Company believes that organizations will seek to
reuse existing mainframe applications in distributed computing environments to
leverage long-standing existing systems investments.

Industry estimates suggest that many large organizations dedicate between
40% and 60% of their application development resources to maintenance and
redevelopment of existing applications. The use of such a large proportion of
organizations' resources in maintenance and redevelopment limits the resources
available for other tasks, such as developing new applications and addressing
specialized initiatives. Consequently, many large organizations are seeking to
improve the maintenance and redevelopment process in order to reduce costs and
improve productivity and return on their information systems investment. This
has resulted in an increasing demand for automated software tools. In addition,
many organizations are also seeking to improve maintenance and redevelopment
methodologies and train personnel to take full advantage of available
technology.

The limited functionality of many existing processes and tools, together
with the inability of some organizations to fully utilize available technology,
has created increasing demand for integrated software development tools and
professional services to help organizations fully utilize available technology
and improve their own maintenance and redevelopment processes. In addition, the
growing awareness of the size and complexity of the year 2000 problem has
created demand for technology and professional services that provide integrated
solutions. The Company believes that many organizations will be unable to
address their year 2000 conversion requirements in a timely manner using
internal resources alone and that demand for integrated solutions from outside
professionals, such as those provided by VIASOFT, will continue to grow.

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COMPANY STRATEGY

VIASOFT's objective is to enhance its position as a leading provider of
enterprise application management solutions for large organizations worldwide.
To achieve its business objective, the Company is pursuing the following
strategies:

PROVIDE INTEGRATED BUSINESS SOLUTIONS

VIASOFT markets its products and professional services together to provide
comprehensive business solutions for its customers. The Company believes that
the integration of its products with its services offerings is an effective
strategy for addressing the complex maintenance and redevelopment requirements
of large organizations. This strategy is also designed to create long-term
relationships with the Company's installed base of customers, through which
VIASOFT strives to develop subsequent opportunities to market new products and
services.

CAPITALIZE ON THE YEAR 2000 OPPORTUNITY

The Company intends to continue to expand its product and service offerings
to meet the year 2000 century date conversion requirements of its customers. For
example, in June 1997 VIASOFT released its Bridge 2000 date bridging product to
enable organizations to change applications to accommodate the century date
change without making simultaneous changes to data files. The Company also plans
to increase its utilization of third-party strategic relationships with
professional services, consulting and other organizations to expand the
distribution of its year 2000 solutions and respond to anticipated demand.
Further, VIASOFT intends to leverage the customer relationships and knowledge of
customer application systems developed through its year 2000 services solutions
to market other products and services to assist in maintenance and redevelopment
of those systems.

ENHANCE TECHNOLOGY LEADERSHIP

The Company believes that it is the technology leader in its markets. The
Company intends to continue to expand the functionality of its products by
internally developing new products and enhancements that build on both its core
technology and its experience with maintenance and redevelopment processes. The
Company plans to pursue additional opportunities for acquisitions of, or
investments in, businesses, products and technology that complement its existing
product line or allow expansion into new product and service areas, such as the
acquisition of R&O. Management believes that opportunities exist to capitalize
on the Company's development expertise to enhance and integrate acquired
businesses, products and technologies into the Company's product and service
solutions.

ENHANCE AND INTEGRATE ROCHADE TECHNOLOGY

VIASOFT's strategy is to develop and enhance the Rochade repository
technology for integration with VIASOFT's ESW product line and professional
services solutions. The Company believes that the Rochade repository technology
will provide significant additional benefits to customers as part of a suite of
integrated products and solutions, compared to repositories offered as
stand-alone products. VIASOFT believes that this open, enterprise-wide
repository will create a working model of its customers' information assets,
providing a foundation on which to develop and market new integrated products
and solutions. The R&O acquisition also presents an opportunity for VIASOFT to
market the enhanced Rochade product line to VIASOFT's existing customer base and
to market VIASOFT's products and services to R&O's customer base.

EXPAND EXISTING WORLDWIDE SALES AND DISTRIBUTION CHANNELS

The Company intends to target new and existing customers, both domestically
and internationally, by expanding its direct sales organization and through
increased relationships with

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distributors and other third parties. The Company has established its
Solution/Technology Provider program pursuant to which approximately 30
professional organizations are authorized to use VIASOFT technology and/or
methodology in engagements with their customers.

VIASOFT PRODUCTS

VIASOFT offers a range of products that enable organizations to understand,
manage and evolve their existing mission-critical enterprise applications. The
Company's primary product line is the Existing Systems Workbench, which to date
has accounted for substantially all of the Company's software license revenue.

THE EXISTING SYSTEMS WORKBENCH

ESW is an integrated suite of software tools built around the Company's
core technology, the Analytical Engine and the Application Knowledge Repository.
ESW products are available as a complete suite or as individual products that
address each phase of the existing applications maintenance and redevelopment
life-cycle.

The Analytical Engine extracts and builds comprehensive information on
programs and applications, including overall structure, logic, data and control
flow, data definitions and usage, cross references, interface information,
standards exceptions, system metrics and business functions. This information is
automatically stored in the Application Knowledge Repository, which makes the
information immediately available for use with all ESW products.

The Analytical Engine and Application Knowledge Repository support an
integrated suite of products with a common look and feel that enables management
of multi-task projects without interruption and eliminates the need to switch
between different vendors' products for separate tasks. The Analytical Engine
and Application Knowledge Repository technology were designed to promote
integration and extensibility. The Company believes these features enable it to
develop new ESW capabilities, features and technologies more efficiently and
effectively than competitors with non-integrated product lines. The Company
plans to continue to build on the core ESW technology to address customers'
existing applications requirements as they evolve.

Each component product of ESW is described briefly below:

VIA/ALLIANCE: APPLICATION UNDERSTANDING. VIA/Alliance is designed to
determine the scope of an application and the number of changes required to
deliver a specified enhancement by analyzing different components of an
application and revealing the interrelationships between these components.
VIA/Alliance is also used to plan and estimate maintenance, enhancement and
redevelopment projects and to facilitate projects involving file or database
conversions, enabling and populating repositories, or integrating new
applications and packaged software.

VISUAL/RECAP: PORTFOLIO ANALYSIS AND REPORTING. Visual/Recap is the
decision support component of ESW. Visual/Recap allows information systems
managers to measure and gauge objectively the quality, complexity and business
value of applications and programs by providing industry-accepted measurements
and standards, including automation of the counting of function points.

VIA/INSIGHT: PROGRAM UNDERSTANDING. VIA/Insight automates the process of
analyzing and understanding complex COBOL logic. VIA/Insight is designed to
enable users to automate routine maintenance tasks and allow programmers to
assess the impact of changes, estimate the time changes will take and determine
the level of difficulty involved in making proposed changes.

VIA/SMARTEDIT: CODE CHANGE. VIA/SmartEdit is designed to provide
automated, COBOL-intelligent change facilities and automatic syntax checking in
the MVS operating system's editing environment. VIA/SmartEdit automatically
identifies program components directly and indirectly related to a proposed
program change.

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VIA/SMARTTEST: CODE TESTING. VIA/SmartTest is designed to promote speed
and accuracy in code testing and debugging. VIA/SmartTest is designed to analyze
a program's structure, data relationships and execution paths and reveals both
the locations and the underlying causes of bugs and structural problems in
program code. VIA/SmartTest is also designed to allow programmers to monitor and
change program logic, data values and memory interactively from within the test
session, and automatically apply COBOL changes to the source code without
recompiling.

VIA/SMARTDOC: PROGRAM DOCUMENTATION. VIA/SmartDoc is designed to
synthesize comprehensive program information directly from the source code and
organize it into convenient reports, graphical charts and listings. VIA/SmartDoc
provides advanced source listings, program structure charts, enhanced data
cross-reference reports, control flow and data flow information and a variety of
industry-accepted software metrics concerning complexity, architecture and
software quality.

VIA/RENAISSANCE: PROGRAM RE-ENGINEERING. VIA/Renaissance is designed to
isolate and extract specific business functions from a program such as reports,
calculations, computational variables, input/output definitions and transactions
and generate compilable, executable programs or modules. The results provided by
VIA/Renaissance assist in reuse of existing COBOL code, enabling customers to
build libraries of reusable and shared code for new development, modularization
or redevelopment projects. In addition, re-engineered programs or modules can be
transferred to different platforms as part of a system conversion or
client/server implementation.

ROCHADE

Through the Company's December 1996 acquisition of R&O, VIASOFT acquired
R&O's Rochade technology and product line. Rochade is based on an open,
enterprise-wide repository software technology that is designed to help
businesses better capture, manage, monitor, disseminate, reuse and change their
information technology for both mainframe computers and distributed computing
environments. Rochade provides a unified, open method for viewing and sharing
information about systems, tools, techniques and processes across platforms that
is easily accessible to a broad range of users, allowing users to search, query
and report on business data as they need it.

The Company believes that an enterprise-wide repository is necessary to
fully manage cross-application dependencies, plan and execute large-scale
conversion projects, and extend information models to accommodate new
application components, languages, and execution environments. The Company
believes that its acquisition of Rochade will enhance the Company's repository
technology by permitting the storage of greater volumes of information at the
enterprise level. Rochade is designed to allow more efficient access to, and
understanding and management of, customers' applications and data utilizing a
variety of computer languages, operating systems and non-VIASOFT products.

VIASOFT is enhancing the Rochade repository technology for integration with
VIASOFT's product line and professional services solutions. The Company believes
that the Rochade repository technology will provide significant additional
benefits to customers as part of a suite of integrated products and solutions,
compared to repositories offered as standalone products. VIASOFT also believes
Rochade will permit greater flexibility to create repository information models
to accommodate data warehousing, process management, project tracking and
similar initiatives. In addition, Rochade, an open enterprise-wide repository,
will provide an additional foundation in the Company's strategy to develop and
market new integrated products and solutions.

BRIDGE 2000

The Company introduced its new date bridging product, Bridge 2000, in June
1997. Bridge 2000 is designed to help reduce the time, complexity and cost of
modifying large, interrelated applications for the year 2000 date change by
enabling customers to convert the source code of programs

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without being required to simultaneously expand date fields in their databases.
Bridge 2000 automatically translates two-digit date formats in customer data
files to the four-digit formats required by programs that have been converted
for year 2000 compliance.

Bridge 2000 uses dynamic bridging technology that automatically expands
data during the execution of a program. Date fields are expanded using century
windowing techniques, through which Bridge 2000 adds a customer-defined century
designation to each two-digit date field, based on its value. For example, a
window could direct that years 00 to 60 in the date field be interpreted as 2000
to 2060, while the years 61 to 99 would be interpreted as 1961 to 1999.

The Company believes the primary benefits of Bridge 2000 for customers are:
(i) the ability to plan and implement the year 2000 date conversion effort one
program at a time; (ii) the ability to postpone data file conversion until after
year 2000, if necessary, resulting in significant time savings that can be used
to convert mission-critical applications prior to the year 2000 deadline; (iii)
protection from the exchange and transfer of non-compliant data from outside
sources, such as trading partners and customers; and (iv) the ability to access
historical and archival data beyond the year 2000 without conversion of the data
files. In addition, Bridge 2000 is designed to minimize secondary maintenance
problems presented by competing alternative technologies, because program source
code modified to use Bridge 2000 requires no subsequent changes once data files
have been converted.

Bridge 2000 is available individually and as an additional component of the
Company's broader ESW and year 2000 product lines. The Company is also using
Bridge 2000 in its Enterprise 2000 services offering, particularly with the
introduction of FastPath 2000. See "VIASOFT Services -- VIASOFT's Enterprise
2000." In addition, Bridge 2000 can be utilized in connection with the products
and services of other vendors. The Company plans to market Bridge 2000 to its
existing installed customer base and to new customers in the year 2000 market.

VIASOFT'S ESTIMATE 2000

VIASOFT's Estimate 2000 is a separately available software product and a
component of VIASOFT's Enterprise 2000 solution. Estimate 2000 is a tool for
analyzing and assessing the size of the programming effort required for year
2000 date conversions. Estimate 2000 is designed to evaluate year 2000
conversion projects in the IBM MVS COBOL, Assembler and PL/I mainframe
environments, and also to provide comprehensive reports for both management and
technical levels. Estimate 2000 is also capable of analyzing the impact of
programming projects unrelated to the year 2000 market that require location of
specified numerical or other fields.

PRODUCT DEVELOPMENT

The Company continues to acquire, develop and enhance technology for its
existing product lines. For example, VIASOFT entered into licensing arrangements
with several vendors to provide additional language support for its ESW products
and Estimate 2000. The Company is in the process of developing and enhancing the
licensed technology to provide ESW functionality for customer applications
utilizing PL/I, Assembler, Natural and a variety of COBOL dialects. The Company
is conducting beta tests and currently expects to begin introduction of this
additional language capability in its ESW product line in the first half of
fiscal 1998. See "Factors That May Affect Future Results -- Risks Associated
with Products Currently Under Development."

The Company recently acquired the rights to distribute a package of testing
software programs, which it plans to market under the name "VIA/AutoTest."
VIA/AutoTest is designed to provide an enterprise-wide, automated testing
solution, including application regression testing capabilities. VIA/AutoTest
enables customers to plan, manage and execute the test cases that determine
proper application functioning. The Company believes testing will play a key
role in successful year 2000 conversion projects and is enhancing its offering
of testing products and methodologies to meet

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year 2000 needs, as well as to provide strategic value beyond the year 2000
market. The Company currently expects to release VIA/AutoTest in the first half
of fiscal 1998.

VIASOFT SERVICES

The Company's specialized professional services provide processes,
technology and expertise to address the complex, large-scale maintenance and
redevelopment requirements of large organizations. VIASOFT's service offerings
have grown significantly, representing 14%, 26% and 28% of total revenues in the
fiscal years ended June 30, 1995, 1996 and 1997, respectively.

VIASOFT'S ENTERPRISE 2000

VIASOFT's Enterprise 2000 is designed to help customers address the year
2000 century date conversion requirements for existing applications through a
combination of professional services, the Company's ESW technology, its new
Bridge 2000 product, other Company technology and methodologies and third-party
resources. VIASOFT's Enterprise 2000 accounted for 15%, 74% and 72% of total
professional services revenue during the fiscal years ended June 30, 1995, 1996
and 1997, respectively.

When organizations first began to consider the year 2000 problem, customers
were most interested in surveying the impact of the problem on their own
applications. In response, VIASOFT developed a three-phase process designed to
address customers' year 2000 conversion needs at the enterprise level. Through
VIASOFT's Impact 2000, VIASOFT determines the scope, size and level of effort
needed to implement the year 2000 changes. In VIASOFT's Plan 2000, the Company
identifies the project goals, prepares a detailed work plan and executes a pilot
project. Through VIASOFT's Operation 2000, VIASOFT manages the implementation
and testing of the required changes.

Recently, customers have begun to seek strategies to convert
mission-critical applications as rapidly as possible, without the delays
associated with enterprise-wide impact and planning approaches. In addition, as
time passes, certain year 2000 conversion strategies, such as field expansion,
may not be feasible on a timely basis for all applications. Customers are also
seeking ways to leverage conversion resources, as available personnel have
decreased and the costs have increased. VIASOFT has responded to these customer
needs and industry changes by enhancing its year 2000 solutions to provide an
additional enablement methodology for its customers called FastPath 2000.
FastPath 2000 is designed to provide the primary components of a successful year
2000 conversion on an application level, rather than on an enterprise-wide
level. These include inventory of components, conversion planning, and change
coding and testing. Utilizing FastPath 2000, customers can begin their year 2000
conversion by addressing their most critical applications, one at a time.
Through FastPath 2000, VIASOFT also provides the training to enable customers to
perform the planning and conversion tasks using internal resources. VIASOFT also
has integrated Bridge 2000 into its FastPath 2000 solution to offer dynamic
bridging as another near-term conversion strategy. See "VIASOFT
Products -- Bridge 2000."

VIASOFT'S INSOURCING

To assist organizations that desire to increase productivity in their
maintenance and redevelopment activities while avoiding the loss of control over
their systems associated with outsourcing, the Company has developed a solution
known as VIASOFT's Insourcing. VIASOFT's Insourcing combines VIASOFT's ESW
technology with onsite professional services to enable customers to successfully
implement enhanced, repeatable processes for maintenance and redevelopment of
existing applications. The Company believes that the combination of its
expertise, technology and professional services can free significant existing
customer programming resources for redeployment by increasing productivity and
reducing the costs, time and effort required to maintain existing applications.

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VIASOFT'S LEGACY TRANSITIONS

Many organizations have implemented a transition from exclusive reliance on
mainframe computers to the use of the mainframe together with distributed
computing environments for certain applications. VIASOFT has developed services
and technology designed to enable organizations to reuse existing mainframe
applications in new computing architectures, including distributed computing
environments, and to integrate existing mainframe applications with these
architectures. The Company believes that use of its technology and services
should improve customers' ability to leverage their existing mainframe
applications by increasing flexibility to integrate mission-critical
applications with new architectures and systems, or by migrating and reusing
existing mainframe code in these new environments.

CUSTOMER SUPPORT AND TRAINING

The Company offers maintenance for each of its products, entitling the
customer to receive technical support and advice, including problem resolution
services, installation assistance, error corrections and any product
enhancements released during the maintenance period. Under the Company's
standard license agreement for mainframe products, maintenance is provided
without charge for the first year, is renewable on an annual basis, and is
generally priced at a percentage of the then current list price. In the fiscal
years ended June 30, 1995, 1996 and 1997, maintenance fees represented
approximately 39%, 33% and 25%, respectively, of the Company's total revenues.
Maintenance and support services are provided primarily by telephone from
VIASOFT's Phoenix, Arizona, headquarters and R&O's Westford, Massachusetts and
German locations, as well as certain offices of the Company's international
subsidiaries and distributors.

The Company provides a variety of training services designed to enable
customers to utilize fully the Company's technology solutions. These training
offerings are generally conducted at the customer's site by specialists, and
range from introductory courses in using the Company's products to advanced
techniques courses. The Company also offers customized training for specific
customers and instructs customer personnel to conduct ongoing training of their
information systems staff.

SALES, MARKETING AND DISTRIBUTION

VIASOFT markets its products and services principally to Fortune 1000 and
similarly sized business and governmental organizations worldwide. The Company's
marketing efforts are implemented through its domestic and international direct
sales organizations, through a number of foreign independent distributors,
located in Europe, the Far East, South Africa, and Latin America, and through
strategic relationships with third parties as part of its Solution/Technology
Provider program.

DIRECT SALES

The Company sells and supports its products and services in North and South
America from its Phoenix, Arizona, headquarters and 11 primary field offices in
the United States. As of June 30, 1997, the Company had 55 salespersons
worldwide, including 36 located at the Company's headquarters and the United
States field offices. These offices cover the territories of Canada, the United
States, Mexico, Central America and all of South America, with the exception of
Brazil, where the Company utilizes a distributor. Internationally, the Company
sells directly to customers in the following territories: Australia, Austria,
Belgium, Germany, Luxembourg, the Netherlands, New Zealand, Switzerland and the
United Kingdom.

INTERNATIONAL DISTRIBUTORS

VIASOFT markets its products to international customers both directly and
through independent distributors. Distributors are authorized by VIASOFT to
license the Company's software products to

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end-users. In addition to its subsidiary offices, the Company markets Rochade
and/or the ESW product line internationally in 37 countries through 16
independent distributors. To date, the Company has not offered significant
professional services through its distributors, although in both fiscal 1996 and
1997 some distributors became Solution/Technology Providers.

SOLUTION/TECHNOLOGY PROVIDERS

The Company utilizes third-party relationships to broaden the distribution
of its products and services in certain markets. During fiscal 1996, the Company
established a program which provides for non-exclusive relationships with
professional services and consulting organizations, computer and software
integration companies and hardware and software vendors ("Solution/Technology
Providers") who are authorized to use VIASOFT technology and/or methodology,
principally VIASOFT's Enterprise 2000, in connection with services they perform
for their customers. Generally, the Solution/Technology Providers pay an initial
license fee for the transfer and use of VIASOFT's service solutions and training
in VIASOFT products and solutions. In addition, customers of certain
Solution/Technology Providers that have not previously licensed the Company's
products pay lease fees or license fees for the use of VIASOFT products in each
engagement with a Solution/ Technology Provider. These relationships are
intended to augment VIASOFT's own distribution channels to expand the reach of
its business solutions and obtain new customers for VIASOFT products. VIASOFT
continues to invest resources in training and supporting these providers. The
Company currently has Solution/Technology Provider relationships with
approximately 30 companies and intends to continue to devote resources to expand
this distribution channel.

FEDERAL GOVERNMENT MARKETING INITIATIVE

In February 1997, the Company announced a new marketing initiative focused
on the federal government. To assist agencies of the federal government in their
year 2000 projects, VIASOFT is offering US2000, a solution comprising ESW and
certain process management and year 2000 methodologies. Licenses of this
solution, together with maintenance services, are offered to agencies of the
federal government in one-year, renewable contracts at a significantly reduced
license fee. US2000 has not generated significant revenues to date and there can
be no assurance as to the timing or magnitude of any revenue that may be
generated.

COMPETITION

PRODUCTS

The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products. Most of the Company's competitors and many
potential competitors have substantially greater financial, marketing and
technology resources than the Company. Major competitors for software product
license sales include Computer Associates International, Inc.; Compuware
Corporation; Intersolv, Inc.; Micro Focus Group Public Limited Company; and
Platinum Technology, Inc. The Company believes that the principal factors
affecting competition in its product markets include compatibility with
customers' platforms and languages, product functionality, quality of support,
product performance and reliability, ability to respond to changing customer
needs, ease of use and price.

CONSULTING SERVICES

The market for the type of professional services provided by the Company is
also highly competitive. Major competitors of the Company's services business
are primarily the consulting organizations of the Big Six accounting firms.
Other competitors of the Company's services business include Data Dimensions,
Inc., Electronic Data Systems Corporation, and IBM's Integrated Systems
Solutions Corp. Other system integrators and application outsourcers also
compete to perform professional services competitive to VIASOFT's Insourcing and
VIASOFT's Legacy Transitions solutions. These companies position themselves as
long-term business partners, able to

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lower an organization's staff and maintenance costs and improve control of
information systems functions with well-established work practices. Many smaller
local or regional organizations also compete in the services market, which is
fragmented and characterized by low barriers to entry. The Company's principal
competitors and many potential competitors have significantly greater financial,
marketing, recruiting and technological resources than the Company. The
principal competitive factors affecting the market for the Company's
professional services include responsiveness to customer needs, availability and
productivity of personnel, the ability to demonstrate achievement of results,
depth of technical skills, price and reputation.

THE YEAR 2000 MARKET

With the growth of the year 2000 market, significant competition has
emerged and is expected to increase in the next few years. The consulting
services segment of the market is characterized by low barriers to entry. The
principal competitive factors affecting this market include functionality,
performance and reliability of technology and methodology, availability and
productivity of personnel, the ability to demonstrate achievement of results,
depth of experience in year 2000 projects, price and reputation. There are
generally three categories of competitors for VIASOFT in the year 2000 market,
each focusing on a different market segment.

SOFTWARE VENDORS. Software vendors provide tools targeted for the year 2000
market. Many of these products focus on a particular phase of a year 2000
project, such as inventory and assessment, scanning, parsing, conversion,
testing and documentation. Competitive factors include the tool's compatibility
with customers' platforms and languages, the vendor's ability to deliver
training and ongoing support during the customers' implementation of the tools,
and the value of the tool to an organization beyond the year 2000. Primary
competitors in this category include Computer Associates International, Inc.;
Intersolv, Inc.; Micro Focus Group Public Limited Company; and Platinum
Technology, Inc. through its affiliation with ADPAC Corp. In addition, several
companies have announced the availability of certain "change factory" products,
designed to automate conversion of software code, which may become a competitive
factor in the future.

CONSULTING ORGANIZATIONS. Competitors in this category range from large,
generalized consulting firms to small- to medium-sized consulting firms that
have become highly focused on the year 2000 problem. These companies provide
supplemental personnel and contract programming resources to customers and some
have licensed tools from software vendors to enhance their offering. These
companies are often selected by customers based on the skills, experience and
process that each firm uses. Competitors in this category include Andersen
Consulting LLP, CIBER, Inc.; Computer Horizons, Corp.; Computer Task Group,
Inc.; Data Dimensions, Inc., Ernst & Young LLP; and Keane, Inc.

SYSTEMS INTEGRATORS AND APPLICATION OUTSOURCERS. Large systems integrators
and outsourcing firms have also entered the year 2000 market. These are
companies that may already have relationships with customers and are able to
include year 2000 conversion services with the maintenance and data processing
services they already provide. They provide a customer with an alternative to
managing the year 2000 conversion project themselves by outsourcing the whole
project to an organization with an established relationship and a working
knowledge of the customer's systems. Some integrators/outsourcers offer licensed
tools from software vendors. Competitors in this category include CapGemini;
Computer Sciences Corp.; Electronic Data Systems Corporation; IBM's Integrated
Systems Solutions Corp. and most Big Six accounting firms.

RESEARCH AND DEVELOPMENT

Historically, VIASOFT's development of new products has been accomplished
primarily with in-house development personnel and resources. As of June 30,
1997, the Company had 124 employees engaged in product development. Of the
Company's research and development personnel, 86 were software developers with
the balance divided between customer support,

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documentation, and quality assurance. Substantially all of these employees are
located at either the Company's Phoenix, Arizona, headquarters or the R&O
research and development facilities in Germany. In addition to developing new
products, the Company continually updates its existing products through
enhancements and new releases. The Company also continues to develop new
products and technologies to facilitate its service solutions.

Beginning in fiscal 1996 and continuing in the current year, VIASOFT has
expanded its strategy to acquire and/or license new products and technologies to
complement, expand and enhance its existing products and services. The Company
expects to increase its reliance on this strategy and plans to continue to
devote research and development resources to the enhancement and integration of
acquired and licensed technologies. See "VIASOFT Products -- Bridge 2000" and
"-- Product Development."

During the fiscal years ended June 30, 1996 and 1997, research and
development expenditures were $4,237,000 and $7,893,000, respectively, excluding
a one-time charge of approximately $26.9 million in the second quarter of fiscal
1997 related to the purchase of in-process technology from R&O. The Company
anticipates that it will continue to commit substantial resources to research
and development in the future.

INTELLECTUAL PROPERTY

VIASOFT relies on a combination of copyright, trade secret and trademark
laws, and contractual provisions to establish and protect its rights in its
software products and proprietary technology. The Company protects the source
code version of its products as a trade secret and as an unpublished copyrighted
work. Despite these precautions, it may be possible for unauthorized parties to
copy certain portions of the Company's products or reverse engineer or obtain
and use information that the Company regards as proprietary. The Company has no
patents and existing copyright and trade secret laws offer only limited
protection. Certain provisions of the license and distribution agreements
generally used by the Company, including provisions protecting against
unauthorized use, copying, transfer and disclosure, may be unenforceable under
the laws of certain jurisdictions and the Company is required to negotiate
limits on these provisions from time to time. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. The Company has been and may be
required from time to time to enter into source code escrow agreements with
certain customers and distributors, providing for release of source code in the
event the Company breaches its support and maintenance obligations, files
bankruptcy or ceases to continue doing business.

In 1996, Company acquired the date bridging technology incorporated in its
new Bridge 2000 product, together with a pending patent application. The Company
is continuing to prosecute the patent application. However, there can be no
assurance that a patent will issue as a result of such application, nor as to
the extent of the protection, if any, such patent might afford.

The Company's competitive position may be affected by its ability to
protect its proprietary information. However, because the software industry is
characterized by rapid technological change, the Company believes that patent,
trademark, copyright, trade secret and other legal protections are less
significant to the Company's success than other factors such as the knowledge,
ability and experience of the Company's personnel, new product and service
development, frequent product enhancements, customer service and ongoing product
support.

While the Company has no knowledge that it is infringing the proprietary
rights of any third party, there can be no assurance that such claims will not
be asserted in the future with respect to existing or future products. Any such
assertion by a third party could require the Company to pay royalties, to
participate in costly litigation and defend licensees in any such suit pursuant
to indemnification agreements, or to refrain from selling an alleged infringing
product or service. See "Factors that May Affect Future Results -- Importance of
Proprietary Rights."

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EMPLOYEES

The Company had 447 full-time employees as of June 30, 1997, including 172
in sales and marketing, 124 in research, development and support, 98 in
professional services and 53 in corporate operations and administration. The
future success of the Company will depend in large part upon its continued
ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense in the computer software industry,
particularly for talented software developers, service consultants and sales and
marketing personnel. Management anticipates that as the year 2000 approaches, it
will become more and more difficult to recruit and retain experienced
programmers and consultants, as industry sources generally estimate that there
will not be a sufficient number of such persons to fill the demand created by
the year 2000 problem. None of the Company's employees is represented by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.

FACTORS THAT MAY AFFECT FUTURE RESULTS

DEPENDENCE ON YEAR 2000 MARKET

The growth in the Company's professional services fees in fiscal 1996 and
1997 resulted primarily from increased demand for VIASOFT's Enterprise 2000
services as awareness of the year 2000 century date conversion problem has
grown. In the fiscal years ended June 30, 1996 and 1997, VIASOFT's Enterprise
2000 services represented 74% and 72%, respectively, of the Company's
professional services revenue. In addition, this demand has also accounted for a
significant portion of software license revenue for the same periods as
customers have acquired the Company's software products to help address their
year 2000 concerns. The Company has experienced this growth in both the domestic
and international markets. Should the demand for the Company's year 2000
solutions and products decline significantly as a result of new technologies,
competition or any other factors, the Company's professional services fees and
license revenues would be materially and adversely affected. The Company
anticipates that demand in the year 2000 market will decline, perhaps rapidly,
following the year 2000. It is the Company's strategy to leverage customer
relationships and knowledge of customer application systems derived from its
year 2000 services solutions to market other products and services beyond the
year 2000 market. However, there can be no assurance that this strategy will be
successful, and should the Company be unable to market other products and
services as demand in the year 2000 market declines, whether as a result of
competition, technological change or other factors, the Company's business,
results of operations and financial condition will be materially and adversely
affected.

VOLATILITY OF COMMON STOCK PRICE

The Company's stock price has been highly volatile since its initial public
offering. The Company believes that factors such as awareness of the year 2000
problem, quarterly fluctuations in results of operations, announcements of new
products and acquisitions by the Company or by its competitors, change in
revenue or earnings estimates by securities analysts, developments in litigation
affecting the Company, changes in accounting principles or their application and
other factors may cause the market price of the Company's stock to continue to
fluctuate, perhaps substantially. In addition, stock prices for many technology
companies fluctuate widely for reasons that may be unrelated to operating
results. Due to market and securities analysts' expectations of continued growth
and the higher price/earnings ratio at which the Company's stock may trade, any
shortfall in meeting such expectations may have a rapid and significant adverse
effect on the trading price of the Company's stock. These fluctuations, as well
as general economic, market and other conditions may adversely affect the market
price of the Company's stock in the future. Fluctuations in the market price of
the Company's stock may in turn adversely affect the Company's ability to
complete any targeted acquisitions, its access to capital and financing and its
ability to attract and retain qualified personnel. See "Market for the
Registrant's Common Stock and Related Stockholder Matters."

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PRODUCT CONCENTRATION; DEPENDENCE ON MAINFRAME SYSTEMS

Most of the Company's software license fee revenues and maintenance fee
revenues are derived from products in the Company's primary product line, the
Existing Systems Workbench. In addition, a substantial portion of the Company's
professional services fee revenues is derived from customers that also license
ESW products. If license sales, maintenance renewals or pricing levels of ESW
products were to decline materially, whether as a result of technological
change, competition or any other factors, the Company's business, results of
operations and financial condition would be materially and adversely affected.
The Company's principal software products and services are designed for users of
IBM and IBM-compatible mainframe computers utilizing IBM's MVS/XA or MVS/ESA
operating systems. Future revenues from sales of products and services and
recurring maintenance revenues are therefore dependent on continued use of such
mainframe computers and related operating system software. In addition, because
VIASOFT products require the use of IBM's MVS operating systems, the Company
will be required to adapt its products to any changes made to these IBM
operating systems in the future. The Company's inability to adapt to future
changes in the MVS operating systems, or delays in doing so, could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "-- Ability to Respond to Technological Change." All of
the software license and maintenance revenues and all professional services fees
of R&O have been related to R&O's Rochade product line. See "-- Ability to
Assimilate Acquired Business."

FLUCTUATING QUARTERLY RESULTS

The Company has experienced significant quarterly and other fluctuations in
revenues and operating results and expects these fluctuations to continue in the
future. The Company believes that these fluctuations have been attributable to
the budgeting and purchasing practices of its customers, the length of the
customer product evaluation process for the Company's products, the timing of
its customers' system conversions, and to a lesser extent, the Company's sales
commission practices, which are based partly on quarterly incentives and annual
quotas, and other factors. The Company's revenues and results of operations may
also be affected by seasonal trends which have resulted in higher revenues in
the Company's second and fourth fiscal quarters and lower revenues in its first
and third fiscal quarters. This seasonality is a result of many customers'
annual purchasing and budgetary practices, the Company's sales commission
practices, lower revenues in the summer months (particularly in Europe) when
many businesses make fewer purchases, and other factors. The Company's
professional services revenues tend to fluctuate due to the completion or
commencement of significant projects, which may continue over multiple quarters,
the number of working days in a quarter and the utilization rate of professional
services personnel. Future revenues and operating results may fluctuate as a
result of these and other factors, including the demand for the Company's
products and services, the timing and cost of new product and service
introductions and product enhancements, changes in the mix of products and
services sold and in the mix of sales by distribution channels, timing of any
acquisitions and associated costs, the size and timing of customer orders,
changes in pricing policies by the Company or its competitors, the timing of
collection of accounts receivable and related reported days' sales outstanding,
changes in foreign currency exchange rates, competitive conditions in the
industry and general economic conditions. Furthermore, as a result of these and
other factors, it is likely that in some future quarter the Company's revenues
or operating results will be below the expectations of securities analysts or
investors, in which case the price of the Common Stock could likely be
materially and adversely affected. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."

Historically, the Company has had little or no backlog. Quarterly revenues
and operating results therefore depend primarily on the volume and timing of
orders received during the quarter, which are difficult to forecast. The Company
has often recognized a substantial portion of its license fees in the last month
of each quarter, frequently in the last week. A significant portion of the
Company's

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operating expenses is relatively fixed, since personnel levels and other
expenses are based upon anticipated revenues. Because a substantial portion of
the Company's revenues may not be generated until the end of each quarter, the
Company may not be able to reduce spending in response to sales shortfalls or
delays. These factors, many of which are not within the Company's control, can
cause significant variations in operating results from quarter to quarter.
Accordingly, the Company believes that quarter to quarter comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations."

RISKS FROM INTERNATIONAL OPERATIONS

Approximately 25% and 32% of the Company's total revenues in the fiscal
years ended June 30 1996 and 1997, respectively, were attributable to
international sales. The Company believes that international business will
continue to account for a significant portion of its revenues, due in part to
continued expansion of its ESW product line internationally and the recent
acquisition of R&O. In R&O's fiscal year ended December 31, 1995 and the
nine-month period ended September 30, 1996, approximately 73% and 60% of its
total revenues were from sources outside North America, respectively.
International operations are subject to a number of risks, including longer
accounts receivable payment cycles, exchange rate fluctuations, difficulty in
enforcing agreements and collecting accounts receivable, tariffs and other
restrictions on foreign trade, U.S. export requirements, withholding and other
tax consequences, economic and political instability, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. The Company has experienced longer payment cycles from some of its
foreign distributors. Sales made through the Company's foreign distributors are
denominated in U.S. dollars except in Italy, where they are denominated in lira.
Sales by the Company's foreign subsidiaries are principally denominated in the
currencies of the countries where sales are made. The Company experienced losses
of approximately $704,000 from foreign currency fluctuations in the fiscal year
ended June 30, 1997. The Company has not to date sought to hedge the risks
associated with fluctuations in foreign exchange rates. The Company continues to
evaluate the relative costs and benefits of hedging and may seek to hedge these
risks in the future, if appropriate. The Company's foreign operations are also
affected by general economic conditions in its international markets. A
prolonged economic downturn in its foreign markets could have a material adverse
effect on the Company's business. In addition, the laws of certain countries do
not protect the Company's products and intellectual property rights to the same
extent as do the laws of the United States. There can be no assurance that the
factors described above will not have an adverse effect on the Company's future
international revenues and, consequently, on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations," "Business -- Sales,
Marketing and Distribution" and Note 9 to Consolidated Financial Statements.

In addition, approximately 9% and 5% of the Company's total revenues and
35% and 13% of international revenues were realized through the sales and
marketing efforts of its independent distributors in the fiscal years ended June
30, 1996 and 1997, respectively. The efforts expended and results achieved by
independent distributors are less within the control of the Company than its
direct sales operations. A reduction in sales by the Company's distributors or a
termination of their relationships with the Company could have a material
adverse effect on the Company's international revenues, its business, results of
operations and financial condition.

DEPENDENCE ON ACQUISITIONS

The Company expects to continue its strategy of identifying, acquiring and
developing businesses, products and technologies to enhance and expand its
software product line and solution offerings, including acquisitions that could
be material in size and scope. The Company

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believes that the continued success of its existing businesses, as well as its
future growth, depends, in part, upon the success of this strategy. Acquisitions
involve a number of special risks and factors, including increasing competition
for attractive acquisition candidates in the Company's markets, the
technological enhancement and incorporation of acquired products into existing
product lines and services, the assimilation of the operations and personnel of
the acquired companies, adverse short-term effects on reported operating
results, the amortization of acquired intangible assets, the assumption of
undisclosed liabilities of any acquired companies, the failure to achieve
anticipated benefits such as cost savings and synergies, as well as the
diversion of management's attention during the acquisition and integration
process. The Company does not have significant experience in the identification
and management of acquisitions and the success of its acquisition strategy will
depend on the effective management of the foregoing risks and its ability to
identify, complete and integrate strategic acquisitions on favorable terms. See
"-- Ability to Assimilate Acquired Business."

ABILITY TO ASSIMILATE ACQUIRED BUSINESS

VIASOFT is in the process of integrating the Rochade repository technology
acquired from R&O into VIASOFT's software product and solution offerings. The
cost of these efforts is expected to approximate $2.2 million, of which
approximately $500,000 has been incurred to date. VIASOFT is also enhancing the
Rochade product line and marketing it to VIASOFT's customer base and marketing
its ESW product line and professional service solutions to the customer base of
R&O. Costs associated with these and other integration activities will continue
to be incurred by the Company, including product and service development costs
and additional marketing and sales costs, among others. These costs will
increase the Company's operating expenses in the periods in which they are
incurred over and above amounts already reserved. In addition, many of the
operations of the Company and R&O are continuing to be integrated in order to
achieve planned cost savings and synergies. There may be substantial
difficulties associated with integrating the technology and operations of the
Company and R&O, and there can be no assurance that this integration will be
accomplished expeditiously or successfully or that the anticipated benefits from
these activities, such as improved product performance, cost savings, synergies,
and increased penetration of the two companies' respective customer bases, will
be realized. The integration of certain technology and operations will continue
to require the dedication of management resources that may temporarily distract
attention from the day-to-day business of the Company. The business of the
Company may also be disrupted by employee uncertainty and lack of focus during
this integration. The Company has experienced some attrition of R&O employees
and there can be no assurance that the Company will be able to retain key
technical, managerial and other employees. Failure to complete the integration
of the technology and operations of the Company and R&O on a timely basis and as
planned could have a material adverse effect on the Company's business,
financial condition and results of operations.

ABILITY TO MANAGE CHANGE

The Company has experienced changes in its operations and in the software
industry in the last several fiscal years that have placed increased demands on
its managerial, operational and financial resources. The Company expects its
business and the industry as a whole to continue to undergo rapid change. The
Company's integration of the Rochade business, its plans to continue expansion
of its professional services offerings, particularly in the year 2000 market,
and its plans to continue expansion of its international operations, together
with ongoing required product development and future acquisition activity in
response to changes in the industry and customer needs, will require VIASOFT to
manage effectively its operations in a rapidly changing environment. The
Company's future performance will depend in part on its ability to manage change
in both its domestic and international operations and will require the Company
to continue to hire additional management, technical and professional services
personnel, particularly in the professional services and year 2000 areas. The
Company has experienced difficulties in recruiting and retaining qualified
personnel

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and anticipates that these efforts will become increasingly difficult, as
industry sources predict an insufficient supply of programmers and consultants
to meet demand, especially in the year 2000 market. The failure of the Company's
management team to manage changing technological and business conditions as well
as the growth of its own business, should it occur, could have a material
adverse impact on the Company's business, results of operations and financial
condition.

INTENSE COMPETITION

The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products. The market for the type of professional services
provided by the Company is also highly competitive. With the growth of the year
2000 market, significant competition has emerged and is expected to increase in
the next few years. The professional services segment of the market is
characterized by low barriers to entry. The principal competitive factors
affecting the year 2000 market include functionality, performance and
reliability of technology and methodology, availability and productivity of
personnel, the ability to demonstrate achievement of results, depth of
experience in year 2000 projects, price and reputation. There are generally
three categories of competitors for VIASOFT in the year 2000 market: software
vendors, consulting organizations and system integrators and outsourcers.
Software vendors provide tools targeted for the year 2000 market. Competitive
factors include tools' compatibility with customers' platforms and languages,
vendors' ability to deliver training and ongoing support during customers'
implementation of the tools, and the value of the tools to an organization
beyond the year 2000. Consulting organizations that compete in the year 2000
market range from large, generalized consulting firms to small- to medium-sized
consulting firms that have become highly focused on the year 2000 problem. These
companies provide supplemental personnel and contract programming resources to
customers and some have licensed tools from software vendors to enhance their
offerings. Large systems integrators and outsourcing firms have also entered the
year 2000 market to include year 2000 conversion services with the maintenance
and data processing services they already provide to their existing market and
customer base. Some integrators/outsourcers offer licensed tools from software
vendors.

Most of the Company's competitors and potential competitors have
substantially greater financial, marketing, recruiting and technology resources
than the Company. Major competitors for software product license sales include
Computer Associates International, Inc.; Compuware Corporation; Intersolv, Inc.;
Micro Focus Group Public Limited Company and Platinum Technology, Inc. The
Company believes that the principal factors affecting competition in its product
markets include compatibility with customers' platforms and languages, product
functionality, quality of support, product performance and reliability, ability
to respond to changing customer needs, ease of use and price. Major competitors
of the Company's professional services business are primarily the consulting
organizations of the Big Six accounting firms. Other competitors of the
Company's professional services business include Data Dimensions, Inc.,
Electronic Data Systems Corporation and IBM's Integrated Systems Solutions Corp.
The principal competitive factors affecting the market for the Company's
professional services include responsiveness to customer needs, availability and
productivity of personnel, the ability to demonstrate achievement of results,
depth of technical skills, price and reputation.

The Company's ability to compete successfully in the sale of both its
products and services will depend in large part upon its ability to implement
successfully its strategy of selling products and services as a total solution
as well as its ability to attract new customers, sell new products and services,
deliver and support product enhancements to its existing customers and respond
effectively to continuing technological change by developing and acquiring new
products and services. There can be no assurance that the Company will be able
to compete successfully in the future, nor that future competition for product
sales and professional services will not have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Competition."

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RISKS ASSOCIATED WITH PROFESSIONAL SERVICES

During the fiscal years ended June 30, 1996 and 1997, fees from the
Company's professional services grew significantly and constituted 26% and 28%
of the Company's consolidated revenues, respectively. With the growing
percentage of revenue coming from professional services, a lower margin business
than software product licensing, the Company will be subject to the risks
associated with such service businesses, including volatility of workload and
dependence on the Company's ability to attract and retain qualified technical
personnel in an increasingly competitive market. The Company has experienced
difficulties in recruiting and retaining qualified personnel and anticipates
that these efforts will become increasingly difficult, as industry sources
predict an insufficient supply of programmers and consultants to meet demand,
especially in the year 2000 market. In addition, a portion of the Company's
professional services fees is derived from fixed-price contracts, which are more
difficult to manage profitably due to greater risk of cost overruns,
particularly in the relatively new year 2000 market. The Company experienced
declines in its professional services margins in the fourth quarter of fiscal
1997, due primarily to revised estimates of revenue recognized under percentage
of completion contracts and decreased utilization of personnel associated with
the transition to its new FastPath 2000 services methodology. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations". There can be no assurance that the Company will be able to maintain
professional services margins consistently at historical levels.

ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE

The Company's future success will depend significantly on its ability to
enhance its current products and develop or acquire and market new products that
keep pace with technological developments and evolving industry standards as
well as respond to changes in customer needs. There can be no assurance that the
Company will be successful in developing or acquiring product enhancements or
new products to address changing technologies and customer requirements
adequately, that it can introduce such products on a timely basis, or that any
such products or enhancements will be successful in the marketplace. The
Company's delay or failure to develop or acquire technological improvements or
to adapt its products to technological change would have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, most of the Company's products and services are purchased by
customers using mainframe systems, and the Company's business is largely
dependent on its core product line designed for mainframe systems. The computing
needs of organizations worldwide increasingly include alternative computing
platforms, including client/server and other distributed computing networks,
LANs, mid-range computers, workstations and PCs. A significant shift in the way
the Company's customers use computing platforms could have a material adverse
effect on the Company's business. See "-- Product Concentration; Dependence on
Mainframe Systems."

RISKS ASSOCIATED WITH PRODUCTS CURRENTLY UNDER DEVELOPMENT

The Company is currently developing and enhancing certain products that are
unfinished, untested and unproven in the marketplace. These products include,
but are not limited to: enhancements to integrate and complement the Rochade
line of products acquired by the Company in connection with its acquisition of
R&O; products designed to extend certain language support for the Company's
products; and additional options and language support for the Company's new
Bridge 2000 product. There can be no assurance that these products will be
completed and commercially introduced at the times scheduled by the Company, or
that if completed and introduced, that these products will function in
accordance with the Company's and its customers' current expectations or be able
to compete successfully in the marketplace. The Rochade product line, Bridge
2000 and certain of the Company's products under development address mission-
critical applications that operate continuously, and have required the Company
to develop and maintain 24-hour, 7-day per week support capability. The Company
does not have extensive

17
<PAGE> 20

experience in providing continuous customer support, which requires additional
personnel, management and infrastructure resources. The Company will be subject
to the risks associated with its products' increased support requirements,
including increased risks of customer dissatisfaction and the need to recruit,
train, retain and manage qualified personnel to provide continuous support
services. See "-- Dependence on Key Personnel;" and "VIASOFT Products -- Bridge
2000; -- Product Development."

DEPENDENCE ON KEY PERSONNEL

The Company's success will depend in part upon the retention of key senior
management and technical personnel. The Company does not have employment
agreements with most of its key personnel, nor does it maintain key man life
insurance on any of these persons. In July 1997, the Company's Chief Technology
Officer, Michael A. Wolf, resigned as officer and director of VIASOFT and
entered into a 13-month consulting agreement to provide strategic consulting
services to the Company. Several senior management personnel are relatively new
to the Company and the Company's success will depend in part on the successful
assimilation and performance of these individuals. The Company believes that its
future success will also depend upon its ability to attract and retain
additional highly skilled technical, professional services, management and
marketing personnel, including in particular a vice president of technology. The
market for these individuals has historically been, and the Company expects that
it will continue to be, intensely competitive. The Company has experienced
difficulties in recruiting and retaining qualified personnel and anticipates
that these efforts will become increasingly difficult, as industry sources
predict an insufficient supply of programmers and consultants to meet demand,
especially in the year 2000 market. The loss of one or more of its key employees
or the Company's inability to attract and retain other qualified employees could
have a material adverse effect on the Company's business.

PRODUCT LIABILITY

The Company markets its products and services to customers for managing the
maintenance and redevelopment of mission-critical computer software systems. In
addition, a large and increasing portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any material product or service
liability claims to date, the sale and support of its products and services may
entail the risk of such claims, particularly in the year 2000 market, which
could be substantial in light of the use of its products and services in
mission-critical applications. A successful product or service liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.

IMPORTANCE OF PROPRIETARY RIGHTS

The Company regards its software products and some of the methodology and
processes it uses in connection with performing professional services as
proprietary and attempts to protect them under a combination of copyright, trade
secret and trademark laws and contractual restrictions on employees and third
parties. Despite these precautions, it may be possible for unauthorized parties
to copy the Company's software or to reverse engineer or obtain and use
information the Company regards as proprietary. The Company has no patents and
existing trade secret and copyright laws provide only limited protection.
Certain provisions of the license and distribution agreements generally used by
the Company, including provisions protecting against unauthorized use, copying,
transfer and disclosure, may be unenforceable under the laws of certain
jurisdictions

18
<PAGE> 21

and the Company is required to negotiate limits on these provisions from time to
time. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the protections put in place by the
Company will be adequate.

In 1996, the Company acquired the date bridging technology incorporated in
its new Bridge 2000 product, together with a pending patent application. The
Company is continuing to prosecute the patent application. However, there can be
no assurance that a patent will issue as a result of this application, nor as to
the extent of the protection any such patent might afford.

Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims of infringement.
Although the Company is not currently involved in any litigation with respect to
intellectual property rights, infringement claims against software developers
are likely to increase as the number of functionally similar products in the
market increases. There can be no assurance that third-party claims, with or
without merit, alleging infringement will not be asserted against the Company in
the future. Such assertions can be time-consuming and expensive to defend and
could require the Company to discontinue the use of certain software or
processes, to cease the manufacture, use and sale of infringing products and
services, to incur significant litigation costs and expenses and to develop or
acquire noninfringing technology or to obtain licenses to the alleged infringing
technology. There can be no assurance that the Company would be able to develop
or acquire alternative technologies or to obtain such licenses or, if licenses
were obtainable, that the terms would be commercially acceptable to the Company.
See "Business -- Intellectual Property."

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, this Form 10-K contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. Such
forward-looking statements involve risks and uncertainties and include, but are
not limited to, statements regarding future events and the Company's plans and
expectations. The Company's actual results may differ materially from such
statements. Factors that cause or contribute to such differences include, but
are not limited to, those discussed above in "Factors That May Affect Future
Results," as well as those discussed elsewhere in this Form 10-K and the
documents incorporated herein by reference. Although the Company believes that
the assumptions underlying its forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in such forward-looking statements will be
realized. In addition, as disclosed above under "Factors That May Affect Future
Results," the business and operations of the Company are subject to substantial
risks which increase the uncertainties inherent in the forward-looking
statements included in this Form 10-K. The inclusion of such forward-looking
information should not be regarded as a representation by the Company or any
other person that the future events, plans or expectations contemplated by the
Company will be achieved.

ITEM 2. PROPERTIES

The Company's principal administrative and marketing facilities are located
in approximately 38,000 square feet of space in Phoenix, Arizona. The Company
occupies these premises under a lease agreement expiring on December 31, 1999,
subject to certain renewal options. The Company's research and development and
customer support facilities are located in approximately 24,000 square feet of
space in Phoenix, Arizona. The Company occupies these premises under a lease
agreement expiring on May 31, 2001. In August 1997, the Company signed a letter
of intent to lease an additional 13,000 square feet in this facility, expiring
May 31, 2001.

In addition, the Company maintains field offices and executive suite sales
offices within the United States and Canada located in leased space aggregating
approximately 22,000 square feet as of June 30, 1997. The Company also leased an
aggregate of approximately 55,000 square feet of

19
<PAGE> 22

space as of June 30, 1997 in Australia, Belgium, Germany, Japan, the Netherlands
and the United Kingdom for operations of its international branch offices and
subsidiaries.

The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS

VIASOFT is subject to certain legal proceedings and claims that arise in
the conduct of its business. In the opinion of management, the amount of
liability, if any, as a result of these claims and proceedings is not likely to
have a material effect on the financial condition or results of operations of
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's directors and executive officers and their ages as of July
31, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- -------------------------------------------------
<S> <C> <C>
Steven D. Whiteman............ 46 Chairman of the Board, President and Chief
Executive Officer
Kevin M. Hickey............... 39 Executive Vice President and Chief of Operations
Mark R. Schonau............... 41 Senior Vice President, Finance & Administration,
Chief Financial Officer and Treasurer
Catherine R. Hardwick......... 38 Vice President, General Counsel and Secretary
Colin J. Reardon.............. 44 Senior Vice President, International Operations
Jean-Luc G. Valente........... 36 Senior Vice President, Marketing
</TABLE>

Steven D. Whiteman has served as President of the Company since May 1993,
as Chief Executive Officer and a director since January 1994 and as Chairman of
the Board since April 1997. Prior to holding these offices, Mr. Whiteman served
as Vice President of Sales and Marketing of the Company from December 1990.
Before joining VIASOFT, Mr. Whiteman served as Senior Vice President, Sales and
International Operations of Systems Center, Inc., a developer and marketer of
network and systems management software, from January 1989 to October 1990. Mr.
Whiteman is a director of Unify Corporation.

Kevin M. Hickey has served as Executive Vice President and Chief of
Operations since July 1997. Mr. Hickey served as Senior Vice President, Americas
Operations of the Company from January 1994 to July 1997. Mr. Hickey joined
VIASOFT in February 1993 to manage the domestic sales organization of the
Company. Prior to joining VIASOFT, Mr. Hickey had been employed by International
Business Machines Corporation as a Business Unit Executive in the Phoenix office
from January 1991 through January 1993; as an Administrative Assistant from
November 1989 to December 1990; and as Marketing Manager from January 1988
through October 1989.

Mark R. Schonau has served as Senior Vice President, Finance &
Administration, since July 1997 and as Chief Financial Officer and Treasurer
since September 1996. Mr. Schonau also served as Vice President, Finance &
Administration, from September 1996 to July 1997. He had consulted with the
Company for a short period of time prior to his employment. Before joining
VIASOFT, Mr. Schonau served as Chief Financial Officer, Corporate Secretary and
Treasurer of CyCare Systems, Inc., a healthcare software company, from October
1989 to August 1996.

Catherine R. Hardwick has served as Vice President of the Company since
July 1997 and as Secretary and General Counsel of the Company since January
1996. Prior to holding these offices, Ms. Hardwick served as Corporate Counsel
for the Company from February 1995. Before joining the

20
<PAGE> 23

Company, Ms. Hardwick practiced law with the law firm of Meyer, Hendricks,
Victor, Osborn & Maledon, P.A. in the areas of corporate and securities law and
intellectual property licensing.

Colin J. Reardon has served as Senior Vice President, International
Operations of the Company since July 1997. Mr. Reardon served as Vice President,
International Operations of the Company from August 1994 to July 1997. Prior to
joining VIASOFT, Mr. Reardon served as Vice President of International Marketing
of Sterling Software, Inc., a systems management software and services company,
from July 1993 through July 1994. Mr. Reardon was previously employed by Systems
Center, Inc., a developer and marketer of network and systems management
software, where Mr. Reardon served as Vice President of European Operations from
November 1992 through June 1993 and Managing Director of its United Kingdom
operations from July 1988 through October 1992.

Jean-Luc G. Valente has served as Senior Vice President, Marketing, since
July 1997. Mr. Valente served as Vice President, Marketing, from April 1996
through July 1997. Prior to joining the Company in April, 1996, Mr. Valente was
employed by Computer Associates International, Inc., a software manufacturer,
where he served as Vice President, Strategic Marketing from July 1993 through
April 1996, Regional Marketing Manager from March 1992 through June 1993 and a
Marketing Director, from March 1991 through March 1992.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock has been traded on The Nasdaq Stock Market under
the symbol VIAS since the Company's initial public offering in March 1995. Prior
to that offering, there was no public market for the Common Stock of the
Company. The Company has never paid cash dividends on its capital stock and
currently anticipates that it will retain future earnings, if any, to fund the
development and growth of its business.

The number of holders of record of the Company's Common Stock was
approximately 285 at August 29, 1997. In addition, there are approximately 4,700
beneficial owners of Common Stock.

The following table presents quarterly information on the price range of
the Common Stock (Nasdaq National Market symbol "VIAS") beginning at the
Company's initial public offering in fiscal 1995. The prices have been adjusted
to give retroactive effect to the Company's two-for-one stock split that was
payable on September 13, 1996 to stockholders of record as of August 30, 1996.
This information indicates the high and low reported sale prices on the Nasdaq
National Market.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1995:
Third quarter (beginning March 1, 1995).................... 4 7/8 3 7/8
Fourth quarter............................................. 7 1/2 4 1/4
FISCAL 1996:
First quarter.............................................. 8 1/2 4 15/16
Second quarter............................................. 7 13/16 5 3/4
Third quarter.............................................. 14 1/4 6 5/8
Fourth quarter............................................. 34 1/2 10 3/4
FISCAL 1997:
First quarter.............................................. 49 1/4 14 3/8
Second quarter............................................. 61 39 1/8
Third quarter.............................................. 65 1/4 27 1/4
Fourth quarter............................................. 55 3/8 30 3/8
</TABLE>

21
<PAGE> 24

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" included elsewhere herein. The selected
consolidated financial data presented below has been derived from the Company's
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, whose report covering the financial
statements as of June 30, 1997 and 1996 and for each of the three years in the
period ended June 30, 1997 also is included elsewhere herein. The consolidated
statements of operations data for the years ended June 30, 1994 and 1993 and the
consolidated balance sheet data as of June 30, 1995, 1994, and 1993 are derived
from audited financial statements not included herein.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
PRO FORMA
JUNE 30,
1993 1994 1995 1996 1997 1997(1)
------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees............................................ $11,343 $13,029 $14,311 $17,824 $ 40,292 $42,727
Maintenance fees................................................. 7,645 10,041 12,059 14,305 21,010 23,157
Professional services fees....................................... 1,341 2,715 4,387 11,307 23,832 25,081
Other............................................................ 313 199 194 121 178 300
------- ------- ------- ------- -------- -------
Total revenues............................................. 20,642 25,984 30,951 43,557 85,312 91,265
------- ------- ------- ------- -------- -------
Operating expenses:
Cost of software license and maintenance fees(2)................. 2,254 1,544 2,661 2,788 4,345 5,471
Cost of professional services fees............................... 1,626 2,522 4,052 8,025 18,316 19,529
Sales and marketing.............................................. 13,308 11,993 13,517 18,137 31,573 33,193
Research and development......................................... 3,692 3,291 3,193 4,237 7,893 9,135
Write-off of purchased in-process research and development(3).... -- -- -- -- 26,958 --
General and administrative(2).................................... 2,406 2,480 2,643 3,567 6,319 6,802
------- ------- ------- ------- -------- -------
Total operating expenses................................... 23,286 21,830 26,066 36,754 95,404 74,130
------- ------- ------- ------- -------- -------
Income (loss) from operations...................................... (2,644) 4,154 4,885 6,803 (10,092) 17,135
Total other income (expense)....................................... (350) (22) 490 1,257 718 712
------- ------- ------- ------- -------- -------
Income (loss) before income taxes.................................. (2,994) 4,132 5,375 8,060 (9,374) 17,847
Provision for income taxes......................................... 278 487 183 1,843 6,062 6,155
------- ------- ------- ------- -------- -------
Net income (loss).................................................. $(3,272) $ 3,645 $ 5,192 $ 6,217 $(15,436) $11,692
======= ======= ======= ======= ======== =======
Earnings (loss) per common and common share equivalent(4).......... $ (.28) $ .29 $ .36 $ .36 $ (.90) $ .64
======= ======= ======= ======= ======== =======
Weighted average number of common and common share equivalents
outstanding(4)................................................... 11,620 12,720 14,584 17,391 17,212 18,270
======= ======= ======= ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 1,025 $ 4,099 $ 7,680 $ 5,009 $ 8,501
Working capital (deficit).......................................... (2,654) 1,149 17,950 25,388 9,856
Total assets....................................................... 9,551 14,257 32,614 46,591 64,601
Deferred revenue (current)......................................... 6,127 7,679 8,482 9,985 18,227
Deferred revenue (long term)....................................... 28 182 185 298 230
Total stockholders' equity (deficit)............................... (690) 3,039 20,423 28,259 28,696
</TABLE>

- ---------------
(1) Gives pro forma effect to the acquisition by the Company of all of the
outstanding capital stock of R&O as if the acquisition had occurred at the
beginning of the period presented. The pro forma results exclude the
approximate $27.0 million purchased in-process research and development
charge. See "Pro Forma Combined Financial Data," "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations"
and Note 2 to Consolidated Financial Statements.

(2) For the period from December 5, 1996, the date of the R&O acquisition,
through June 30, 1997, cost of software license and maintenance fees and
general and administrative expense included amortization of $233,000 and
$311,000, respectively, of intangible assets acquired in the R&O
acquisition.

(3) See Note 2 to Consolidated Financial Statements and "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations."

(4) Reflects the conversion of all issued and outstanding shares of preferred
stock into 8,847,814 shares of Common Stock upon the closing of the
Company's initial public offering on March 8, 1995. Also reflects the effect
of a two-for-one stock split effected in the form of a dividend, with a
record date of August 30, 1996. See Note 1 to Consolidated Financial
Statements.

22
<PAGE> 25

PRO FORMA COMBINED FINANCIAL DATA

The following pro forma financial data of the Company presents the
Company's unaudited pro forma combined statements of operations for the fiscal
years ended June 30, 1996 and 1997, adjusted to give effect to the R&O
acquisition as if it had been consummated as of the beginning of each respective
period.

On December 5, 1996, the Company acquired all of the capital stock of R&O.
The Company initially paid $10.8 million in cash and issued approximately
425,000 shares of restricted Common Stock valued at $12.8 million to the selling
stockholders of R&O. Additional consideration of $2.0 million was paid on
February 28, 1997 based on the achievement of certain financial performance
criteria. The Company also assumed liabilities of approximately $9.4 million and
recorded other direct costs of approximately $3.8 million related to the
acquisition. The acquisition has been accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16. See "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations" and
Note 2 to Consolidated Financial Statements.

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30, 1997
--------------------------------------------------- ---------------------------------------------------
BUSINESS PRO FORMA PRO FORMA BUSINESS PRO FORMA PRO FORMA
HISTORICAL ACQUIRED ADJUSTMENTS COMBINED HISTORICAL ACQUIRED ADJUSTMENTS COMBINED
---------- -------- ----------- --------- ---------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees............. $ 17,824 $11,318 $ -- $29,142 $ 40,292 $ 2,435 $ -- $42,727
Maintenance fees... 14,305 4,262 -- 18,567 21,010 2,147 -- 23,157
Professional
services fee..... 11,307 3,448 -- 14,755 23,832 1,249 -- 25,081
Other.............. 121 169 -- 290 178 122 -- 300
-------- ------- ------- ------- -------- ------- ------- -------
Total revenues... 43,557 19,197 -- 62,754 85,312 5,953 -- 91,265
-------- ------- ------- ------- -------- ------- ------- -------
Operating expenses:
Cost of software
license and
maintenance
fees............. 2,788 1,787 400(1) 4,975 4,345 959 167(1) 5,471
Cost of
professional
services fees.... 8,025 4,214 (221)(2) 12,018 18,316 1,374 (161)(2) 19,529
Sales and
marketing........ 18,137 6,022 (721)(2,4) 23,438 31,573 2,243 (623)(2,4) 33,193
Research and
development...... 4,237 4,077 (257)(2,4) 8,057 7,893(5) 1,511 (269)(2,4) 9,135
General and
administrative... 3,567 2,598 (495)(1,2,3,4) 5,670 6,319 1,311 (828)(1,2,3,4) 6,802
-------- ------- ------- ------- -------- ------- ------- -------
Total operating
expenses....... 36,754 18,698 (1,294) 54,158 68,446 7,398 (1,714) 74,130
-------- ------- ------- ------- -------- ------- ------- -------
Income (loss) from
operations......... 6,803 499 1,294 8,596 16,866 (1,445) 1,714 17,135
-------- ------- ------- ------- -------- ------- ------- -------
Total other income
(expense).......... 1,257 (308) 227(6) 1,176 718 (144) 138(6) 712
-------- ------- ------- ------- -------- ------- ------- -------
Income (loss) before
income taxes....... 8,060 191 1,521 9,772 17,584 (1,589) 1,852 17,847
Provision for income
taxes.............. 1,843 -- 394(7) 2,237 6,062 -- 93(7) 6,155
-------- ------- ------- ------- -------- ------- ------- -------
Net income (loss).... $ 6,217 $ 191 $ 1,127 $ 7,535 $ 11,522 $(1,589) $ 1,759 $11,692
======== ======= ======= ======= ======== ======= ======= =======
Earnings per common
and common share
equivalent......... $ .36 $ .42 $ .64 $ .64
======== ======= ======== =======
Weighted average
number of common
and common share
equivalents
outstanding........ 17,391 425(8) 17,816 18,086(9) 184(8) 18,270
======== ======= ======= ======== ======= =======
</TABLE>

- ---------------
(1) To adjust amortization expense to reflect amortization of the cost in excess
of the fair value of net assets acquired over a 5-year period and for
amortization of other identifiable intangible assets over the appropriate
periods.
(2) To adjust payroll and employee benefits related to the reduction of
duplicate or redundant positions identified by the Company as part of the
acquisition.
(3) To adjust other operating expenses to reflect expenditures which would not
have been incurred had the acquisition of R&O occurred at the beginning of
the respective periods.
(4) To reflect a reduction in expenses related to excess office space that would
not have been incurred by the Company had the acquisition occurred at the
beginning of the periods presented.
(5) Excludes a charge of approximately $27.0 million for write-off of purchased
in-process research and development.
(6) To adjust interest expense to reflect the payoff of R&O debt assumed in the
acquisition, as of the beginning of the periods presented.
(7) To adjust income taxes to reflect the tax effect of the adjustments
described above.
(8) To adjust weighted average number of common and common share equivalents
outstanding as if the Common Stock issued in connection with the acquisition
of R&O had been outstanding since the beginning of the periods presented.
(9) Adjusted to include additional common share equivalents as a result of
excluding a charge of approximately $27.0 million for write-off of purchased
in-process research and development. See Note (5) above.

23
<PAGE> 26

The foregoing unaudited pro forma combined financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. The
unaudited pro forma combined financial data is provided for illustrative
purposes only and is not necessarily indicative of the combined results of
operations that would have been reported had the R&O acquisition occurred on the
dates indicated, nor does it represent a forecast of the combined results of
operations for any future period. No pro forma adjustments have been included
herein which reflect the potential effect of (i) any efficiencies which may be
obtained by combining the Company and R&O operations or (ii) the costs of
restructuring, integrating or consolidating their operations. Certain statements
in this Prospectus concerning the R&O acquisition, including descriptions of the
acquisition and pro forma financial information, are forward-looking statements
that involve risks and uncertainties. There can be no assurance that the R&O
acquisition will have the desired benefits or that it will not have an adverse
effect on the Company's business, financial condition or results of operations.
Actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, among others, those
discussed herein under "Factors That May Affect Future Results" and "Special
Note on Forward-Looking Statements," as well as those discussed elsewhere in
this Prospectus and in the documents incorporated herein by reference.

24
<PAGE> 27

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed above in "Factors That May Affect Future Results",
as well as those discussed elsewhere in this Form 10-K or incorporated herein by
reference. See "Special Note on Forward-Looking Statements."

OVERVIEW

The Company derives its revenues primarily from software license fees,
software maintenance fees and professional services fees. The Company's software
is licensed primarily to Fortune 1000 companies and similarly-sized business and
governmental organizations worldwide. Professional services are provided in
conjunction with software products and are also provided separately to similar
large organizations. The Company's products and services are marketed through
its United States sales force, both domestically and in Canada and Latin
America, and through foreign subsidiaries and independent distributors in other
international markets.

The Company licenses software products directly to customers and to
distributors for resale. Software license fees are recognized upon delivery and
acceptance of the software, receipt of an executed noncancellable license
agreement from the customer or the distributor's end-user and completion of any
significant remaining obligations under the agreement. Revenues from software
licensing related to the Company's obligation to provide certain customer
support are deferred and recognized straight-line over the contract support
period, which is generally one year. Software maintenance contracts are
generally renewable on an annual basis, although the Company also negotiates
long-term maintenance contracts from time to time. Revenues from maintenance
contract renewals are deferred and recognized straight-line over the term of the
contracts. Revenues from professional services fees are recognized on a
percentage of completion basis, which is generally as the related services are
provided.

On December 5, 1996, the Company acquired all of the outstanding shares of
capital stock of R&O pursuant to a stock purchase agreement with the
stockholders of R&O. R&O develops, markets and supports repository software
tools through its Rochade product line, together with related repository based
services and solutions. The Company accounted for the R&O acquisition as a
purchase and allocated approximately $27.0 million of the purchase price to
in-process research and development, resulting in a significant charge to the
Company's results of operations during the year ended June 30, 1997. Total
revenues of R&O were $12.5 million for the period from the acquisition date to
June 30, 1997.

25
<PAGE> 28

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain expense and income items:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software license fees.................................... 46.2% 40.9% 47.2%
Maintenance fees......................................... 39.0 32.8 24.6
Professional services fees............................... 14.2 26.0 28.0
Other.................................................... 0.6 0.3 0.2
----- ----- -----
Total revenues................................... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of software license and maintenance fees............ 8.6 6.4 5.1
Cost of professional services fees....................... 13.1 18.4 21.4
Sales and marketing...................................... 43.7 41.6 37.0
Research and development................................. 10.3 9.7 9.3
Write-off of purchased in-process research and
development........................................... -- -- 31.6
General and administrative............................... 8.5 8.3 7.4
----- ----- -----
Total operating expenses......................... 84.2 84.4 111.8
----- ----- -----
Income (loss) from operations.............................. 15.8 15.6 (11.8)
Total other income, net.......................... 1.6 2.9 0.8
----- ----- -----
Income (loss) before income taxes.......................... 17.4 18.5 (11.0)
Provision for income taxes................................. 0.6 4.2 7.1
----- ----- -----
Net income (loss)................................ 16.8% 14.3% (18.1)%
===== ===== =====
</TABLE>

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996

REVENUES

Total revenues were $85,312,000 for the fiscal year ended June 30, 1997, an
increase of 95.9% from $43,557,000 for the fiscal year ended June 30, 1996.
Software license fees were $40,292,000 for the fiscal year ended June 30, 1997,
an increase of 126.1% from $17,824,000 for the fiscal year ended June 30, 1996.
Software license fees increased both domestically and internationally as a
result of the demand for the Company's tools to assist in addressing the year
2000 century date change problem. The increase in international software license
fees was attributable primarily to a 386.6% improvement in results from the
Company's direct operations over the same period in the prior year, due
primarily to sales of the Company's year 2000 solutions in the United Kingdom
and growth of the German and Australian operations. In addition, license fees
increased due to the acquisition of R&O, which contributed license fees of
$7,398,000 since the December 5, 1996 acquisition date. See Note 9 to
Consolidated Financial Statements.

Maintenance fees were $21,010,000 in fiscal 1997, an increase of 46.9% from
$14,305,000 in fiscal 1996. The increase was due in part to the R&O acquisition,
which contributed $3,219,000 in maintenance revenue, with the remainder
attributable to new software licenses, customer system upgrades and increases in
the fees charged for annual maintenance.

Professional services fees were $23,832,000 in fiscal 1997, an increase of
110.8% from $11,307,000 in fiscal 1996. The Company continued to expand its
professional services business throughout most of fiscal 1997 to continue to
meet the increasing demand for its year 2000 solution offerings, VIASOFT's
Enterprise 2000. VIASOFT's Enterprise 2000 solution offerings comprised

26
<PAGE> 29

72.4% and 74.7% of the Company's professional services revenues during fiscal
1997 and 1996, respectively. In addition, R&O contributed $1,818,000 in
professional services fee revenue in fiscal 1997. During the fourth quarter of
fiscal 1997, the Company began to enhance its year 2000 solution offerings. The
Company's initial offering was focused on a three-phase, enterprise level
solution for the year 2000 problem using VIASOFT's Impact 2000, VIASOFT's Plan
2000, and VIASOFT's Operation 2000. In the fourth quarter of fiscal 1997, the
Company introduced VIASOFT's FastPath 2000, which is designed to provide the
primary components of a successful year 2000 conversion on an application level,
rather than an enterprise-wide level. See "Business -- VIASOFT Services --
VIASOFT's Enterprise 2000." This resulted in decreased utilization of personnel
during the quarter due to training required for this new solution. During the
fourth quarter of fiscal 1997, the Company also re-evaluated certain of its
service engagements and determined that the level of effort to complete these
engagements was more than originally estimated. As such, the Company revised the
amount of revenue recognized per day on a percentage of completion basis under
the engagements. The impact was to reduce professional services fees by
approximately $700,000 compared to the third quarter of fiscal 1997. The
combination of these revenue adjustments and the decreased personnel utilization
associated with the FastPath 2000 introduction caused a slowdown in revenue
growth in professional services fees during the fourth quarter of fiscal 1997.
The Company does not anticipate that these factors will affect revenue growth in
fiscal 1998.

COST OF REVENUES

Cost of software license and maintenance fees, which include royalties,
cost of customer support and packaging and product documentation, was $4,345,000
for the fiscal year ended June 30, 1997, an increase of 55.8% from $2,788,000
during the fiscal year ended June 30, 1996. The increase was primarily due to
additional R&O expenses of $1,074,000. Without the R&O costs, these expenses
would have increased 17.3%. Gross margins on software license and maintenance
fees remained relatively consistent at 92.9% compared to 91.3% for fiscal 1997
and fiscal 1996, respectively. The expense increase is primarily due to
additional personnel in the customer support area and increased salaries, as
well as amortization of the purchased research and development from the R&O
acquisition.

Cost of professional services fees, which consists principally of personnel
costs, third-party subcontracting fees, and other costs related to the
professional services business, was $18,316,000 for the fiscal year ended June
30, 1997, an increase of 128.2% from $8,025,000 for the fiscal year ended June
30, 1996. The increase in expenses is a result of additional personnel hired and
their related costs as well as third-party costs to deliver the Company's
solutions in response to increased customer demand, both domestically and
internationally, and to a lesser extent, additional expenses incurred by R&O of
$1,681,000. The overall gross margin on professional services fees for fiscal
1997 was 23.2% compared to 29.0% for fiscal 1996. Excluding the R&O professional
services business, the gross margin on other professional services business was
24.4%. During the fourth quarter of fiscal 1997, the Company experienced lower
margins as a result of its introduction of FastPath 2000, noted above, and the
related costs incurred to train the professional services organization. In
addition, the percentage of completion revenue adjustments noted above also
reduced the margins on professional services. Overall, the Company expects a
decrease in professional services margins as it continues to integrate the R&O
professional services organization with its own operations.

SALES AND MARKETING

Sales and marketing expenses consist primarily of salaries, commissions and
related benefits and administrative costs allocated to the Company's sales and
marketing personnel. Sales and marketing expenses were $31,573,000 in fiscal
1997, an increase of 74.1% from $18,137,000 in fiscal 1996. Of this increase,
R&O expenses accounted for $4,027,000. Excluding R&O expenses, sales and
marketing expenses increased 51.9%. This increase is attributable primarily to
an increase in personnel and the associated costs, including higher salaries,
travel and bonuses, as well as

27
<PAGE> 30

general salary increases, increased commissions as a result of revenue growth,
increased marketing costs, and an increase in bad debt expense due to the
absolute dollar increase in accounts receivable. Sales and marketing expenses as
a percentage of total revenues declined to 37.0% in fiscal 1997, compared to
41.6% in fiscal 1996, due primarily to the increase in revenues.

RESEARCH AND DEVELOPMENT

Research and development expenditures consist primarily of personnel costs
of research and development staff and the facilities, computing, benefits and
other administrative costs allocated to such personnel and to a lesser extent,
third-party development costs. Total expenditures for research and development
were $7,893,000 for fiscal year ended June 30, 1997, excluding an approximate
$27.0 million charge for purchased in-process research and development in
connection with the R&O acquisition, an increase of 86.3% from $4,237,000 for
the fiscal year ended June 30, 1996. The increase in expenses includes costs
associated with R&O's research and development of $1,728,000. Excluding costs
related to R&O, research and development costs increased 45.5% in fiscal 1997 as
a result of general salary increases, the addition of personnel and the related
cost of recruiting, costs of external consultants and increased expenses for
external service bureau computing costs. As a percentage of total revenues,
research and development costs were 9.3% for fiscal 1997 (excluding the
approximate $27.0 million purchased in-process research and development charge)
compared to 9.7% for the same period in fiscal 1996, due primarily to the
increase in revenue.

GENERAL AND ADMINISTRATIVE

General and administrative expenses include the costs of finance and
accounting, legal, human resources, corporate information systems and other
administrative functions of the Company. General and administrative expenses
were $6,319,000 in the fiscal year ended June 30, 1997, representing an increase
of 77.2% compared to $3,567,000 in the fiscal year ended June 30, 1996. The
increase included $1,158,000 in general and administrative expenses related to
R&O. Excluding those expenses and the one-time charge of $350,000 incurred in
the third quarter of fiscal 1996 related to the change in the CFO position,
general and administrative expenses increased 60.4%. This increase is a result
of additional legal fees and administrative personnel and their related costs,
general salary increases, additional bonuses, amortization of intangibles
related to the R&O acquisition, increased external consulting costs and
additional insurance costs. As a percentage of total revenues, general and
administrative expenses were 7.4% for fiscal 1997 compared to 8.2% for period in
fiscal 1996, due primarily to the increase in revenues.

OTHER INCOME (EXPENSE)

Interest income in the fiscal year ended June 30, 1997 was $1,309,000,
compared to $1,350,000 in the fiscal year ended June 30, 1996. This decrease was
due primarily to the decrease in funds available for short-term investment as a
result of the R&O acquisition, net of cash generated from operations during the
year. Other expense for the fiscal year ended June 30, 1997 increased to
$546,000 as compared to $82,000 for the same period in fiscal 1996, primarily
due to exchange losses on transactions with the Company's subsidiaries in
Germany and the United Kingdom, which are valued in their local currencies, as
well as certain transactions with its Italian distributor which are valued in
lira. This was primarily a result of the strengthening of the U.S. dollar
against various European currencies during the second half of fiscal 1997. See
"Effects of Inflation and Foreign Currency Exchange Fluctuations."

PROVISION FOR INCOME TAXES

The provision for income taxes was $6,062,000 and $1,843,000 for fiscal
years ended June 30, 1997 and 1996, respectively. The Company's effective tax
rate was 34.5% in fiscal 1997, excluding the effect of the non-deductible
purchased in-process research and development charge, compared to 22.9% in
fiscal 1996. The Company's effective tax rate in fiscal 1997 was affected by the

28
<PAGE> 31

decreased availability of net operating loss carryforwards, which were fully
utilized in fiscal 1996, and certain tax credit carryforwards, which were mostly
utilized in fiscal 1996.

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995

REVENUES

Total revenues were $43,557,000 for fiscal 1996, an increase of 40.7% from
$30,951,000 for fiscal 1995. Software license fees were $17,824,000 for fiscal
1996, an increase of 24.5% from $14,311,000 for fiscal 1995. Domestic license
revenues increased 30.7% in fiscal 1996 as compared to fiscal 1995, primarily as
a result of heightened awareness of the year 2000 date change problem in the
domestic marketplace and demand for the Company's tools to assist in the
solution to this problem. Internationally, in fiscal 1996, the Company's
software license fees increased by 9.9% as compared to 1995, a slower growth
than experienced domestically. The Company believes the slower international
growth is primarily attributable to the international market awareness of the
year 2000 problem lagging behind the domestic marketplace.

In order to broaden its distribution channels, the Company established its
Solution/Technology Provider program in fiscal 1996. VIASOFT's
Solution/Technology Provider program licenses VIASOFT's Enterprise 2000 solution
offering (consisting of VIASOFT's Impact 2000, VIASOFT's Plan 2000, and
VIASOFT's Operation 2000) to third-party Solution/Technology Providers,
generally consulting services companies, in exchange for license fees and/or
royalties. In conjunction with a services engagement, VIASOFT will lease or
license certain of its products to the customer or Solution/Technology Provider
in order to provide a total solution to the customer. This program generated
both software license and royalty revenue in fiscal 1996. Domestic software
license revenue generated through this program was approximately $1.6 million.
Royalty revenue is included in professional services fees and is immaterial. As
of June 30, 1996, the Company had 19 Solution/Technology Providers worldwide.

Maintenance fees were $14,305,000 in fiscal 1996, an increase of 18.6% from
$12,059,000 in fiscal 1995. This increase is primarily a result of new software
licenses, and, to a lesser extent, customer system upgrades and increases in the
fees charged for annual maintenance.

Professional services fees were $11,307,000 in fiscal 1996, an increase of
157.7% from $4,387,000 in fiscal 1995. The Company continued to expand its
professional services business to meet the growing demand for VIASOFT's
Enterprise 2000 solution offerings created by the year 2000 date change problem.
Enterprise 2000 solution offerings comprised 73.6% of the Company's professional
services fees in fiscal 1996. Additionally, revenue from the Company's education
services continued to grow in fiscal 1996, improving 55.1% to $1,393,000 from
$898,000 in fiscal 1995, primarily as a result of a renewed focus on the sale of
education services and increased license sales.

COST OF REVENUES

Cost of software license and maintenance fees was $2,788,000 in fiscal
1996, an increase of 4.8% from $2,661,000 in fiscal 1995. The increase was
primarily attributable to an increase in the average number of personnel devoted
to customer support and increased product documentation costs related to new
product releases, offset by savings in royalties. See Note 8 of Notes to
Consolidated Financial Statements incorporated by reference herein.

The cost of professional services fees was $8,025,000 in fiscal 1996, an
increase of 98.1% from $4,052,000 in fiscal 1995. The increase is a result of
the additional personnel hired and their related costs as well as third-party
costs to deliver the Company's solutions in response to increased customer
demand, both domestically and internationally. The gross margin on professional
services fees improved to 29.0% in fiscal 1996 compared to 7.6% in fiscal 1995.
This margin improvement

29
<PAGE> 32

reflects the significant increase in professional service fee income, together
with the Company's focus on improving the management and delivery of its
solution offerings.

SALES AND MARKETING

Sales and marketing expenses were $18,137,000 in fiscal 1996, an increase
of 34.2% from $13,517,000 in fiscal 1995. This increase is attributable
primarily to increased personnel, higher salaries, increased travel expenses
primarily related to the increase in personnel, increased sales incentive costs,
and additional marketing expenditures. These increases were offset by a decrease
in bad debt expense. Bad debt expense in fiscal 1995 included a third quarter
$200,000 increase in the reserve to provide for a specific account which was
subsequently resolved for an amount that was less than the established reserve.
In management's opinion, there was no need for any bad debt expense in fiscal
1996. Sales and marketing expenses as a percentage of total revenues declined to
41.6% in fiscal 1996 compared to 43.7% in fiscal 1995 due primarily to the
increase in revenues.

RESEARCH AND DEVELOPMENT

Total expenditures for research and development were $4,237,000 for fiscal
1996, an increase of 32.7% from $3,193,000 for fiscal 1995. This increase was
due to the hiring of additional personnel and their related costs, as well as
increased third-party development costs. As a percentage of total revenues,
research and development costs remained relatively constant at 9.7% for fiscal
1996 and 10.3% for fiscal 1995.

GENERAL AND ADMINISTRATIVE

General and administrative expenses were $3,567,000 in fiscal 1996,
representing an increase of 34.9%, as compared to $2,643,000 in fiscal 1995. In
the third quarter of fiscal 1996, the Company incurred approximately $350,000 in
one time charges, consisting primarily of severance and relocation costs,
related to a change in the Chief Financial Officer position. Without these one
time costs, general and administrative expenses would have increased 21.7%.
Excluding the one time charge, the increases were due to general salary
increases, additional personnel and the related costs associated with those
personnel, and external professional service consulting costs. As a percentage
of total revenues, general and administrative expenses were constant at 8.3% and
8.5%, respectively, for fiscal 1996 and 1995.

OTHER INCOME (EXPENSE)

Other income was $1,257,000 in fiscal 1996 as compared to $490,000 in
fiscal 1995. The increase is primarily due to interest income which was
$1,350,000 in fiscal 1996 compared to $508,000 in fiscal 1995. This increase was
due primarily to an increase in funds available for short term investment as a
result of the Company's initial public offering and from cash generated from
operations. Foreign currency gains and losses were negligible in fiscal 1996 and
1995.

PROVISION FOR INCOME TAXES

The provision for income taxes was $1,843,000 and $183,000, resulting in
effective tax rates of 22.9% and 3.4%, in fiscal 1996 and 1995, respectively.
The Company's effective tax rates were affected by the availability of net
operating loss carryforwards and certain tax credit carryforwards, which reduced
the Company's federal tax liability for fiscal 1996 and eliminated the Company's
federal tax liability in fiscal 1995. See Note 5 to Consolidated Financial
Statements.

30
<PAGE> 33

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated quarterly
results of operations for each of the eight quarters ended June 30, 1997. In the
opinion of management, this quarterly information has been prepared on the same
basis as the Company's annual audited Consolidated Financial Statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information for the periods presented when read
in conjunction with the Consolidated Financial Statements of the Company and
Notes thereto. The operating results for any quarter are not necessarily
indicative of the results of the full year or any future quarter.

<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
---------------------------------------- -----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees.......... $ 3,602 $ 4,674 $ 3,977 $ 5,571 $ 4,714 $ 8,381 $11,380 $15,817
Maintenance fees............... 3,312 3,567 3,608 3,818 4,047 4,853 5,716 6,394
Professional services fees..... 1,491 1,984 2,748 5,084 5,177 6,498 6,765 5,392
Other.......................... 35 32 28 26 38 51 40 49
------- ------- ------- ------- ------- -------- ------- -------
Total revenues........... 8,440 10,257 10,361 14,499 13,976 19,783 23,901 27,652
------- ------- ------- ------- ------- -------- ------- -------
Operating expenses:
Cost of software license and
maintenance fees............. 659 799 683 647 624 953 1,221 1,547
Cost of professional services
fees......................... 1,464 1,514 1,833 3,214 3,921 4,549 5,009 4,837
Sales and marketing............ 3,664 4,201 4,271 6,001 5,168 7,152 8,626 10,627
Research and development....... 936 1,109 1,030 1,162 1,127 1,725 2,210 2,831
Write-off of purchased
in-process research and
development.................. -- -- -- -- -- 26,958 -- --
General and administrative..... 763 762 1,174 868 1,115 1,505 1,862 1,837
------- ------- ------- ------- ------- -------- ------- -------
Total operating
expenses............... 7,486 8,385 8,991 11,892 11,955 42,842 18,928 21,679
------- ------- ------- ------- ------- -------- ------- -------
Income (loss) from operations.... 954 1,872 1,370 2,607 2,021 (23,059) 4,973 5,973
------- ------- ------- ------- ------- -------- ------- -------
Other income (expense):
Interest income................ 306 322 378 344 386 344 249 330
Interest expense............... (3) (2) (4) (2) (1) (52) 9 (1)
Other, net..................... (2) (1) (42) (37) 4 (11) (422) (117)
Total other income
(expense).............. 301 319 332 305 389 281 (164) 212
Income (loss) before income
taxes.......................... 1,255 2,191 1,702 2,912 2,410 (22,778) 4,809 6,185
Provision for income taxes....... 314 551 432 546 854 1,406 1,661 2,141
------- ------- ------- ------- ------- -------- ------- -------
Net income (loss)................ $ 941 $ 1,640 $ 1,270 $ 2,366 $ 1,556 $(24,184) $ 3,148 $ 4,044
======= ======= ======= ======= ======= ======== ======= =======
Earnings (loss) per common and
common share equivalent........ $ 0.06 $ 0.10 $ 0.07 $ 0.13 $ 0.09 $ (1.42) $ 0.17 $ 0.22
======= ======= ======= ======= ======= ======== ======= =======
Weighted average number of common
and common share equivalents
outstanding.................... 17,040 17,092 17,278 17,558 17,668 17,045 18,337 18,460
======= ======= ======= ======= ======= ======== ======= =======
</TABLE>

The Company's revenues and operating results are subject to quarterly and
other fluctuations resulting from a variety of factors, including the effect of
budgeting and purchasing practices of its customers, the length of the customer
evaluation process for Company products, the timing of customer system
conversions, and, to a lesser extent, the Company's sales commission practices,
which are based partly on quarterly incentives and annual quotas, and other
factors. The Company's revenues and results of operations may also be affected
by seasonal trends, which have resulted in higher revenues in the Company's
second and fourth fiscal quarters and lower revenues in its first

31
<PAGE> 34

and third fiscal quarters. This seasonality is a result of many customers'
annual purchasing and budgetary practices, the Company's sales commission
practices, lower revenues in the summer months (particularly in Europe) when
many businesses make fewer purchases, and other factors. The Company's
professional services revenues tend to fluctuate due to the completion or
commencement of significant projects, which may continue over several quarters,
the number of working days in a quarter and the utilization rate of professional
services personnel. The Company has little or no backlog. Therefore, quarterly
revenues and operating results depend primarily on the volume and timing of
orders received during the quarter, which are difficult to forecast. The Company
has often recognized a substantial portion of its license fees in the last month
of the quarter, frequently in the last week. A significant portion of the
Company's operating expenses is relatively fixed, since personnel levels and
other expenses are based upon anticipated revenues. Because a substantial
portion of these revenues may not be generated until the end of each quarter,
the Company may not be able to reduce spending in response to sales shortfalls
or delays. These factors, many of which are not within the Company's control,
can cause significant variations in operating results from quarter to quarter.
The Company believes that quarter to quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. See "Factors That May Affect Future
Results -- Fluctuating Quarterly Results; -- Volatility of Common Stock Price."

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations to date primarily through the private
sale of equity securities, the initial public offering of its common stock in
March 1995, and, since July 1, 1993, from cash flow from operations. At June 30,
1997 the Company had cash and cash equivalents and investments of $28,575,000,
representing a decrease of $229,000 from the total of $28,804,000 at June 30,
1996. See Notes 1, 2 and 3 of Notes to Consolidated Financial Statements.

The Company's net cash provided by operating activities was $15,136,000 and
$7,976,000 for the fiscal years ended June 30, 1997 and 1996, respectively. Net
cash provided from operations in fiscal 1997 was composed primarily of net
income excluding non-cash charges for the write-off of purchased in-process
research and development, depreciation and amortization and a net increase in
working capital. Net cash provided in fiscal 1996 was composed primarily of net
income excluding non-cash charges for depreciation and amortization and
compensation related to the Company's stock plans, and a net increase in working
capital.

The Company's investing activities used cash of $9,371,000 and $11,803,000,
in the fiscal years ended June 30, 1997 and 1996, respectively. In fiscal 1997,
cash was used for the purchase of R&O, net of the cash acquired, and to a lesser
extent, the purchase of furniture, fixtures and equipment, offset in part by
sales or maturities of investments in excess of purchases of investments. In
fiscal 1996, the primary use of cash was for the purchase of investments, net of
investment maturities.

The Company's financing activities used cash of $1,942,000 and provided
cash of $1,158,000 in the fiscal years ended June 30, 1997 and 1996,
respectively. In fiscal 1997, the cash was used for payment of R&O debt
acquired, offset in part by cash provided from the issuance of common stock upon
the exercise of options and through the employee stock purchase plan. In fiscal
1996, cash was provided primarily by the sale of common stock through the
employee stock purchase plan and the exercise of stock options.

As of June 30, 1997, the Company did not have any material commitments for
capital expenditures. In the fiscal year ending June 30, 1998, the Company
anticipates capital expenditures of approximately $6.0 million, primarily for
computer hardware and software to update the Company's communications equipment
and systems.

On September 22, 1997, the Company received proceeds in an aggregate amount
of $76,180,000 from a secondary offering of 1,465,000 shares of its common
stock. The Company expects that the proceeds of this offering and existing
working capital, together with cash from

32
<PAGE> 35

operations, will be sufficient for the foreseeable future to meet its capital
and liquidity needs for existing operations and general corporate purposes, as
well as the addition of direct sales and research and development personnel,
marketing initiatives, and potential acquisitions of businesses, products and
technologies.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

The results of operations of the Company for the periods discussed above
have not been significantly affected by inflation or (except as described below)
foreign currency fluctuations. Sales made through the Company's foreign
distributors are denominated in U.S. dollars except in Italy, where they are
denominated in lira. Sales by the Company's foreign subsidiaries are principally
denominated in the currencies of the countries where sales are made. The Company
experienced losses of approximately $704,000 from foreign currency fluctuations
in the fiscal year ended June 30, 1997. The Company's unhedged foreign currency
exposure at June 30, 1997 consisted of the following (in thousands):

<TABLE>
<CAPTION>
UNITED
KINGDOM AUSTRALIA GERMANY NETHERLANDS ITALY OTHER TOTAL
------- --------- ------- ----------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment in
foreign
subsidiaries.......... $ (730) $ 225 $10,311 $(226) $ -- $ 21 $ 9,601
Net short-term
receivables (payables)
with foreign
subsidiaries.......... (1,057) (874) 7,106 (290) -- (191) 4,694
Net receivable from
foreign distributor... -- -- -- -- 406 -- 406
------- ----- ------- ----- ---- ----- -------

Total......... $(1,787) $(649) $17,417 $(516) $ 406 $(170) $14,701
======= ===== ======= ===== ==== ===== =======
</TABLE>

The Company has not to date sought to hedge the risks associated with
fluctuations in foreign exchange rates. The Company continues to evaluate the
relative costs and benefits of hedging and may seek to hedge these risks in the
future, if appropriate. Gains and losses relating to translation of the
financial statements of the Company's foreign subsidiaries are included as a
separate component of stockholders' equity in the Company's Consolidated
Financial Statements. See "Factors That May Affect Future Results -- Risks from
International Operations."

33
<PAGE> 36

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

VIASOFT, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants........................................... 35
Consolidated Balance Sheets........................................................ 36
Consolidated Statements of Operations.............................................. 37
Consolidated Statements of Stockholders' Equity.................................... 38
Consolidated Statements of Cash Flows.............................................. 39
Notes to Consolidated Financial Statements......................................... 40
</TABLE>

34
<PAGE> 37

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To VIASOFT, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of VIASOFT, Inc. (a
Delaware corporation) and Subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VIASOFT, Inc. and Subsidiaries
as of June 30, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Phoenix, Arizona,
July 29, 1997 (except with respect to the
matter discussed in Note 11, as to which
the date is September 22, 1997).

35
<PAGE> 38

VIASOFT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)............................................ $ 5,009 $ 8,501
Investments, at amortized cost (Note 3)....................................... 23,795 12,697
Accounts receivable (less allowance for doubtful accounts of $279 and $678, at 13,335 21,240
June 30, 1996 and 1997 respectively)........................................
Prepaid expenses and other (Notes 5 and 8).................................... 1,130 2,954
------- --------
Total current assets................................................... 43,269 45,392
------- --------
Furniture and equipment (Note 1):
Computer equipment............................................................ 2,692 4,789
Office furniture and equipment................................................ 1,905 2,986
Capitalized leased equipment.................................................. 264 279
------- --------
Total furniture and equipment.......................................... 4,861 8,054
Less: Accumulated depreciation................................................ (2,895) (3,775)
------- --------
Furniture and equipment, net................................................ 1,966 4,279
------- --------
Other assets (Notes 2 and 8):
Investments, at amortized cost................................................ -- 7,377
Intangible assets, net........................................................ -- 4,675
Other......................................................................... 1,356 2,878
------- --------
Total other assets..................................................... 1,356 14,930
------- --------
Total assets........................................................... $46,591 $ 64,601
======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,456 $ 2,016
Accrued compensation.......................................................... 1,491 3,309
Accrued income taxes payable.................................................. 1,824 3,276
Other accrued expenses........................................................ 3,100 8,709
Deferred revenue (Note 1)..................................................... 9,985 18,227
Current maturities of obligations under capital leases (Note 4)............... 25 --
------- --------
Total current liabilities.............................................. 17,881 35,537
------- --------
Deferred revenue, recognized after one year (Note 1)............................ 298 230
------- --------
Obligations under capital leases, less current maturities (Note 4).............. 18 --
------- --------
Other long term liabilities..................................................... 135 138
------- --------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares authorized, 0 shares issued -- --
and outstanding.............................................................
Common stock, $.001 par value, 24,000,000 shares authorized; 16,718,556 and 17 18
17,722,772 shares issued and outstanding at June 30, 1996 and 1997,
respectively (Notes 6 and 7)................................................
Capital in excess of par value................................................ 27,771 43,970
Common stock subscriptions receivable (Note 7)................................ (59) (55)
Accumulated earnings (deficit)................................................ 506 (14,930)
Cumulative translation adjustment (Note 1).................................... 24 (307)
------- --------
Total stockholders' equity............................................. 28,259 28,696
------- --------
Total liabilities and stockholders' equity............................. $46,591 $ 64,601
======= ========
</TABLE>

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

36
<PAGE> 39

VIASOFT, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
Software license fees.................................... $14,311 $17,824 $ 40,292
Maintenance fees......................................... 12,059 14,305 21,010
Professional services fees............................... 4,387 11,307 23,832
Other.................................................... 194 121 178
------- ------- --------
Total revenues................................... 30,951 43,557 85,312
------- ------- --------
Operating expense:
Cost of software license and maintenance fees............ 2,661 2,788 4,345
Cost of professional services fees....................... 4,052 8,025 18,316
Sales and marketing...................................... 13,517 18,137 31,573
Research and development................................. 3,193 4,237 7,893
Write-off of purchased in-process research and
development........................................... -- -- 26,958
General and administrative............................... 2,643 3,567 6,319
------- ------- --------
Total operating expense.......................... 26,066 36,754 95,404
------- ------- --------
Income (loss) from operations.............................. 4,885 6,803 (10,092)
------- ------- --------
Other income (expense):
Interest income.......................................... 508 1,350 1,309
Interest expense......................................... (27) (11) (45)
Other income (expense), net.............................. 9 (82) (546)
------- ------- --------
Total other income............................... 490 1,257 718
------- ------- --------
Income (loss) before income taxes.......................... 5,375 8,060 (9,374)
Provision for income taxes............................... 183 1,843 6,062
------- ------- --------
Net income (loss).......................................... $ 5,192 $ 6,217 $(15,436)
======= ======= ========
Earnings (loss) per common and common share equivalent
(Note 1)................................................. $ .36 $ .36 $ (.90)
======= ======= ========
Weighted average number of common and common share
equivalents outstanding (Note 1)......................... 14,584 17,391 17,212
======= ======= ========
</TABLE>

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

37
<PAGE> 40

VIASOFT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK COMMON
---------------------- ------------------- CAPITAL IN STOCK ACCUMULATED
NUMBER NUMBER EXCESS OF SUBSCRIPTIONS EARNINGS
AMOUNT OF SHARES AMOUNT OF SHARES PAR VALUE RECEIVABLE (DEFICIT)
-------- ----------- ------ ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994................ $ 12,703 13,271,895 $ 3 3,438,708 $ 1,462 $(265) $ (10,903)
Conversion of preferred stock........... (12,703) (13,271,895) 9 8,847,814 12,694 -- --
Sale of common stock,net.............. -- -- 4 3,434,658 12,136 -- --
Exercise of options, net.............. -- -- -- 227,916 62 -- --
Payments on common stock subscriptions
receivable (Note 7)................. -- -- -- -- -- 7 --
Net income............................ -- -- -- -- -- -- 5,192
Translation adjustment................ -- -- -- -- -- -- --
-------- ----------- ---- ---------- -------- ----- ---------
Balance at June 30, 1995................ -- -- 16 15,949,096 26,354 (258) (5,711)
Sale of common stock, net............. -- -- -- 214,722 747 -- --
Exercise of options, net.............. -- -- 1 279,734 195 -- --
Exercise of warrants.................. -- -- -- 275,004 103 -- --
Income tax benefit relating to stock
plans (Note 5)...................... -- -- -- -- 170 -- --
Compensation relating to stock plans
(Note 7)............................ -- -- -- -- 202 -- --
Payments on common stock subscriptions
receivable (Note 7)................. -- -- -- -- -- 199 --
Net income............................ -- -- -- -- -- -- 6,217
Translation adjustment................ -- -- -- -- -- -- --
-------- ----------- ---- ---------- -------- ----- ---------
Balance at June 30, 1996................ -- -- 17 16,718,556 27,771 (59) 506
Sale of common stock, net............. -- -- -- 299,636 1,281 -- --
Exercise of options, net.............. -- -- -- 279,468 914 -- --
Shares issued in connection with
acquisition of R&O Software-Technik
(Note 2)............................ -- -- 1 425,112 12,805 -- --
Income tax benefit relating to stock
plans (Note 5)...................... -- -- -- -- 1,199 -- --
Payments on stock subscriptions
receivable (Note 7)................. -- -- -- -- -- 4 --
Net loss.............................. -- -- -- -- -- -- (15,436)
Translation adjustment................ -- -- -- -- -- -- --
-------- ----------- ---- ---------- -------- ----- ---------
Balance at June 30, 1997................ $ -- -- $ 18 17,722,772 $ 43,970 $ (55) $ (14,930)
======== =========== ==== ========== ======== ===== =========

CUMULATIVE
TRANSLATION
ADJUSTMENT TOTAL
---------- --------
<S> <C> <C>
Balance at June 30, 1994................ $ 39 $ 3,039
Conversion of preferred stock........... -- --
Sale of common stock,net.............. -- 12,140
Exercise of options, net.............. -- 62
Payments on common stock subscriptions
receivable (Note 7)................. -- 7
Net income............................ -- 5,192
Translation adjustment................ (17) (17)
---- --------
Balance at June 30, 1995................ 22 20,423
Sale of common stock, net............. -- 747
Exercise of options, net.............. -- 196
Exercise of warrants.................. -- 103
Income tax benefit relating to stock
plans (Note 5)...................... -- 170
Compensation relating to stock plans
(Note 7)............................ -- 202
Payments on common stock subscriptions
receivable (Note 7)................. -- 199
Net income............................ -- 6,217
Translation adjustment................ 2 2
---- --------
Balance at June 30, 1996................ 24 28,259
Sale of common stock, net............. -- 1,281
Exercise of options, net.............. -- 914
Shares issued in connection with
acquisition of R&O Software-Technik
(Note 2)............................ -- 12,806
Income tax benefit relating to stock
plans (Note 5)...................... -- 1,199
Payments on stock subscriptions
receivable (Note 7)................. -- 4
Net loss.............................. -- (15,436)
Translation adjustment................ (331) (331)
---- --------
Balance at June 30, 1997................ $ (307) $ 28,696
==== ========
</TABLE>

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

38
<PAGE> 41

VIASOFT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................... $ 5,192 $ 6,217 $(15,436)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Write-off of purchased in-process research and
development...................................... -- -- 26,958
Depreciation and amortization...................... 638 695 1,826
Compensation expense related to stock plans........ -- 202 --
Loss on disposal of fixed assets................... 16 6 26
Changes in operating assets and liabilities net
of effect of business acquired:
Increase in accounts receivable.................. (1,165) (4,358) (3,188)
Increase in prepaid expenses and other assets.... (857) (1,184) (3,180)
Increase (decrease) in accounts payable and other
accrued expenses.............................. 622 2,203 (2,343)
Increase (decrease) in accrued compensation...... (262) 625 1,818
Increase (decrease) in accrued income taxes
payable....................................... (82) 1,954 2,651
Increase in deferred revenue..................... 806 1,616 6,004
-------- -------- --------
Total adjustments............................. (284) 1,759 30,572
-------- -------- --------
Net cash provided by operating activities........ 4,908 7,976 15,136
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures.................................. (722) (987) (2,747)
Cash paid for business acquired, net of cash acquired
(Note 2)........................................... -- -- (10,225)
Sale of investments................................... -- 32,890 36,098
Purchase of investments............................... (12,628) (43,706) (32,497)
-------- -------- --------
Net cash used in investing activities......... (13,350) (11,803) (9,371)
-------- -------- --------
FINANCING ACTIVITIES:
Payments of short term debt (Note 2).................. -- -- (4,099)
Principal payments on obligations under capital
leases............................................. (171) (87) (43)
Payments for offering costs........................... (636) -- --
Proceeds from issuance of common stock................ 12,840 1,046 2,196
Payments received on common stock subscriptions
receivable......................................... 7 199 4
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 12,040 1,158 (1,942)
-------- -------- --------
Effect of exchange rate changes on cash................. (17) (2) (331)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 3,581 (2,671) 3,492
Cash and cash equivalents, beginning of year............ 4,099 7,680 5,009
-------- -------- --------
Cash and cash equivalents, end of year.................. $ 7,680 $ 5,009 $ 8,501
======== ======== ========
Supplemental cash flow information:
Interest paid......................................... $ 27 $ 11 $ 46
Income taxes paid..................................... $ 409 $ 450 $ 2,934
Capital lease obligations incurred.................... $ 93 $ -- $ --
Income tax benefit related to stock plans............. $ -- $ 170 $ 1,199
</TABLE>

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

39
<PAGE> 42

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

OPERATIONS

VIASOFT, Inc. and its subsidiaries (the "Company") provide enterprise
application management solutions that help large organizations worldwide
understand, manage and evolve the large-scale software applications that support
their fundamental business processes. The Company also provides professional
services to large corporations and public entities to help them effectively
manage and automate the evolution of their existing applications. The Company
operates through its wholly-owned subsidiaries in Australia, the United Kingdom,
Germany, Belgium and Mexico and an established network of semi-exclusive
distributors in other international markets.

SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
VIASOFT, Inc. and its subsidiaries VIASOFT Pty. Ltd. (VIASOFT Pty); VIASOFT
International, Inc.; VIASOFT U.K. Limited (VIASOFT UK); VIASOFT International
GmbH (VIASOFT Germany); VIASOFT de Mexico, S.A. de C.V.; VIASOFT Benelux and
Rottger & Osterberg Software-Technik GmbH. The subsidiary books are prepared in
local currency and converted at time of consolidation to U.S. dollars using the
exchange rate at the balance sheet date for balance sheet items and an average
exchange rate during the period presented for income and expense items. All
significant intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITION

Revenue is recognized in accordance with Statement of Position 91-1,
"Software Revenue Recognition." Accordingly, revenue from software licensing is
recognized when delivery of the software has occurred, a signed non-cancellable
license agreement has been received from the customer and any remaining
obligations under the license agreement are insignificant. Revenue related to
insignificant obligations is deferred and recognized as the obligations are
fulfilled. Revenue from software license fees related to the Company's
obligation to provide certain post-contract customer support without charge for
the first year of the license is unbundled from the license fee at its fair
value and is deferred and recognized straight-line over the contract support
period. Revenue from annual or other renewals of maintenance contracts
(including long-term contracts) is deferred and recognized straight-line over
the term of the contracts. Revenues from professional services fees are
recognized on a percentage of completion basis, which is generally as related
services are provided. Professional services do not involve significant
customization, modification or production of the licensed software. Such
professional services fees are recognized as the related services are provided.

Revenue generated by domestic operations from sales to unaffiliated foreign
customers was 15%, 11% and 5% of total revenues in the years ended June 30,
1995, 1996 and 1997, respectively. See Note 9.

CASH AND CASH EQUIVALENTS

The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company's investments include commercial
paper, corporate bonds, and U.S. Treasury bills, all of which are stated at
amortized cost, which approximates fair market value. For purposes of the
statements of cash flows, the Company considers all investments with a maturity
of three months or less when purchased to be cash equivalents.

40
<PAGE> 43

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade accounts receivable. The Company's
customer base is primarily Fortune 1000 and similarly-sized organizations
worldwide, and the Company's international distributor network. The Company does
not require collateral upon delivery of its products.

FURNITURE AND EQUIPMENT

Furniture and equipment is stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of three to seven
years. Depreciation expense was $1,266,000, $664,000, and $558,000 in the years
ended June 30, 1997, 1996, and 1995, respectively.

PRODUCT DEVELOPMENT

Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The establishment
of technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic product lives and changes in software and
hardware technology. In addition, the Company has and plans to continue to
purchase software from third parties. Purchased software is also accounted for
in accordance with SFAS No. 86. Amounts that could have been capitalized under
this statement after consideration of the above factors were immaterial, and
therefore no internal software development costs have been capitalized by the
Company to date.

FOREIGN CURRENCY TRANSLATION

Financial information relating to the Company's foreign subsidiaries is
reported in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." The net foreign currency transaction gain (loss)
in the years ended June 30, 1995, 1996 and 1997, was approximately $10,000,
$16,000, and ($704,000), respectively. The gains or losses resulting from the
translation of the financial statements of the Company's foreign subsidiaries
have been included as a separate component of stockholders' equity.

EARNINGS PER SHARE

Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and common share equivalents assumed
outstanding during the period. Shares issuable upon the exercise of employee
stock options that are considered anti-dilutive are not included in the weighted
average number of common and common share equivalents outstanding. Primary and
fully diluted earnings (loss) per share are considered to be the same in all
periods presented. For purposes of these calculations, the Series B preferred
stock, which was converted into 8,847,814 shares of common stock upon the
closing of the Company's initial public offering on March 8, 1995, has been
assumed to have been converted on a one-for-three basis into shares of common
stock as of the beginning of each year presented to give effect to the
one-for-three reverse split of the common stock in December 1994.

Effective December 1, 1994, the Board of Directors declared a one-for-three
reverse stock split of the Company's common stock. On August 19, 1996, the
Company's Board of Directors approved

41
<PAGE> 44

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a two-for-one stock split of its outstanding common stock, to be effected in the
form of a stock dividend. Each holder of shares of the Company's common stock on
August 30, 1996 received one additional share of common stock for every one
share of stock held. All share and per share information presented in these
financial statements reflects the effect of this event.

In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which supersedes Accounting Principles Board Opinion
No. 15, the existing authoritative guidance. SFAS No. 128 is effective for
financial statements for fiscal years ending after December 15, 1997 and, when
adopted, requires restatement of all prior-period earnings per share data
presented. The new statement modifies the calculations of primary and fully
diluted earnings per share and replaces them with basic and diluted earnings per
share. The following table sets forth the proforma effect on net income (loss)
per common share for the fiscal years ended June 30, 1997 and 1996,
respectively, assuming the Company had adopted SFAS No. 128 on July 1, 1995:

<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
------------------
1996 1997
------- --------
(SHARES IN
THOUSANDS)
<S> <C> <C>
Earnings (loss) per common and common share equivalent
As reported........................................... $ .36 ($ .90)
Pro forma-basic....................................... $ .38 ($ .90)
Pro forma-diluted..................................... $ .36 ($ .90)
Weighted average number of common and common share
equivalents outstanding
As reported........................................... 17,391 17,212
Pro forma-basic....................................... 16,237 17,212
Pro forma-diluted..................................... 17,391 17,212
</TABLE>

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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. The carrying amounts of cash, receivables and accounts
payable approximate fair values.

RECENTLY ISSUED ACCOUNTING STATEMENTS

During 1997, the Financial Accounting Standards Board released SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130, which is effective for
fiscal years beginning after December 15, 1997, establishes standards for
reporting and display of comprehensive income and its components in an entity's
financial statements. The objective of SFAS No. 130 is to report a

42
<PAGE> 45

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

measure of all changes in the equity of an enterprise that result from
transactions and other economic events of the period. Comprehensive income is
the total of net income and all other nonowner changes in equity. SFAS No. 130
does not address issues of recognition or measurement for comprehensive income
and its components, therefore, it will not have an impact on the financial
condition or results of operation of the Company upon adoption.

DEPENDENCE ON YEAR 2000

2. ACQUISITION OF ROTTGER & OSTERBERG SOFTWARE-TECHNIK GMBH ("R&O")

On December 5, 1996, the Company acquired all of the outstanding shares of
capital stock of R&O for cash, common stock and the assumption of certain
liabilities pursuant to a stock purchase agreement with the stockholders of R&O.
R&O develops, markets and supports repository software tools through its Rochade
product line, together with related repository-based services and solutions. R&O
was founded in 1976, is headquartered in Munich, Germany and has operations in

43
<PAGE> 46

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Europe and the United States. The aggregate cost of the R&O acquisition
consisted of the following (in thousands):

<TABLE>
<S> <C>
Cash...................................................... $12,800
Common stock.............................................. 12,805
Assumption of liabilities and acquisition costs........... 13,200
-------
Total................................................ $38,805
=======
</TABLE>

The Company issued 425,112 unregistered shares of its Common Stock pursuant
to Regulation S in connection with this transaction, subject to certain
restrictions imposed under the stock purchase agreement and applicable
securities laws. Included in the cost of the acquisition was a payment of $2.0
million made to the former stockholders of R&O in February 1997 for meeting
certain performance criteria. The Company also committed to pay additional cash
consideration of $2.0 million (or, at each former R&O stockholder's election,
additional shares of Common Stock with an equivalent market value) if certain
financial performance criteria were met for the period from January 1, 1997
through June 30, 1997. This contingent earnout was not achieved and no further
payments are due under the purchase agreement.

The R&O acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion Nos. 16 and 17 and, accordingly, the
purchased assets and assumed liabilities were recorded at their estimated fair
values at the acquisition date. The Company received an appraisal of the
intangible assets which indicated that approximately $27.0 million of the
acquired intangible assets was in-process research and development that had not
yet reached technological feasibility. Because there can be no assurance that
the Company will be able to successfully complete the development and
integration of the in-process research and development into its suite of
software products or that the acquired technology has any alternative future
use, the acquired in-process research and development was charged to expense by
the Company in its quarter ended December 31, 1996. In order to bring the
in-process software products to commercial availability, the Company estimated
that it will need to spend up to $2.6 million on product integration and
performance improvements. The Company allocated the aggregate cost of the
acquisition as follows (in thousands):

<TABLE>
<S> <C>
Accounts receivable....................................... $ 4,672
Other assets.............................................. 1,956
In-process research and development....................... 26,958
Purchased research and development........................ 2,000
Other intangible assets................................... 3,219
-------
$38,805
=======
</TABLE>

Other intangible assets consist of customer list ($900,000), assembled
workforce ($800,000) and cost in excess of net assets acquired ($1,519,000). The
customer list, assembled workforce and cost in excess of net assets acquired are
being amortized on a straight-line basis over eight, seven and five year
periods, respectively.

44
<PAGE> 47

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma combined condensed statements of
operations for the fiscal years ended June 30, 1997 and 1996 give effect to the
R&O acquisition as if it had been consummated as of the beginning of each
respective period (in thousands except per share data):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $62,754 $91,265
Income before income taxes............................. 9,772 17,847
Net income............................................. 7,535 11,692
Earnings per share..................................... $ .42 $ .64
</TABLE>

The pro forma combined condensed statements of operations exclude the
effect of the approximate $27.0 million charge related to the write-off of
purchased in-process research and development. The unaudited pro forma combined
financial data is provided for illustrative purposes only and is not necessarily
indicative of the combined results of operations that would have been reported
had the R&O acquisition occurred on the dates indicated, nor does it purport to
project the results of operations of the Company for the current year or for any
future period.

3. INVESTMENTS

The Company's investments are all classified as held-to-maturity and
consist of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities.................... $ 5,648 $ -- $(109) $ 5,539
Government-backed securities................ 8,500 -- (34) 8,466
Corporate bonds............................. 5,926 44 -- 5,970
------- ---- ------ --------
Total............................. $20,074 $ 44 $(143) $ 19,975
======= ==== ====== ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities.................... $13,846 $ 1 $ (11) $ 13,836
Government-backed securities................ 6,580 -- (6) 6,574
Corporate bonds............................. 3,369 -- (50) 3,319
------- ---- ---- --------
Total............................. $23,795 $ 1 $ (67) $ 23,729
======= ==== ==== ========
</TABLE>

The following table reflects the investment maturities at June 30, 1997 (in
thousands):

<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
-------- ----------
<S> <C> <C>
Under one year................................................. $12,697 $ 12,714
Greater than one year and less than five years................. 7,377 7,261
------- --------
$20,074 $ 19,975
======= ========
</TABLE>

All of the Company's investments at June 30, 1996 matured within one year.

45
<PAGE> 48

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. OBLIGATIONS UNDER CAPITAL LEASES

During the first quarter of fiscal 1995, the Company entered into a
$525,000 general office and computer equipment line of credit with a financial
institution which provides for financing up to 90% of the costs of such
acquisitions domestically. The amount available under the line of credit is
reduced by prior outstanding equipment loans from the financial institution,
which aggregated approximately $47,000 as of June 30, 1996. There are no
outstanding loans under the current agreement. Additional borrowings under this
arrangement, if any, will bear interest at the three year U.S. Treasury Bill
rate, plus 4.4 percentage points.

5. INCOME TAXES

Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." SFAS No. 109
requires the use of an asset and liability approach in accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the differences
between the financial statement and tax bases of assets and liabilities and the
tax rates in effect when these differences are expected to reverse. Upon
adoption of SFAS No. 109, there was no cumulative effect of the change in
accounting principle.

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ 120 $ 1,184 $ 4,834
State............................................. 129 454 909
Foreign........................................... 54 275 2,057
Deferred............................................ (120) 322 (1,738)
Utilization of net operating loss and tax
credit carryforwards.............................. 2,295 1,464 --
Change in valuation allowance....................... (2,295) (1,856) --
------- ------- -------
Provision for income taxes.......................... $ 183 $ 1,843 $ 6,062
======= ======= =======
</TABLE>

For the year ended June 30, 1997, income tax benefits of $1,199,000 were
allocated to additional paid-in capital for tax benefits associated with the
exercise of nonqualified stock options and the disqualifying disposition of
incentive stock options.

46
<PAGE> 49

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of deferred taxes are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax liabilities:
Prepaid royalty................................................ $ 34 $ --
Accelerated tax depreciation................................... 94 89
Other.......................................................... 15 58
------ ------
Total.................................................. 143 147
------ ------
Deferred tax assets:
Foreign tax credits............................................ 168 1,485
Software development costs capitalized for tax................. 511 249
Bad debt reserve............................................... 117 304
Vacation accrual............................................... 146 193
Deferred revenue............................................... 42 28
Intangibles amortization....................................... -- 136
Other.......................................................... 122 224
------ ------
Total.................................................. 1,106 2,619
------ ------
Net deferred tax asset........................................... $ 963 $2,472
====== ======
</TABLE>

Management believes that it is more likely than not that the Company will
generate sufficient taxable income to realize the deferred tax assets and,
therefore, has eliminated the valuation allowance as of June 30, 1996. The
Company recognized a tax benefit as a result of the change in the valuation
allowance of $1,856,000 for the year ended June 30, 1996.

A reconciliation of the U.S. federal statutory rate to the Company's
effective tax rate is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate......................................... 34% 34% 35%
Write-off of in-process R&D.................................... -- -- (89)
Effect of permanent differences................................ 1 2 (2)
Foreign taxes.................................................. 1 4 (2)
State taxes, net of federal benefit............................ 1 4 (6)
Tax credit carryforwards....................................... -- (14) 3
Benefit of net operating loss carryforwards.................... (34) (7) --
Other.......................................................... -- -- (4)
--- --- ---
3 % 23% (65)%
=== === ===
</TABLE>

The Company utilized its entire net operating loss carryforward during the
year ended June 30, 1996.

6. STOCK PLANS

1994 EQUITY INCENTIVE PLAN

The 1994 Equity Incentive Plan ("1994 Plan") was adopted by the Board of
Directors ("the Board") in August 1994, approved by the stockholders in November
1994, and became effective

47
<PAGE> 50

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

March 1, 1995. The 1994 Plan will terminate 10 years after the effective date.
The 1994 Plan authorizes awards of incentive stock options to employees and
non-qualified stock options, stock appreciation rights, performance units,
restricted stock and other common stock-based awards to officers, directors,
employees, and consultants of the Company and its subsidiaries. A total of
1,400,000 shares of common stock is reserved for issuance under the 1994 Plan.
The options currently issued under the 1994 Plan vest as to 25% of the shares
subject thereto on the first anniversary of the date of grant and vest at the
rate of 6.25% of such shares per quarter of continuous service thereafter.

The 1994 Plan is administered by a committee appointed by the Board
consisting of at least two non-employee directors, who have the exclusive
authority to administer and interpret the 1994 Plan. The committee has the power
to, among other things, designate participants, determine types of awards to be
granted and the price, timing, terms and duration of awards.

EMPLOYEE STOCK OPTION PLAN

The Company has an approved stock option plan ("1986 Plan") for employees
and consultants covering 2,000,000 shares of Company common stock. Options
granted under the 1986 Plan may be either incentive stock options or
non-qualified stock options, at the discretion of the Board of Directors and as
reflected in the terms of the written option agreement. Options vest 20% per
year over five years and must be exercised within five to six years of the date
of grant. Effective March 8, 1995, no further share grants may be made pursuant
to this Plan.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Employee Stock Purchase Plan ("Purchase Plan") became
effective at the time of the Company's initial public offering. The Company has
reserved 800,000 shares of common stock for issuance under the Purchase Plan,
and will allow eligible employees to purchase shares of common stock, at
semi-annual intervals, through periodic payroll deductions. On May 1, 1997, the
Purchase Plan was expanded to include the international employees of the Company
and its subsidiaries. The purchase price per share is eighty-five percent (85%)
of the lower of (i) the fair market value of the common stock on the
participant's entry date into the offering period or (ii) the fair market value
on the semi-annual purchase date. The purchase price, amount of shares
purchased, and value of stock purchased are all subject to certain limitations
on an individual and aggregate basis, as defined in the Purchase Plan. The
Purchase Plan will terminate on the earlier of (i) the date on which all shares
available for issuance under the Plan have been issued or (ii) December 31,
2003, unless earlier terminated by the Committee designated by the Board in
accordance with the provisions of the Plan.

As of June 30, 1997, 285,642 shares remained available for purchase through
the Purchase Plan and there were 399 employees eligible to participate, of which
87%, or 347, participated. Employees purchased 299,636 shares during the year at
prices ranging from $3.40 to $36.13. Total cash received by the Company was
approximately $1,281,000. The Purchase Plan is non-compensatory, therefore, no
charges to income were recorded.

OUTSIDE DIRECTOR STOCK OPTION PLAN

The Company's Outside Director Stock Option Plan ("Director Plan") was
approved by the stockholders and became effective on November 15, 1995. The
Director Plan authorizes non-discretionary grants of nonstatutory stock options
to non-employee directors of the Company. A total of 400,000 shares of common
stock is reserved for issuance under the Director Plan. Each person who is
elected for the first time as an Outside Director shall be, upon the date of his
first

48
<PAGE> 51

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

election, automatically granted an option to purchase 20,000 shares at the fair
market value of the shares on the grant date. Each Outside Director shall
receive an option to purchase 10,000 shares at the fair market value established
on the grant date upon re-election to the Board of Directors. The shares begin
vesting one year after the date of grant in three equal annual installments and
expire five years after the date of grant. The Plan will terminate on the tenth
anniversary of the date it became effective. The Directors Plan is administered
by a committee appointed by the Board.

401(K) PLAN

The Company has a contributory retirement plan (the "401(k) Plan") covering
eligible United States employees with at least 30 days of service and who are a
minimum of 21 years old. The 401(k) Plan is a calendar year plan. The 401(k)
Plan is designed to provide tax-deferred income to the Company's employees in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.

The 401(k) Plan provides that each participant may contribute up to 15% of
his or her respective salary, not to exceed the statutory limit. The Company
elected to make discretionary matching contributions of $120,000 for each of the
1995 and 1996 plan years to all participants who were employed by the Company on
the effective date and who had made contributions to the 401(k) Plan during the
plan year. This match was allocated based upon the employees' contributions in
each plan year as a percentage of the total contributions of all eligible
employees. For the 1996 plan year, the Company elected to make a 20% matching
contribution of employee contributions of up to a maximum of $3,000 per
participant. The Company had made contributions of approximately $98,000 for the
1996 plan year.

Under the terms of the 401(k) Plan, the Company may also make discretionary
profit sharing contributions. Profit sharing contributions, if any, are
allocated among all active participants based upon the employee's contributions
for the plan year as a percentage of total employee contributions for the plan
year.

OTHER

The Board granted a total of 8,000 nonqualified stock options at $4.00 per
share to three employees on February 15, 1995. These options vest over a five
year period. During fiscal 1997, 5,000 of these options were exercised.

The Board granted 20,000 nonqualified stock options at $4.43 per share to
an outside investor relations consultant ("consultant") in April 1995. The
options vested 50% on November 1, 1995 and 50% on November 1, 1996. The options
have been fully exercised.

49
<PAGE> 52

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the activity under the Company's stock option
plans as well as those issued outside the plans (see above):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding,
beginning of
year............. 982,704 $0.58 1,381,214 $2.31 1,144,316 $4.59
Granted............ 687,404 3.95 446,800 9.57 611,150 29.18
Canceled/expired... (61,512) 0.48 (378,884) 5.05 (65,728) 28.51
Exercised.......... (227,382) 0.28 (305,348) 1.00 (279,466) 3.28
--------- --------- ---------
Options
outstanding, end
of year.......... 1,381,214 2.31 1,143,782 4.59 1,410,272 14.40
========= ========= =========
Options
exercisable, end
of year.......... 257,683 0.54 259,058 2.35 310,126 3.54
========= ========= =========
Options available
for grant........ 848,000 1,067,034 514,284
========= ========= =========
Weighted average
fair value of
options
granted.......... $9.57 $29.18
========= =========
</TABLE>

OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE
AS OF JUNE 30,1997

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.38 - $ 3.38...... 236,272 2.35 $ 1.18 112,314 $ 0.73
$ 3.75 - $ 3.75...... 6,668 3.34 3.75 2,668 3.75
$ 4.00 - $ 4.00...... 347,973 3.66 4.00 150,243 4.00
$ 4.81 - $ 6.38...... 58,687 4.23 6.32 19,442 6.29
$11.06 - $17.00...... 447,672 4.93 14.02 25,459 11.12
$33.50 - $45.25...... 313,000 5.40 38.23 -- --
--------- ---- ------ ------- ------
$ 0.38 - $45.25...... 1,410,272 4.25 $14.40 310,126 $ 3.54
========= ==== ====== ======= ======
</TABLE>

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to

50
<PAGE> 53

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

continue to measure compensation cost related to stock options issued to
employees under these plans using the method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock
Issued to Employees." Entities electing to continue accounting for stock-based
compensation under in APB No. 25 must make pro forma disclosures of net income
(loss) and earnings (loss) per share, as if the fair value based method of
accounting defined in SFAS No. 123 has been applied.

The Company has elected to account for its stock-based compensation plans
under APB No. 25; therefore, no compensation cost is recognized in the
accompanying financial statement for stock-based employee awards. However, the
Company has computed for pro forma disclosure purposes the value of all options
and Purchase Plan shares granted during 1996 and 1997, using the Black-Scholes
option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
1996 1997
----------------------------- -----------------------------
OPTIONS PURCHASE PLAN OPTIONS PURCHASE PLAN
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Risk free interest rate 6.00% 5.30% 6.02% 5.47%
Expected dividend yield -- -- -- --
Expected lives 4.06 years .5 years 4.06years .5 years
Expected volatility 69.00% 74.40% 80.00% 76.80%
</TABLE>

The total value of options and Purchase Plan shares granted was computed to
be the following approximate amounts, which would be amortized on the
straight-line basis over the vesting period:

<TABLE>
<CAPTION>
OPTION PLANS PURCHASE PLAN
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Year ended June 30, 1997................... $8,823 $ 870
Year ended June 30, 1996................... $1,955 $ 376
</TABLE>

If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting, the Company's net income (loss) and
earnings (loss) per common and common share equivalent would have been as
follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997
------ --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net income (loss):
As reported.................................................. $6,217 $(15,436)
Pro forma.................................................... 5,910 (17,669)
Earnings (loss) per common and common share equivalent:
As reported.................................................. .36 (.90)
Pro forma.................................................... $ .35 $ (1.02)
</TABLE>

The effects of applying SFAS No. 123 for providing pro forma disclosures
for 1996 and 1997 are not likely to be representative of the effects on reported
net income (loss) and earnings (loss) per common and common share equivalent for
future years, because options vest over several years and additional awards
generally are made each year.

7. CAPITAL STOCK

Effective in connection with the Company's initial public offering in March
1995, each three shares of Series B preferred stock then outstanding, was
converted into one share of the Company's common stock. At that time, the Series
B preferred stock was retired.

51
<PAGE> 54

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the year ended June 30, 1994, the Company entered into stock
purchase agreements with three officers and a director to sell an aggregate of
283,334 shares of common stock at the fair market value on the date of the
agreements ($.38 to $.75 per share) in exchange for full recourse promissory
notes aggregating $153,750. In addition, options for the purchase of 181,920
shares were exercised by an officer/director in exchange for a full recourse
promissory note in the amount of $27,015. The unpaid balance on the notes is
reflected in stockholders' equity as common stock subscriptions receivable at
June 30, 1997.

8. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

On August 27, 1996, the Company entered into an agreement with Tadiran
Information Systems, Ltd. ("Tadiran"), an Israeli company, to purchase a date
bridging product ("the Product"), as well as a patent application, copyrights,
and a covenant not to compete related to the Product and certain additional
enhancements to the product. The purchase price of the Product was $2,300,000
payable in installments based on delivery dates for different releases of the
Product which occurred between September, 1996 and March, 1997. The purchase
price of the enhancements was $695,000, payable in installments based upon
delivery which occurred between February and July, 1997. The Company has paid
the entire purchase price for all products and enhancements which had been
delivered. The purchase of the Product will be capitalized in accordance with
SFAS No. 86 and amortized over the greater of the useful life of the product,
which is estimated to be 36 months, or using the revenue ratio method, whichever
results in a greater amount of amortization in the applicable reporting period.

In addition to the purchase price, royalties on sales of software licenses
for the Product are due to Tadiran in the amount of 15% of the first $2,000,000
in sales, 12% for the next $8,000,000, and 10% for any additional sales.
Royalties due to Tadiran as of June 30, 1997 were $169,000. The Company also has
the right to commission a future version of the software for an agreed upon time
and materials rate.

During November 1993, the Company entered into a five-year agreement with
SEEC, Inc. ("Licensor") which granted the Company a license to use, market and
reproduce certain of Licensor's products under the Company's label. The Company
agreed to pay to the Licensor a royalty of 30% of any license or maintenance
fees related to the covered products up to a maximum of $2 million. Under this
agreement, the Company prepaid a minimum royalty of $40,000 per month for the
first nine months and $60,000 per month for the next nine months. Prepaid
royalties were generally nonrefundable, except in the case of certain defaults
by the Licensor. As of June 30, 1996, all prepaid royalties under the agreement
were fully amortized. As of June 1997, the agreement had been terminated.

The Company leases its corporate office facilities in two locations in
Phoenix, Arizona. On August 15, 1994, the Company extended the office lease at
one of its facilities, which will expire on December 31, 1999. On December 19,
1996, the Company entered into a lease at another location in Phoenix, Arizona
which will expire on May 31, 2001. Rental expense relating to these leases
amounted to approximately $487,000, $583,000 and $786,000 in the years ended
June 30, 1995, 1996, and 1997, respectively.

The Company has entered into several office leases for sales offices in
various cities and countries. These leases expire at various dates through 2000.
Rental expense relating to these leases amounted to approximately $415,000,
$575,000, and $684,000 in the years ended June 30, 1995, 1996, and 1997,
respectively.

52
<PAGE> 55

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is party to a data processing agreement under which it utilizes
certain computer equipment and software of an independent third party. The
eighteen month agreement expires in January 1999. Expenses under this agreement
were approximately $794,000, $673,000, and $860,000 in the years ended June 30,
1995, 1996, and 1997, respectively. The base monthly charge for usage is
approximately $59,000, subject to adjustment for excess usage as defined in the
agreement.

The Company is party to a facilities management agreement under which it
leases certain office equipment and utilizes personnel of an independent third
party to manage its corporate office and produce the Company's product
documentation. The agreement expires in October 1998. Payments under this
agreement were approximately $362,000 in the year ended June 30, 1997. The base
monthly charge is approximately $31,000 subject to an adjustment for usage as
defined in the agreement.

The future minimum rental payments under all noncancellable operating
leases for each of the years ending June 30 are as follows (in thousands):

<TABLE>
<S> <C>
Year ending June 30:
1998.................................................... $ 3,452
1999.................................................... 2,962
2000.................................................... 1,817
2001.................................................... 1,280
2002.................................................... 520
Thereafter.............................................. 408
-------
$10,439
=======
</TABLE>

9. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION:

The Company operates in one industry segment which includes the
development, marketing and support of an integrated line of software products
for use by businesses worldwide to enhance the maintenance and redevelopment
process for existing applications, reduce maintenance costs and improve quality
in their existing applications. The Company also provides professional services
to large corporations and public entities to help them effectively manage and
automate the evolution of their existing applications.

Sales and marketing activities related to software license fees,
maintenance fees and professional services fees are conducted in North America
and certain foreign locations, principally the United Kingdom, Europe and
Australia. Revenue and income (loss) before provision for income taxes for each
of the years in the three year period ended June 30, 1997, and identifiable
assets at June 30, 1995, 1996, and 1997, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenue(1):
North America-domestic........................... $22,517 $32,878 $ 57,728
International-principally distributors:
Europe........................................ 2,744 3,097 2,581
All others.................................... 1,785 1,721 1,520
Foreign subsidiaries and branches................ 3,905 5,861 23,483
------- ------- --------
Total revenue............................ $30,951 $43,557 $ 85,312
======= ======= ========
</TABLE>

53
<PAGE> 56

VIASOFT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Income (Loss) Before Income Taxes(1):
North America.................................... $ 5,317 $ 8,517 $(17,860)
Foreign subsidiaries and branches................ 58 (457) 8,486
------- ------- --------
Income (loss) before income taxes........ $ 5,375 $ 8,060 $ (9,374)
======== ======== =========
Identifiable Assets(1):
North America.................................... $30,087 $43,370 $ 50,527
Foreign subsidiaries and branches................ 2,527 3,221 14,074
------- ------- --------
Total assets............................. $32,614 $46,591 $ 64,601
======== ======== =========
</TABLE>

- ---------------
(1) Includes VIASOFT, VIASOFT UK, and VIASOFT de Mexico, S.A. de C.V. for all
periods, VIASOFT Germany since its formation on October 1, 1994, VIASOFT
Netherlands since its formation on July 1, 1995, Viasoft Benelux since its
formation on July 1, 1996, and the operations of R&O since its acquisition
on December 5, 1996.

10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ------------ -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal 1997:
Revenue................................. $ 13,976 $ 19,783 $ 23,901 $27,652
Income (loss) from operations........... 2,021 (23,059) 4,973 5,973
Net income (loss)....................... 1,556 (24,184) 3,148 4,044
Earnings (loss) per common and common $ .09 $ (1.42) $ .17 $ .22
share equivalent.....................

Fiscal 1996:
Revenue................................. $ 8,440 $ 10,257 $ 10,361 $14,499
Income from operations.................. 954 1,872 1,370 2,607
Net income.............................. 941 1,640 1,270 2,366
Earnings per common and common share $ .06 $ .10 $ .08 $ .14
equivalent...........................

Fiscal 1995:
Revenue................................. $ 6,317 $ 8,014 $ 7,605 $ 9,015
Income from operations.................. 624 1,462 1,015 1,784
Net income.............................. 576 1,325 1,047 2,244
Earnings per common and common share $ .05 $ .10 $ .07 $ .13
equivalent...........................
</TABLE>

11. SUBSEQUENT EVENT:

On September 22, 1997, the Company received proceeds in an aggregate amount
of $76,180,000 from a secondary offering of 1,465,000 shares of its common
stock.

54
<PAGE> 57

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the directors of the Company set forth in the
Proxy Statement to be delivered to stockholders in connection with the Company's
1997 Annual Meeting of Stockholders under the heading "Election of Directors" is
incorporated herein by reference, as is the information concerning the
directors, officers, and more than 10% stockholders of the Company under the
heading "Section 16(a) Compliance." The name, age and position of each executive
officer of the Company set forth under the heading "Executive Officers of the
Registrant" in Part I of this report is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information concerning executive compensation set forth in the Proxy
Statement under the heading "Management" is incorporated herein by reference.
Information contained in the Proxy Statement under the captions "Report of the
Compensation Committee" and "Company Stock Performance Graph" is not
incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information concerning security ownership of certain beneficial owners
and management set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management" is incorporated by
reference herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information concerning certain relationships and transactions set forth
in the Proxy Statement under the heading "Certain Transactions" is incorporated
herein by reference.

55
<PAGE> 58

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS ANNUAL REPORT ON
FORM 10-K:

(1) Consolidated Financial Statements.

See Index to Consolidated Financial Statements at Item 8.

(2) Consolidated Financial Statement Schedules.

Report of Independent Public Accountants. See page 63 of this
report.

Schedule I, Valuation and Qualifying Accounts and Reserves.
See page 64 of this report.

(3) Exhibits:

The following exhibits are filed herewith or incorporated by
reference.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation (incorporated herein by reference to
Exhibit 10.20 to the Company's Form 10-K for fiscal year 1995)
3.2 Amended and Restated Bylaws of the Company (incorporated herein by reference
to Exhibit 3(e) to the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
4.1 Form of Certificate for Common Stock (incorporated herein by reference to
Exhibit 4(a) to the Company's Registration Statement on Form S-1 (Registration
No. 33-88366))
4.2 Form of Warrant to Purchase Common Stock (incorporated herein by reference to
Exhibit 4(b) to the Company's Registration Statement on Form S-1 (Registration
No. 33-88366))
4.3 Series B Preferred Stock Purchase Agreement dated as of September 28, 1984
among the Company and the purchasers named therein (incorporated herein by
reference to Exhibit 4(c) to the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
4.4 Series A Preferred Stock Subscription Agreements dated June 1, 1984 and
Amendments thereto dated September 25, 1984, among the Company and the
purchasers named therein (incorporated herein by reference to Exhibit 4(d) to
the Company's Registration Statement on Form S-1 (Registration No. 33-88366))
10.1 Business Loan Agreement dated February 15, 1994 between the Company and
Silicon Valley Bank, as amended (incorporated herein by reference to Exhibit
10(a) to the Company's Registration Statement on Form S-1 (Registration No.
33-88366))
10.2 Letter Agreement between the Company and M & I First National Leasing Corp.
dated September 9, 1994 and form of equipment lease documents (incorporated
herein by reference to Exhibit 10(b) to the Company's Registration Statement
on Form S-1 (Registration No. 33-88366))
10.3(3) International Software Marketing and License Agreement dated November 29, 1993
between SEEC, Inc. and the Company, as amended (incorporated herein by
reference to Exhibit 10(d) to the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
10.5 Office Lease dated June 5, 1992 between the Company and the Mutual Life
Insurance Company of New York, as amended (incorporated herein by reference to
Exhibit 10(e) to the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
10.6(2) Form of Indemnification Agreement between the Company and each of its
directors (incorporated herein by reference to Exhibit 10(f) to the Company's
Registration Statement on Form S-1 (Registration No. 33- 88366))
</TABLE>

56
<PAGE> 59

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------
<C> <S>
10.7(2) VIASOFT, Inc. 1986 Stock Option Plan (incorporated herein by reference to
Exhibit 10(g) to the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
10.8(2) Form of Incentive Stock Option Agreement under 1986 Stock Option Plan
(incorporated herein by reference to Exhibit 10(h) to the Company's
Registration Statement on Form S-1 (Registration No. 33-88366))
10.9(2) Form of Incentive Stock Option Agreement under 1986 Stock Option Plan for
officers of the Company (incorporated herein by reference to Exhibit 10(i) to
the Company's Registration Statement on Form S-1 (Registration No. 33-88366))
10.10(2) Form of Non-Qualified Stock Option Agreement under 1986 Stock Option Plan
(incorporated herein by reference to Exhibit 10(j) to the Company's
Registration Statement on Form S-1 (Registration No. 33- 88366))
10.11(2) Form of Restricted Stock Purchase Agreement for officers and directors of the
Company (incorporated herein by reference to Exhibit 10(k) to the Company's
Registration Statement on Form S-1 (Registration No. 33-88366))
10.12(2) 1994 Equity Incentive Plan (incorporated herein by reference to Exhibit 10(l)
to the Company's Registration Statement on Form S-1 (Registration No.
33-88366))
10.13(2) Employee Stock Purchase Plan, as amended (incorporated herein by reference to
Exhibit 10(m) to Amendment No. 2 to the Company's Registration Statement on
Form S-1 (Registration No. 33-88366))
10.14(2) Employment Agreement dated July 28, 1994 between the Company and Colin J.
Reardon (incorporated herein by reference to Exhibit 10(o) to the Company's
Registration Statement on Form, S-1 (Registration No. 33-88366))
10.15(2)(4) FY 1996 Executive Bonus Plan (incorporated herein by reference to Exhibit
10.20 to the Company's Form 10-K for fiscal year 1995)
10.16(2)(4) FY 1996 Compensation Plan for Senior Vice President, Sales and Marketing --
Americas (incorporated herein by reference to Exhibit 10.21 to the Company's
Form 10-K for fiscal year 1995)
10.17(2)(4) FY 1996 Compensation Plan for Vice President, International Operations
(incorporated herein by reference to Exhibit 10.22 to the Company's Form 10-K
for fiscal year 1995)
10.18(2)(4) Confidential Severance Agreement between the Company and Hal L. Carr, Jr.
(incorporated herein by reference to Exhibit 10.23 to the Company's Form 10-K
for fiscal year 1995)
10.19(2) Confidential Severance Agreement between the Company and Albert J. Boos, Jr.
(incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended March 31, 1996)
10.20(2)(5) VIASOFT FY97 Executive Bonus Plan (incorporated herein by reference to Exhibit
10.1 to the Company's Form 10-Q for the quarter ended September 30, 1996)
10.21(2)(5) FY 97 Incentive Plan for Senior Vice President, Americas (incorporated herein
by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1996)
10.22(2)(5) FY 97 Incentive Plan for Vice President, International Operations
(incorporated herein by reference to Exhibit 10.3 to the Company's Form 10-Q
for the quarter ended September 30, 1996)
10.23(2)(5) Consulting and Employment Agreement between the Company and Mark R. Schonau
(incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended September 30, 1996)
10.24 Outside Director Stock Option Plan (incorporated herein by reference to
Exhibit A of the Company's Definitive Schedule 14A Proxy Statement for the
1995 Annual Meeting of Stockholders)
10.25(1) Employee Stock Purchase Plan (as amended and restated as of April 24, 1997)
10.26(1) Assignment, Assumption and Novation Agreement dated September 12, 1997 and
Assignment, Assumption and Novation Agreement dated December 19, 1996,
relating to Londen Center Lease Agreement
11(1) Computation of Earnings per Share
</TABLE>

57
<PAGE> 60

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------
<C> <S>
21(1) Subsidiaries of the Company
23(1) Consent of Arthur Andersen LLP
24(1) Powers of Attorney
</TABLE>

- ---------------
(1) Filed herewith

(2) Management contract or compensation plan or arrangement

(3) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated February 28, 1995

(4) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated November 22, 1996.

(5) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated January 6, 1997.

(B) REPORTS ON FORM 8-K.

The Company has filed no reports on Form 8-K during the quarter ended June
30, 1997.

The list of Exhibits required by Item 601 of Regulation S-K is included in
Item 14(a)(3) above.

(D) FINANCIAL STATEMENT SCHEDULES.

See Item 14(a)(2) above.

58
<PAGE> 61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, this 26th
day of September, 1997.

VIASOFT, Inc.

By: /s/ STEVEN D. WHITEMAN
------------------------------------
Steven D. Whiteman
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ STEVEN D. WHITEMAN
- ------------------------------------
Steven D. Whiteman Chief Executive Officer, September 26, 1997
Director

/s/ MARK R. SCHONAU
- ------------------------------------
Mark R. Schonau Chief Financial Officer, September 26, 1997
Chief Accounting Officer

- ------------------------------------
John J. Barry III Director September 26, 1997

* ALEXANDER S. KULI
- ------------------------------------
Alexander S. Kuli Director September 26, 1997

* J. DAVID PARRISH
- ------------------------------------
J. David Parrish Director September 26, 1997

* ARTHUR C. PATTERSON
- ------------------------------------
Arthur C. Patterson Director September 26, 1997

*By: /s/ CATHERINE R. HARDWICK
- ------------------------------------
Attorney-in-Fact
</TABLE>

59
<PAGE> 62

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------- -------------------------------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation Incorporated herein by reference to
Exhibit 10.20 to the Company's Form
10-K for fiscal year 1995
3.2 Amended and Restated Bylaws of the Incorporated herein by reference to
Company Exhibit 3(e) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
4.1 Form of Certificate for Common Stock Incorporated herein by reference to
Exhibit 4(a) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
4.2 Form of Warrant to Purchase Common Incorporated herein by reference to
Stock Exhibit 4(b) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
4.3 Series B Preferred Stock Purchase Incorporated herein by reference to
Agreement dated as of September 28, Exhibit 4(c) to the Company's
1984 among the Company and the Registration Statement on Form S-1
purchasers named therein (Registration No. 33-88366)
4.4 Series A Preferred Stock Subscription Incorporated herein by reference to
Agreements dated June 1, 1984 and Exhibit 4(d) to the Company's
Amendments thereto dated September Registration Statement on Form S-1
25, 1984, among the Company and the (Registration No. 33-88366)
purchasers named therein
10.1 Business Loan Agreement dated Incorporated herein by reference to
February 15, 1994 between the Company Exhibit 10(a) to the Company's
and Silicon Valley Bank, as amended Registration Statement on Form S-1
(Registration No. 33-88366)
10.2 Letter Agreement between the Company Incorporated herein by reference to
and M & I First National Leasing Exhibit 10(b) to the Company's
Corp. dated September 9, 1994 and Registration Statement on Form S-1
form of equipment lease documents (Registration No. 33-88366)
10.3 (3) International Software Marketing and Incorporated herein by reference to
License Agreement dated November 29, Exhibit 10(d) to the Company's
1993 between SEEC, Inc. and the Registration Statement on Form S-1
Company, as amended (Registration No. 33-88366)
10.5 Office Lease dated June 5, 1992 Incorporated herein by reference to
between the Company and the Mutual Exhibit 10(e) to the Company's
Life Insurance Company of New York, Registration Statement on Form S-1
as amended (Registration No. 33-88366)
10.6 (2) Form of Indemnification Agreement Incorporated herein by reference to
between the Company and each of its Exhibit 10(f) to the Company's
directors Registration Statement on Form S-1
(Registration No. 33-88366)
10.7 (2) VIASOFT, Inc. 1986 Stock Option Plan Incorporated herein by reference to
Exhibit 10(g) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
10.8 (2) Form of Incentive Stock Option Incorporated herein by reference to
Agreement under 1986 Stock Option Exhibit 10(h) to the Company's
Plan Registration Statement on Form S-1
(Registration No. 33-88366)
</TABLE>

60
<PAGE> 63

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------- -------------------------------------
<C> <S> <C>
10.9 (2) Form of Incentive Stock Option Incorporated herein by reference to
Agreement under 1986 Stock Option Exhibit 10(i) to the Company's
Plan for officers of the Company Registration Statement on Form S-1
(Registration No. 33-88366)
10.10(2) Form of Non-Qualified Stock Option Incorporated herein by reference to
Agreement under 1986 Stock Option Exhibit 10(j) to the Company's
Plan Registration Statement on Form S-1
(Registration No. 33-88366)
10.11(2) Form of Restricted Stock Purchase Incorporated herein by reference to
Agreement for officers and directors Exhibit 10(k) to the Company's
of the Company Registration Statement on Form S-1
(Registration No. 33-88366)
10.12(2) 1994 Equity Incentive Plan Incorporated herein by reference to
Exhibit 10(l) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
10.13(2) Employee Stock Purchase Plan, as Incorporated herein by reference to
amended Exhibit 10(m) to Amendment No. 2 to
the Company's Registration Statement
on Form S-1 (Registration No.
33-88366)
10.14(2) Employment Agreement dated July 28, Incorporated herein by reference to
1994 between the Company and Colin J. Exhibit 10(o) to the Company's
Reardon Registration Statement on Form S-1
(Registration No. 33-88366)
10.15(2)(4) FY 1996 Executive Bonus Plan Incorporated herein by reference to
Exhibit 10.20 to the Company's Form
10-K for fiscal year 1995
10.16(2)(4) FY 1996 Compensation Plan for Senior Incorporated herein by reference to
Vice President, Sales and Exhibit 10.21 to the Company's Form
Marketing -- Americas 10-K for fiscal year 1995
10.17(2)(4) FY 1996 Compensation Plan for Vice Incorporated herein by reference to
President, International Operations Exhibit 10.22 to the Company's Form
10-K for fiscal year 1995
10.18(2)(4) Confidential Severance Agreement Incorporated herein by reference to
between the Company and Hal L. Carr, Exhibit 10.23 to the Company's Form
Jr. 10-K for fiscal year 1995
10.19(2) Confidential Severance Agreement Incorporated herein by reference to
between the Company and Albert J. Exhibit 10.1 to the Company's Form
Boos, Jr. 10-Q for the quarter ended March 31,
1996
10.20(2)(5) VIASOFT FY97 Executive Bonus Plan Incorporated herein by reference to
Exhibit 10.1 to the Company's Form
10-Q for the quarter ended September
30, 1996
10.21(2)(5) FY 97 Incentive Plan for Senior Vice Incorporated herein by reference to
President, Americas Exhibit 10.2 to the Company's Form
10-Q for the quarter ended September
30, 1996
10.22(2)(5) FY 97 Incentive Plan for Vice Incorporated herein by reference to
President, International Operations Exhibit 10.3 to the Company's Form
10-Q for the quarter ended September
30, 1996
10.23(2)(5) Consulting and Employment Agreement Incorporated herein by reference to
between the Company and Mark R. Exhibit 10.4 to the Company's Form
Schonau 10-Q for the quarter ended September
30, 1996
</TABLE>

61
<PAGE> 64

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------- -------------------------------------
<C> <S> <C>
10.24 Outside Director Stock Option Plan Incorporated herein by reference to
Exhibit A of the Company's Definitive
Schedule 14A Proxy Statement for the
1995 Annual Meeting of Stockholders)
10.25(1) Employee Stock Purchase Plan (as Exhibit Page 1
amended and restated as of April 24,
1997)
10.26(1) Assignment, Assumption and Novation Exhibit Page 10
Agreement dated September 12, 1997
and Assignment, Assumption and
Novation Agreement dated December 19,
1996 relating to Londen Center Lease
Agreement
11 (1) Computation of Earnings per Share Exhibit Page 93
21 (1) Subsidiaries of the Company Exhibit Page 94
23 (1) Consent of Arthur Andersen LLP Exhibit Page 95
24 (1) Powers of Attorney Exhibit Page 96
</TABLE>

- ---------------
(1) Filed herewith

(2) Management contract or compensation plan or arrangement

(3) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated February 28, 1995.

(4) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated November 22, 1996.

(5) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated January 6, 1997.

62
<PAGE> 65

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To VIASOFT, Inc. and Subsidiaries:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of VIASOFT, Inc. and Subsidiaries included
in this Annual Report on Form 10-K and have issued our report thereon dated July
29, 1997 (except with respect to the matter discussed in Note 11, as to which
the date is September 22, 1997). Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in the index of the financial statements is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Phoenix, Arizona,
July 29, 1997 (except
with respect to the
matter discussed in Note
11, as to which the date
is September 22, 1997).

63
<PAGE> 66

SCHEDULE I

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 1997, 1996, AND 1995

<TABLE>
<CAPTION>
ADDITIONS
------------------------------
CHARGED
TO COSTS ACQUIRED CHARGED BALANCE AT
BEGINNING AND FROM TO OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES R&O ACCOUNTS (1) PERIOD
- ---------------------------------- --------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year Ended June 30, 1995.......... $ 181 $210 $ -- $ -- $ -- $391
Year Ended June 30, 1996.......... 391 -- -- -- 112 279
Year Ended June 30, 1997.......... 279 525 128 174 428 678
</TABLE>

- ---------------
(1) Write-off of uncollectable amounts.

<PAGE> 1

EXHIBIT 10.25

VIASOFT, INC.

EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AND RESTATED AS OF APRIL 24, 1997)

The following constitute the provisions of the VIASOFT, Inc. Employee Stock
Purchase Plan.

1. Purpose. The VIASOFT, Inc. Employee Stock Purchase Plan (the "Plan")
is intended to provide Eligible Employees of the Company and one or more of its
Affiliates with the opportunity to acquire an equity interest in the Company
through periodic payroll deductions. The Plan is designed to qualify as an
employee stock purchase plan under Code Section 423.

2. Definitions. For purposes of the Plan, the following terms shall have
the meanings indicated:

(a) "Affiliate" shall mean any company which is a parent or subsidiary
corporation of the Company (as determined in accordance with Code Section
424), including any parent or subsidiary corporation which becomes such
after the Effective Time.

(b) "Base Salary" shall mean the regular reportable earnings paid to a
Participant by one or more Participating Companies, including all overtime
payments, bonuses, commissions, profit sharing distributions and other
incentive-type payments.

(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

(e) "Company" shall mean VIASOFT, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of VIASOFT, Inc. which shall by appropriate action adopt the Plan.

(f) "Commencement Date" shall mean the first day of an Offering
Period.

(g) "Common Stock" shall mean shares of the Company's common stock.

(h) "Effective Time" shall mean the time at which the underwriting
agreement for the initial public offering of the Common Stock is executed
and finally priced. The initial Offering Period shall start at the time of
such execution and pricing of the underwriting agreement. However, for any
Affiliate which becomes a Participating Company in the Plan after the
Effective Time, a subsequent Effective Time shall be designated by the
Board with respect to participation by its Eligible Employees.

(i) "Eligible Employee" shall mean any individual who is an employee
of the Company or other Participating Company for purposes of tax
withholding in the appropriate jurisdiction whose customary employment with
the Company or any Participating Company is at least twenty (20) hours per
week and more than five (5) months in any calendar year. For purposes of
the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by
the Company. Where the period of leave exceeds 90 days and the individual's
right to reemployment is not guaranteed either by statute or by contract,
the employment relationship will be deemed to have terminated on the 91st
day of such leave, unless otherwise required by law.

(j) "Entry Date" shall mean the date established pursuant to Section
5(a) by an Eligible Employee first electing to participate in the Plan for
the Offering Period in effect under the Plan. The earliest Entry Date under
the Plan shall be the date of the Effective Time.

(k) "Offering Period" shall mean the periods during which Options are
granted and exercisable under the Plan as defined in Section 4.

(l) "Option" shall mean an option to purchase Common Stock granted to
a Participant under the Plan.
<PAGE> 2

(m) "Participant" shall mean any Eligible Employee of a Participating
Company who is participating in the Plan.

(n) "Participating Company" shall mean the Company and such Affiliate
or Affiliates as may be designated from time to time by the Board.

(o) "Participating Company Commencement Date" shall mean the date,
after the Commencement Date for any Offering Period, on which an Affiliate
becomes a Participating Company in the Plan.

(p) "Semi-Annual Entry Date(s)" shall mean the first business day of
May and the first business day of November during each calendar year within
an Offering Period in effect under the Plan.

(q) "Semi-Annual Period of Participation" shall mean each semi-annual
period for which the Participant actually participates in an Offering
Period in effect under the Plan. There shall be a maximum of four (4)
semi-annual periods of participation within each Offering Period. Except as
otherwise designated by the Committee, the first such semi-annual period
(which may actually be less than or in excess of six (6) months for the
initial Offering Period) shall be measured from the Commencement Date of
the Offering Period until the last business day in the following October;
the next such semi-annual period shall then be measured from the first
business day in November to the last business day in the following April,
the third semi-annual period shall then begin on the first business day in
May, and end on the last business day in the following October; and the
final semi-annual period within the Offering Period shall begin on the
first business day of the next November and end on the last business day of
the following April.

(r) "Semi-Annual Exercise Date(s)" shall mean the last business day of
April and October each year on which Options to purchase shares of Common
Stock are automatically exercised for Participants under the Plan.

3. Administration. The Plan shall be administered by a committee (the
"Committee") comprised of two or more non-employee Board members appointed from
time to time by the Board. The Committee shall have full authority to administer
the Plan, including authority to interpret and construe any provision of the
Plan and to adopt such rules and regulations for administering the Plan,
including such as it may deem advisable to comply with applicable law. The
Committee may correct any defect or omission or reconcile any inconsistency in
the Plan, in the manner and to the extent it shall deem desirable. Decisions of
the Committee shall be final and binding on all parties who have an interest in
the Plan.

4. Offering Periods.

(a) The Plan shall be implemented in a series of successive Offering
Periods, each to be of a duration of twenty-seven (27) months or less as
designated by the Committee prior to the Commencement Date. However, the initial
Offering Period will begin upon the Effective Time and will end on the last
business day in April 1997. The next Offering Period shall commence on the first
business day in May 1997, and subsequent Offering Periods shall commence as
designated by the Committee.

(b) The Committee shall establish a series of successive Offering Periods
until such time as (i) the maximum number of shares of Common Stock available
for issuance under the Plan shall have been issued or (ii) the Plan shall have
been sooner terminated in accordance with Sections 9 or 10(b). Under no
circumstances shall any Options granted under the Plan be exercised, nor shall
any shares of Common Stock be issued hereunder, until such time as (i) the Plan
shall have been approved by the Company's stockholders and (ii) the Company
shall have complied with all applicable requirements of the Securities Act of
1933 (as amended), all applicable listing requirements of any securities
exchange on which shares of the Common Stock are listed and all other applicable
statutory and regulatory requirements.

2
<PAGE> 3

(c) Each Participant shall be granted a separate Option for each Offering
Period in which he/she participates. The Option shall be granted on the Entry
Date on which such individual first joins the Offering Period in effect under
the Plan and shall be automatically exercised in successive semi-annual
installments on the Semi-Annual Exercise Date in each year.

(d) Subject to the limitations set forth in the Plan, including without
limitation Sections 7(c) and 8 herein, the acquisition of Common Stock through
participation in the Plan for any Offering Period shall neither limit nor
require the acquisition of Common Stock by the Participant in any subsequent
Offering Period.

5. Eligibility and Participation.

(a) Each Eligible Employee shall be eligible to participate in the Plan in
accordance with the following provisions:

(i) An individual who is an Eligible Employee on the Commencement Date
of the Offering Period may participate in the Plan for such Offering Period
on such Commencement Date, which shall be such Participant's Entry Date,
provided he/she enrolls in the Offering Period on or before such date in
accordance with the Plan. Should such Eligible Employee not so enroll prior
to the Commencement Date, then he/she may not subsequently join that
particular Offering Period on any later date.

(ii) An individual who is not an Eligible Employee on the Commencement
Date of an Offering Period may subsequently enter that Offering Period on
the earlier of (i) the first Semi-Annual Entry Date on which he/she is an
Eligible Employee or (ii) the first Participating Company Commencement Date
on which he/she is an Eligible Employee, which shall be such Participant's
Entry Date, provided he/she enrolls in the Offering Period on or before
such date in accordance with the Plan. Should such Eligible Employee not so
enroll prior to such Semi-Annual Entry Date or Participating Company
Commencement Date, then he/she may not subsequently join that particular
Offering Period on any later date.

(b) To elect to participate for a particular Offering Period, the Eligible
Employee must complete the enrollment forms prescribed by the Committee
(including the purchase agreement and payroll deduction authorization) and file
such forms with the Company on or before his/her scheduled Entry Date. Once
properly made, an Eligible Employee's election to participate shall be
automatically renewed for each subsequent Offering Period, subject to any
termination or withdrawal as provided in Section 7(e).

(c) The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Semi-Annual
Period of Participation within the Offering Period, up to a maximum of ten
percent (10%) of such Base Salary. The deduction rate so authorized shall
continue in effect for the remainder of the Offering Period and each subsequent
Offering Period, except to the extent such rate is changed in accordance with
the following guidelines:

(i) The Participant may, at any time during the Semi-Annual Period of
Participation, reduce his/her rate of payroll deduction. Such reduction
shall become effective as soon as possible after filing of the requisite
reduction form with the Committee (or its designee), but the Participant
may not effect more than one such reduction during the same Semi-Annual
Period of Participation.

(ii) The Participant may, prior to the commencement of any new
Semi-Annual Period of Participation within the Offering Period or any new
Offering Period, increase or decrease the rate of his/her payroll deduction
by filing the appropriate form with the Committee (or its designee). The
new rate (which shall not exceed the ten percent maximum) shall become
effective as of the first date of the first Semi-Annual Period of
Participation following the filing of such form.

3
<PAGE> 4

Payroll deductions will automatically cease upon the termination of the
Participant's Option in accordance with the applicable provisions of Section 7
below.

(d) In no event may any Participant's payroll deductions for any one
Semi-Annual Period of Participation exceed Seven Thousand Five Hundred Dollars
($7,500.00) (U.S. dollars).

(e) At the time the Option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the Participant must make adequate provision for the Company's federal,
state, or other tax withholding obligations, if any, which arise upon the
exercise of the Option or the disposition of the Common Stock. At any time, the
Company may, but will not be obligated to, withhold from the Participant's Base
Salary the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the employee.

6. Stock Subject to Plan.

(a) The Common Stock purchasable by Participants under the Plan shall,
solely in the discretion of the Committee, be made available from either
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares of Common Stock purchased on the
open market. The total number of shares which may be issued under the Plan shall
not exceed 800,000 shares (subject to adjustment as provided herein).

(b) In the event any change is made to the Company's outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without receipt
of consideration, then appropriate adjustments shall be made by the Committee to
(i) the class and maximum number of shares issuable over the term of the Plan,
(ii) the class and maximum number of shares purchasable per Participant during
each Semi-Annual Period of Participation, (iii) the class and maximum number of
shares purchasable in the aggregate by all Participants on any one purchase date
under the Plan and (iv) the class and number of shares and the price per share
of the Common Stock subject to each Option at the time outstanding under the
Plan. Such adjustments shall be designed to preclude the dilution or enlargement
of rights and benefits under the Plan.

7. Terms of Options. An Eligible Employee who participates in the Plan
for a particular Offering Period shall have an Option to purchase shares of
Common Stock, in a series of successive semi-annual installments during such
Offering Period, upon the terms and conditions set forth below and shall execute
a purchase agreement embodying such terms and conditions and such other
provisions (not inconsistent with the Plan) as the Committee may deem advisable.

(a) Exercise Price. Options to purchase Common Stock shall be
automatically exercised at the end of each Semi-Annual Period of Participation
at a purchase price equal to eighty-five percent (85%) of the lower of (i) the
fair market value per share on the Participant's Entry Date into the Offering
Period or (ii) the fair market value per share on the Semi-Annual Exercise Date
on which such Semi-Annual Period of Participation ends. However, for each
Participant whose Entry Date is other than the Commencement Date of the Offering
Period in effect under the Plan, the clause (i) amount shall in no event be less
than the fair market value of the Common Stock on the Commencement Date of such
Offering Period.

(b) Valuation. For purposes of determining the fair market value per share
of Common Stock on any relevant date, the following procedures shall be in
effect:

(i) For the Effective Time at which the initial Offering Period under
the Plan commences, such fair market value shall be the price per share at
which the Common Stock is sold under the underwriting agreement in
connection with the initial public offering of the Common Stock.

(ii) For any subsequent date under the Plan on which the Common Stock
is registered under Section 12(g) of the Securities Exchange Act of 1934,
then the fair market value shall be

4
<PAGE> 5

the closing selling price on that date, as officially quoted on the
principal exchange on which the Common Stock is then traded, or if not so
traded, the closing selling price on that date on the NASDAQ National
Market System. If there is no quoted selling price for such date, then the
closing selling price on the next preceding day for which there does exist
such a quotation shall be determinative of fair market value.

(iii) If the Common Stock is not then traded on an exchange or on the
NASDAQ National Market System, then the fair market value of the Common
Stock on such date shall be determined by the Committee, after taking into
account such factors as the Committee deems appropriate.

(c) Number of Purchasable Shares. The number of shares purchasable per
Participant for each Semi-Annual Period of Participation shall be the number of
whole shares obtained by dividing the amount collected from the Participant
through payroll deductions during such Semi-Annual Period of Participation by
the purchase price in effect for the Semi-Annual Exercise Date on which such
Semi-Annual Period of Participation ends. However, no Participant may, during
any one Semi-Annual Purchase Period, purchase more than 2,000 shares of Common
Stock, subject to periodic adjustment under Section 6(b).

Under no circumstances shall an Option be granted under the Plan to any
Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Affiliates.

(d) Payroll Deductions. Payment for the Common Stock purchased under the
Plan shall be effected by means of the Participant's authorized payroll
deductions. Such deductions shall begin on the first payday coincident with or
immediately following the Participant's Entry Date into the Offering Period and
shall (unless sooner terminated by the Participant) continue through the payday
ending with or immediately prior to the last day of the Offering Period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account, except where otherwise required by local law. The
amounts collected from a Participant may be commingled with the general assets
of the Company and may be used for general corporate purposes, except where
otherwise required by local law.

(e) Termination of Option. The following provisions shall govern the
termination of outstanding Options:

(i) A Participant may, at any time prior to the last five (5) business
days of a Semi-Annual Period of Participation, terminate his/her
outstanding Option under the Plan by filing the prescribed notification
form with the Committee (or its designate). No further payroll deductions
shall be collected from the Participant with respect to the terminated
Option, and any payroll deductions collected for the Semi-Annual Period of
Participation in which such termination occurs shall be promptly refunded.

(ii) The termination of such Option shall be irrevocable, and the
Participant may not subsequently rejoin the Offering Period for which such
terminated Option was granted. In order to resume participation in any
subsequent Offering Period, such individual must re-enroll in the Plan (by
making a timely filing of a new purchase agreement and payroll deduction
authorization) on or before the date he/she is first eligible to join the
new Offering Period.

(iii) If the Participant ceases to remain an Eligible Employee for any
reason including without limitation death or disability, while his/her
Option remains outstanding, then all of the Participant's payroll
deductions shall be promptly refunded, without interest (except where
otherwise required by law), to the Participant or, in the case of his or
her death, as provided in Section 7(i).

5
<PAGE> 6

In no event may any payroll deductions be made on the Participant's behalf
following his/her cessation of Eligible Employee status.

(f) Exercise. Options to purchase shares of Common Stock under the Plan
shall automatically be exercised on behalf of each Participant (other than
Participants whose payroll deductions have previously been refunded in
accordance with the Plan) on each Semi-Annual Exercise Date. The purchase shall
be effected by applying each Participant's payroll deductions for the
Semi-Annual Period of Participation ending on such Semi-Annual Exercise Date
(together with any carryover deductions from the preceding Semi-Annual Period of
Participation and accrued interest required by law) to the purchase of whole
shares of Common stock (subject to the limitation on the maximum number of
purchasable shares set forth herein) at the purchase price in effect for such
Semi-Annual Period of Participation. Any payroll deductions not applied to such
purchase because they are not sufficient to purchase a whole share shall be held
for the purchase of Common Stock in the next Semi-Annual Period of
Participation. However, any payroll deductions not applied to the purchase of
Common Stock by reason of the limitation on the maximum number of shares
purchasable by the Participant for that Semi-Annual Period of Participation
shall be promptly refunded to the Participant.

(g) Proration of Purchase Rights. Not more than 200,000 shares of Common
stock, subject to periodic adjustment under Section 6(b), may be purchased in
the aggregate by all Participants on any one Semi-Annual Exercise Date under the
Plan. Should the total number of shares of Common Stock which are to be
purchased pursuant to outstanding purchase rights on any particular date exceed
either (i) the maximum limitation on the number of shares purchasable in the
aggregate on such date or (ii) the number of shares then available for issuance
under the Plan, the Committee shall make a pro rata allocation of the available
shares on a uniform and nondiscriminatory basis, and the payroll deductions of
each Participant, to the extent in excess of the aggregate purchase price
payable for the Common Stock pro rated to such individual, shall be promptly
refunded to such Participant.

(h) Rights as Stockholder. A Participant shall have no stockholder rights
with respect to the shares subject to his/her outstanding Option until the
shares are actually purchased on the Participant's behalf in accordance with the
applicable provisions of the Plan. No adjustments shall be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.

A Participant shall be entitled to receive, as soon as practicable after
each Semi-Annual Exercise Date, a stock certificate for the number of shares
purchased on the Participant's behalf.

(i) Designation of Beneficiary.

(i) A Participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death subsequent to a
Semi-Annual Exercise Date on which the Option is exercised but prior to
delivery to such Participant of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to
receive any cash from the Participant's account under the Plan in the event
of such Participant's death prior to exercise of the Option.

(ii) Such designation of beneficiary may be changed by the Participant
at any time by written notice. In the event of the death of a Participant
and in the absence of a beneficiary validly designated under the Plan who
is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one
or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as
the Company may designate.

6
<PAGE> 7

(j) Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an Option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will or the laws of descent and
distribution, or as provided in Section 7(i) hereof) by the Participant, and
during the Participant's lifetime the Option shall be exercisable only by the
Participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to terminate participation in an Offering Period in accordance
with Section 7(e).

(k) Change in Ownership; Dissolution. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each Option under the Plan shall be
assumed or an equivalent Option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Committee determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Period then in progress by
setting a new Semi-Annual Exercise Date (the "New Exercise Date"). If the
Committee shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Committee shall
notify each participant in writing, at least thirty (30) days prior to the New
Exercise Date, that the Semi-Annual Exercise Date for his/her Option has been
changed to the New Exercise Date and that his/her Option will be exercised
automatically on the New Exercise Date, unless prior to such date he/she has
terminated his/her participation in the Offering Period as provided in Section
7(e). For purposes of this paragraph, an Option granted under the Plan shall be
deemed to be assumed if, following the sale of assets or merger, the Option
confers the right to purchase, for each share of Common Stock subject to the
Option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common Stock for each share of Common Stock held
on the effective date of the transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
such consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its parent (as defined in Section
425(e) of the Code), the Committee may, with the consent of the successor
corporation and the Participant, provide for the consideration to be received
upon exercise of the Option to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the sale of assets or
merger.

In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee.

8. Accrual Limitations.

(a) No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any Option outstanding under this Plan if and to the extent
such accrual, when aggregated with (i) rights to purchase Common Stock accrued
under any other Option outstanding under this Plan and (ii) similar rights
accrued under other employee stock purchase plans (within the meaning of Section
423 of the Code) of the Company or its Affiliates, would otherwise permit such
Participant to purchase more than $25,000 (U.S. dollars) worth of stock of the
Company or any Affiliate (determined on the basis of the fair market value of
such stock on the date or dates such rights are granted to the Participant) for
each calendar year such rights are at any time outstanding.

(b) For purposes of applying such accrual limitations, the right to acquire
Common Stock pursuant to each Option outstanding under the Plan shall accrue as
follows:

(i) The right to acquire Common Stock under each such Option shall
accrue in a series of successive semi-annual installments as and when the
Option first becomes exercisable for

7
<PAGE> 8

each semi-annual installment on the last business day of each Semi-Annual
Period of Participation for which the Option remains outstanding.

(ii) No right to acquire Common Stock under any outstanding Option
shall accrue to the extent the Participant has already accrued in the same
calendar year the right to acquire $25,000 (U.S. dollars) worth of Common
Stock (determined on the basis of the fair market value on the date or
dates of grant) pursuant to one or more rights held by the Participant
during such calendar year.

(iii) If by reason of such accrual limitations, any Option of a
Participant does not accrue for a particular Semi-Annual Period of
Participation, then the payroll deductions which the Participant made
during the Semi-Annual Period of Participation with respect to such Option
shall be promptly refunded.

(c) In the event there is any conflict between the provisions of this
Section 8 and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Section 8 shall be controlling.

9. Amendment and Termination of Plan.

(a) The Board may alter, amend, suspend or discontinue the Plan following
the close of any Semi-Annual Period of Participation. However, the Board may
not, without the approval of the Company's stockholders:

(i) materially increase the number of shares issuable under the Plan
or the maximum number of shares which may be purchased per Participant or
in the aggregate during any one Semi-Annual Period of Participation under
the Plan, except that the Committee shall have the authority, exercisable
without such stockholder approval, to effect adjustments to the extent
necessary to reflect changes in the Company's capital structure pursuant to
the Plan;

(ii) alter the exercise price formula so as to reduce the exercise
price payable for the shares issuable under the Plan; or

(iii) materially increase the benefits accruing to Participants under
the Plan or materially modify the requirements for eligibility to
participate in the Plan.

(b) The Company shall have the right, exercisable in the sole discretion of
the Committee, to terminate all outstanding Options under the Plan immediately
following the close of any Semi-Annual Period of Participation. Should the
Company elect to exercise such right, then the Plan shall terminate in its
entirety. No further Options shall thereafter be granted or exercised, and no
further payroll deductions shall thereafter be collected, under the Plan.

10. General Provisions.

(a) The Plan shall become effective at the Effective Time, provided that no
Options granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders and (ii) the Company shall have complied with all applicable
requirements of the Securities Act of 1933 (as amended), all applicable listing
requirements of any securities exchange on which shares of the Common Stock are
listed and all other applicable requirements established by law or regulation.
In the event such stockholder approval is not obtained, or such Company
compliance is not effected, within twelve (12) months after the date on which
the Plan is adopted by the Board, the Plan shall terminate and have no further
force or effect and all payroll deductions collected hereunder shall be
refunded.

(b) Unless otherwise terminated as provided in Section 9, the Plan shall
terminate upon the earlier of (i) December 31, 2003 or (ii) the date on which
all shares available for issuance under the Plan shall have been issued pursuant
to Options exercised under the Plan.

8
<PAGE> 9

(d) Neither the action of the Company in establishing the Plan, nor any
action taken under the Plan by the Board or the Committee, nor any provision of
the Plan itself shall be construed so as to create any right for the benefit of
any employee or class of employees to purchase any shares under the Plan, or to
create in any employee or class of employees any right with respect to
continuation of employment by the Company or any of its Affiliates, or to
interfere in any way with the Company's or any Affiliate's right to terminate,
or otherwise modify, an employee's employment at any time.

(e) The provisions of the Plan shall be governed by the laws of the State
of Delaware without resort to that State's conflict-of-laws rules.

(f) The Committee may adopt rules or procedures relating to the operation
and administration of the Plan in non-United States jurisdictions to accommodate
the specific requirements of local laws and procedures. Without limiting the
generality of the foregoing, the Committee is specifically authorized to adopt
rules and procedures regarding handling of payroll deductions, conversion of
local currency, withholding procedures and handling of stock certificates which
vary with local requirements.

<PAGE> 1
Exhibit 10.26

ASSIGNMENT, ASSUMPTION AND NOVATION AGREEMENT

This Assignment, Assumption and Novation Agreement
("Agreement") is entered into on September 12, 1997, but shall be deemed
effective as of the 1st day of August, 1997 ("Effective Date"), by and between
USA GROUP INFORMATION SOLUTION, INC., an Indiana corporation, formerly known as
TRG, Inc. ("USAGIS"), VIASOFT, INC., a Delaware corporation ("Viasoft"), and
LONDEN CENTER L.L.C., an Arizona limited liability company ("Londen").

RECITALS:

Londen, as Landlord, and USAGIS, as Tenant, have entered into
that certain Office Lease with Addendum and exhibits, each dated as of December
19, 1994 (the "Original Lease"). The Original Lease was amended by that certain
First Amendment to Lease with exhibits, dated as of December 20, 1995 (the
"First Amendment"). Pursuant to an Assignment, Assumption and Novation Agreement
dated December 19, 1996, by and between the parties hereto, the Original Lease
was split into a direct lease between USAGIS and Londen, as to approximately
14,465 rentable square feet of the Premises and a direct lease between Viasoft
and Londen, as to approximately 24,007 rentable square feet of the Premises (the
"First Assignment"). The Original Lease, the First Amendment and the First
Assignment (as to the "Assigned Premises" referenced below) are collectively
referred to as the "Lease".

USAGIS wishes to assign to Viasoft all of its remaining right,
title and interest in and to the Premises demised by the Original Lease, which
the parties agree is the approximately 14,465 remaining rentable square feet
(the "Assigned Premises") granted to USAGIS pursuant to the First Assignment.

Viasoft wishes to (i) accept the assignment to Viasoft of all
of USAGIS's right, title and interest, as Tenant under the Lease, in and to the
Assigned Premises, and (ii) assume the performance of USAGIS's obligations
applicable to the Assigned Premises as Tenant under the Lease.

Londen wishes to (i) consent to USAGIS's assignment to Viasoft
of all of USAGIS's remaining right, title and interest, as Tenant under the
Lease, and (ii) release USAGIS's from the performance of USAGIS's remaining
obligations as Tenant under the Lease.

NOW, THEREFORE, in consideration of the premises and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follow:
<PAGE> 2
AGREEMENTS:

1. Accuracy of the Recitals: The parties hereby acknowledge
the accuracy of the Recitals which are incorporated herein by this reference.

2. Defined Terms. Except for those terms expressly defined in
this Agreement, all initially capitalized terms used herein shall have the
meanings set forth for such terms in the Lease.

3. No Default. The parties acknowledge and agree that the
Lease is in full force and effect. The parties acknowledge that no party is in
default under any of the provisions of the Lease.

4. Assignment. As of the Effective Date, USAGIS hereby assigns
all of its right, title and interest, as Tenant under the Lease, in and to the
Assigned Premises to Viasoft, so that USAGIS shall have no remaining right,
title or interest in any portion of the Premises, the Building or the Project.
Without limiting the foregoing assignment, such assignment includes all signage
rights, parking and storage space held by USAGIS.

5. Assumption. As of the Effective Date, Viasoft hereby
accepts the above assignment and assumes and agrees to perform all of the terms,
conditions, covenants and agreements of USAGIS, applicable to the Assigned
Premises, as Tenant under the Lease, except as provided in Section 8 below.

6. Consent. As of the Effective Date, Londen, in accordance
with Section 8.1 of the Lease, hereby consents to the above assignment.

7. Novation.

(a) From and after the Effective Date, except as
provided in Section 8 below, Viasoft shall perform each and every term,
condition, covenant and agreement of USAGIS, applicable to the Assigned
Premises, as Tenant under the Lease, and agrees to be bound by each and every
term, condition, covenant and agreement of the Tenant applicable to the Assigned
Premises (and all other portions of the Premises) contained in the Lease as if
Viasoft were an original party to the Lease.

(b) As of the Effective Date, except as provided in
Section 8 below, Londen unconditionally releases USAGIS from all claims for any
obligation or liability as Tenant applicable to the Assigned Premises (and all
other portions of the Premises) contained in or arising out of the Lease. Londen
accepts the liability of Viasoft only to perform each and every term, condition,
covenant and agreement of the "Tenant" applicable to the Assigned Premises under
the Lease in lieu of the liability of USAGIS. Londen shall be bound by the terms
of the Lease in every way as if Viasoft was named as the Tenant of the Assigned
Premises in the Lease.

8. Annual Rent. Notwithstanding anything in this Agreement or
the Lease to the contrary, USAGIS shall remain solely responsible to pay the
Monthly Installment of Rent for Annual Rent reserved under Section 3 of the
Lease with respect to the Assigned Premises through and including September 30,
1997. Commencing on October 1, 1997, Viasoft shall be solely responsible to pay
the Monthly Installment of Rent for Annual Rent. In addition, USAGIS shall
remain responsible for all Tenant expense reimbursement (e.g., taxes) contained
in the Lease with respect to the Assigned Premises through the Effective Date,
regardless of when such items are billed by Londen.
<PAGE> 3
9. Condition and Delivery of the Premises. USAGIS hereby
represents and warrants to Viasoft that its interest in the Assigned Premises
leasehold and in the furniture referenced in Section 11 below is free and clear
of all liens and encumbrances, except for the Landlord's lien for rent. The
Assigned Premises is otherwise delivered to Viasoft by USAGIS "AS-IS" and "WITH
ALL FAULTS" on the Effective Date.

10. Access Cards. USAGIS shall deliver all remaining access
cards in its possession for the parking garage serving the Project.

11. Cubular Furniture. USAGIS agrees to sell, and Viasoft
agrees to purchase some or all of the existing cubular furniture located in the
Assigned Premises in accordance with a bill of sale of even date with the
execution date of this Agreement. Payment shall be made immediately upon the
delivery of this Agreement. USAGIS shall have seven business days to remove any
unpurchased furniture, which time period shall commence on the day the bill of
sale is executed.

12. Brokerage. Each party represents that no fee or commission
is owed or shall be paid to any broker, finder or agent with respect to this
transaction. Each party indemnifies the others with respect to any claim for a
commission by any person claiming through the indemnitor.

13. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE> 4
USA GROUP INFORMATION SOLUTION,
INC., an Indiana corporation

By /s/ Jeffrey E. Good
----------------------
Jeffrey E. Good

Its Vice President and Treasurer

["USAGIS"]

VIASOFT, INC., a Delaware corporation

By /s/ Mark R. Schonau
_____________________________ ________________________________________

Its CFO
___________________________________

["Viasoft"]

LONDEN CENTER L.L.C., an Arizona
limited liability company

By _______________________________________

Its __________________________________

["Londen"]

State of ____________

County of __________

The foregoing instrument was acknowledged before me this _____
day of ________________, 1997, by __________________, the ___________________ of
USA Group Information Solution, Inc., an Indiana corporation, on behalf of the
corporation.

(Seal and Expiration Date)

_______________________________
Notary Public

State of Arizona

County of Maricopa

<PAGE> 5
The foregoing instrument was acknowledged before me this 19th
day of September, 1997, by Mark Schonau, the CFO of Viasoft, Inc., a Delaware
corporation, on behalf of the corporation.

(Seal and Expiration Date)

Denene A. Till
_______________________________
Notary Public

State of Arizona

County of Maricopa

The foregoing instrument was acknowledged before me this _____
day of ________________, 1997, by __________________, the ___________________ of
Londen Center L.L.C., an Arizona limited liability company, on behalf of the
company.

(Seal and Expiration Date)

______________________________
Notary Public
<PAGE> 6
ASSIGNMENT, ASSUMPTION AND NOVATION AGREEMENT

This Assignment, Assumption and Novation Agreement
("Agreement") is entered into as of the 19th day of December, 1996 ("Execution
Date"), by and between TRG, INC., an Indiana corporation ("TRG"), VIASOFT, INC.,
a Delaware corporation ("Viasoft"), and LONDEN CENTER L.L.C., an Arizona limited
liability company ("Londen").

RECITALS:

Londen, as Landlord, and TRG, as Tenant, have entered into
that certain Office Lease with Addendum and exhibits, each dated as of December
19, 1994, attached hereto as Exhibit A and incorporated herein by this reference
(the "Original Lease").

The Original Lease was amended by that certain First Amendment
to Lease with exhibits, dated as of December 20, 1995, attached hereto as
Exhibit B and incorporated herein by this reference (the "First Amendment"). The
Original Lease and the First Amendment are collectively referred to as the
"Lease".

TRG wishes to (i) assign to Viasoft all of its right, title
and interest, as Tenant under the Lease, in and to approximately 24,007 rentable
square feet (the "Assigned Premises") of the Premises, as defined in the Lease,
as shown on Exhibit C attached hereto and incorporated herein by this reference,
(ii) be discharged from the performance of its obligations applicable to the
Assigned Premises as Tenant under the Lease, and (iii) confirm its obligations
as Tenant under the Lease applicable to approximately 14,465 rentable square
feet (the "Retained Premises") of the Premises, as shown on Exhibit D attached
hereto and incorporated herein by this reference, effective as of March 1, 1997
(the "Effective Date").

Viasoft wishes to (i) accept the assignment to Viasoft of all
of TRG's right, title and interest, as Tenant under the Lease, in and to the
Assigned Premises, and (ii) assume the performance of TRG's obligations
applicable to the Assigned Premises as Tenant under the Lease, effective as of
the Effective Date.

Londen wishes to (i) consent to TRG's assignment to Viasoft of
all of TRG's right, title and interest, as Tenant under the Lease, in and to the
Assigned Premises, (ii) release TRG's from the performance of TRG's obligations
applicable to the Assigned Premises as Tenant under the Lease, effective as of
the Effective Date.

1. Accuracy of the Recitals: The parties hereby acknowledge
the accuracy of the Recitals which are incorporated herein by this reference.
The actual square footage of the Assigned Premises and the Retained Premises may
be confirmed by either party within 30 days from the date hereof using BOMA
standards, with adjustments being made as appropriate if required.

2. Defined Terms. Except for those terms expressly defined in
this Agreement, all initially capitalized terms used herein shall have the
meanings set forth for such terms in the Lease.

3. No Default. As of the Execution Date: Londen and TRG
acknowledge and agree that the Lease remains in full force and effect. TRG
acknowledges that Londen is not in default of any provision of the Lease. Londen
acknowledges that TRG is not in default of any provision of the Lease.

4. Assignment. As of the Effective Date, TRG hereby assigns
all of its right, title and interest, as Tenant under the Lease, in and to the
Assigned Premises to Viasoft, reserving to TRG all right, title and interest, as
Tenant under the Lease, in and to the Retained Premises.

5. Assumption. As of the Effective Date, Viasoft hereby
accepts the above assignment and assumes and agrees to perform all of the terms,
conditions, covenants and agreements of TRG, applicable to the Assigned
Premises, as Tenant under the Lease.

6. Consent. As of the Effective Date, Londen, in accordance
with Section 8.1 of the Lease, hereby consents to the above assignment.

7. Novation.

(a) From and after the Effective Date, Viasoft shall
perform each and every term, condition, covenant and agreement of TRG,
applicable to the Assigned Premises, as Tenant under the Lease, and agrees to be
bound by each and every term, condition, covenant and agreement of the Tenant
applicable to the Assigned Premises, contained in the Lease as if Viasoft were
an original party to the Lease.

(b) As of the Effective Date, Londen unconditionally
releases TRG from all claims for any obligation or liability as Tenant
applicable to the Assigned Premises contained in or arising out of the Lease.
Londen accepts the liability of Viasoft only to perform each and every term,
condition, covenant and agreement of the "Tenant" applicable to the Assigned
Premises under the Lease in lieu of the liability of TRG. Londen shall be bound
by the terms of the Lease in every way as if Viasoft was named as the Tenant of
the Assigned Premises in the Lease.

8. Confirmation. TRG hereby confirms to Londen that it shall
perform each and every term, condition, covenant and agreement as Tenant
applicable to the Retained Premises under the Lease.

9. Condition and Delivery of the Premises. The Assigned
Premises shall be
<PAGE> 8
delivered to Viasoft by TRG "AS-IS" and "WITH ALL FAULTS" on the Effective Date.
Notwithstanding the foregoing, Viasoft may enter the Premises after the
Execution Date for the sole purpose of constructing its tenant improvements.
Such tenant improvements shall include a demising wall between the Assigned
Premises and the Retained Premises and a common area corridor. Said right of
entry shall not create a lease estate or any other right in favor of Viasoft.
Viasoft hereby indemnifies and holds harmless TRG and Londen from all claims,
damages, mechanics' liens, fees and costs (including attorneys' fees) respecting
or arising out of the right granted in this Section 9. The tenant improvements
shall be made in accordance with the terms, conditions and limitations contained
in a Lease (including obtaining any required approvals of Londen); provided
Londen hereby agrees to approve a demising wall and a common area corridor that
comply with governmental requirements. Prior to any entry Viasoft shall deliver
to TRG and Londen certificates of insurance having such parties as named
additional insureds under a liability policy of not less than $1,000,000.

10. Governing Document. The Lease shall in all respects govern
Viasoft's occupancy of the Assigned Premises and TRG's occupancy of the Retained
Premises, except that, notwithstanding anything in the Lease to the contrary,
the parties agree as follows as of the Effective Date the Lease shall be deemed
two separate leases, one governing strictly the Assigned Premises and one
governing strictly the Retained Premises, and further:

(a) The "Tenant's Proportionate Share of Building"
applicable to TRG shall mean 13.35%, subject to confirmation pursuant to BOMA
standards in accordance with Section 1 hereof.

(b) The "Tenant's Proportionate Share of Building"
applicable to Viasoft shall mean 22.15%, subject to confirmation pursuant to
BOMA standards in accordance with Section 1 hereof.

(c) All other ratios and percentages in the
respective Lease shall be amended to conform with the percentages set forth in
Sections 10(a) and (b) above except for the stipulated prorations set forth in
(d) through (g) and Sections 11 and 12 below.

(d) The tenant under the Lease has certain
cancellation rights with respect to the Original Premises (as defined in the
Lease) pursuant to the Addendum to the Lease entitled Cancellation Option and
for the Additional Space (as defined in the First Amendment to Lease), pursuant
to Paragraph 9 of the First Amendment to Lease. The cancellation rights required
a cancellation fee with respect to the Original Premises, which fee as of the
first day of the lease term was $550,895 to be amortized over 72 months, at the
rate of $7,651 per month for the Original Premises. The cancellation fee with
respect to the Cancellation Option for all of the Additional Space in accordance
with Section 9(i) of the First Amendment to Lease was $164,026 as of December
20, 1995, to be amortized over 62 months, at the rate of $2,646 for all of the
Additional Space. Accordingly, the cancellation fee for the Cancellation Option
for the Retained Premises shall be $119,248 as of May 31, 1998 (which is the
earliest date said Cancellation Option may be exercised), amortizing thereafter
at $3,312 per month, which if owed shall be paid by TRG. The cancellation fee
for the Cancellation Option for the Assigned Premises shall be $251,429 as of
May 31, 1998 (which is the earliest date said Cancellation Option may be
exercised), amortizing thereafter at $6,984 per month, which if owed shall be
paid by Viasoft.
<PAGE> 9
(e) TRG shall have 55 access cards providing access
to the parking garage of the Building, the other public areas of the Building
and its elevator system and the Retained Premises. TRG shall have at least 50
unreserved employee parking spaces in the parking garage.

(f) Viasoft shall have 145 access cards providing
access to the parking garage of the Building, the other public areas of the
Building and its elevator system and the Retained Premises. Viasoft shall have
at least 107 unreserved employee parking spaces in the parking garage.

(g) Viasoft shall have the sole right to exercise the
"First Right" as set forth in the Addendum to the Original Lease. TRG shall have
no right, title or interest in or to said "First Right".

(h) TRG and Londen acknowledge and agree that
Viasoft's use of the Assigned Premises, and any additional space in the Building
Viasoft may lease in the future, shall not be deemed to be a violation of
Section 1.5 of the Lease applicable to the Retained Premises. Viasoft and Londen
acknowledge and agree that TRG's use of the Retained Premises, and any
additional space in the Building TRG may lease in the future, shall not be
deemed to be a violation of Section 1.5 of the Lease applicable to the Assigned
Premises.

(i) Each and every reference contained in the Lease
to the "Premises" shall be deemed to refer to the Retained Premises as the Lease
applies to TRG. Each and every reference contained in the Lease to the
"Premises" shall be deemed to refer to the Assigned Premises as the Lease
applies to Viasoft.

11. Signage. As of the Effective Date, TRG hereby
conditionally assigns to Viasoft its right to place signage on the Building
monument granted to TRG pursuant to the Addendum to the Original Lease;
provided, however, if Londen remains unable to provide TRG alternative signage
on the Building monument reasonably satisfactory to TRG at the time TRG desires
such monument signage, TRG hereby reserves the right to make use of the lower
50% of the signage assigned to Viasoft pursuant to this Section 11 upon 10 days'
notice to Viasoft, with Viasoft entitled to use the upper 50% of such signage.

12. Storage Space. Pursuant to the First Amendment, Londen is
obligated to provide TRG with 250 square feet of secured storage space within
the Building's G-2 parking garage level at no charge to TRG. As of the Effective
Date, TRG hereby assigns all of its right, title and interest in and to 125
square feet of said storage space to Viasoft, reserving to TRG 125 square feet.
Viasoft shall install a demising wall with the cost thereof prorated between the
parties in accordance with Section 13(a) below.

13. Tenant Improvements.

(a) Viasoft shall construct demising walls between
the common boundaries of the Assigned Premises and the Retained Premises and
between the storage space assigned to Viasoft pursuant to Section 12 above and
the storage space retained by TRG prior to the Effective Date. All costs and
expenses relating to the required demising walls and common area corridor,
including architect, engineering and permit fees shall be shared equally between
TRG and Viasoft, as incurred.
<PAGE> 10
(b) The parties intend that the Assigned Premises and
the Retained Premises shall be treated as completely separate facilities, with
equal rights to all common areas and the common area corridor. However, the
parties acknowledge that systems existing as of the Execution Date of this
Agreement (e.g., cabling) may be partially located in other portions of the
Building, and the parties accordingly grant each other reasonable rights of
entry to maintain and replace such existing systems improvements. Each party
shall give the other party at least 10 days' written notice of any exercise of
such right of entry absent an emergency.

14. Cubular Furniture. TRG agrees to sell, and Viasoft agrees
to purchase the existing cubular furniture located in the Assigned Premises for
a purchase price to be agreed upon by the parties on or before December 27,
1996. The sale shall be completed as soon as possible but TRG shall have the
option to repurchase the property sold if for any reason the assignment herein
is not effective on the Effective Date.

15. No Cross-Default. No default by TRG under the terms of the
Lease applicable to the Retained Premises shall be deemed to constitute a
default by Viasoft under the terms of the Lease applicable to the Assigned
Premises. No default by Viasoft under the terms of the Lease applicable to the
Assigned Premises shall be deemed to constitute a default by TRG under the terms
of the Lease applicable to the Retained Premises. No default by Londen under the
terms of the Lease applicable to the Retained Premises shall be deemed to
constitute a default by Londen under the terms of the Lease applicable to the
Assigned Premises. No default by Londen under the terms of the Lease applicable
to the Assigned Premises shall be deemed to constitute a default by Londen under
the terms of the Lease applicable to the Retained Premises.

16. Brokerage. Except for the fees of Lee & Associates and CB
Commercial/Tom Adelson, which shall by paid by Viasoft when due, TRG and Londen
have no agreement or obligation, contingent or otherwise, to pay any fees or
commissions to any broker, finder or agent with respect to the transaction
contemplated by this Agreement.

17. Effective Date. This Agreement is immediately of full
force and effect. There are no conditions, express or implied, with respect to
the Effective Date except the passage of time. The purpose of the Effective Date
is to permit Viasoft to enter portions of the Premises prior to March 1, 1997
without incurring a base rent obligation, but subject always to the Lease and
this Agreement.

18. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

19. Counterparts. This Agreement may be executed counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.

20. Assignment at the Direction of Londen.

(a) Should any set of circumstances arise in which
TRG is permitted to surrender possession of all or a portion of the Retained
Premises on a certain date ("Surrender Date"), TRG shall, at the written
direction of Londen (the "TRG Direction"), assign all of its right, title and
interest in and to the applicable portion of the Retained Premises as of the
Surrender Date to an
<PAGE> 11
assignee of Londen's choice, AS IS, WHERE IS, provided:

(i) That Londen and said assignee execute
and deliver to TRG an Assignment, Assumption and Novation Agreement, in form
satisfactory to TRG, which among other things, provides that TRG is
unconditionally released from any and all obligations and liabilities arising
out of the Lease as it applies to such surrendered portion of the Retained
Premises;

(ii) That notwithstanding any delay in the
execution and delivery of the Assignment, Assumption and Novation Agreement
required by Section 20(a)(i) above, TRG shall have no liability for rent or
other amounts coming due under the Lease for the applicable surrendered portion
of the Retained Premises from and after the Surrender Date.

Londen hereby indemnifies TRG for any claim by a third party
relating to such surrender and the performance of the Assignment, Assumption and
Novation Agreement.

(b) Should any set of circumstances arise in which
Viasoft is permitted to surrender possession of all or a portion of the Assigned
Premises on a certain date ("Surrender Date"), Viasoft shall, at the written
direction of Londen (the "Viasoft Direction"), assign all of its right, title
and interest in and to the applicable portion of the Assigned Premises as of the
Surrender Date to an assignee of Londen's choice, AS IS, WHERE IS, provided:

(i) That Londen and said assignee execute
and deliver to Viasoft an Assignment, Assumption and Novation Agreement, in form
satisfactory to Viasoft, which among other things, provides that Viasoft is
unconditionally released from any and all obligations and liabilities arising
out of the Lease as it applies to such surrendered portion of the Assigned
Premises;

(ii) That notwithstanding any delay in the
execution and delivery of the Assignment, Assumption and Novation Agreement
required by Section 20(b)(i) above, Viasoft shall have no liability for rent or
other amounts coming due under the Lease for the applicable surrendered portion
of the Assigned Premises from and after the Surrender Date.

Londen hereby indemnifies Viasoft for any claim by a third
party relating to such surrender and the performance of the Assignment,
Assumption and Novation Agreement.

[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE> 12
TRG, INC., an Indiana corporation

By /s/ James Lyon
____________________________________

Its COO
______________________________

["TRG"]

VIASOFT, INC., a Delaware corporation

By /s/ Mark Schonau
___________________________________

Its CFO
_______________________________

["Viasoft"]

LONDEN CENTER L.L.C., an Arizona
limited liability company

By /s/ Jack Londen
___________________________________
Its Manager
______________________________

["Londen"]

State of Arizona

County of Maricopa

The foregoing instrument was acknowledged before me this 31st
day of December, 1996, by James Lyon, the COO of TRG, Inc., an Indiana
corporation, on behalf of the corporation.

(Seal and Expiration Date)

/s/ Patty Bigley
_________________________________
Notary Public
<PAGE> 13
State of Arizona

County of Maricopa

The foregoing instrument was acknowledged before me this 23rd
day of December, 1996, by Mark Schonau, the CFO of Viasoft, Inc., a Delaware
corporation, on behalf of the corporation.

(Seal and Expiration Date)

Denene A. Till
_______________________________________
Notary Public

State of Arizona

County of Maricopa

The foregoing instrument was acknowledged before me this 31st
day of December, 1996, by Jack Londen, the Manager of Londen Center L.L.C., an
Arizona limited liability company, on behalf of the company.

(Seal and Expiration Date)

Marce L. Boersma
_______________________________________
Notary Public

<PAGE> 14
EXHIBIT A
OFFICE LEASE
REFERENCE PAGE

<TABLE>
<CAPTION>
<S> <C>
LEASE REFERENCE DATE: December 19, 1994

BUILDING: The Londen Center
4343 East Camelback Road
Phoenix, Arizona 85018

PROJECT: For legal description of Project see Exhibit A
attached to this Lease and made a part of this
Lease by this reference

LANDLORD: Londen Center L.L.C., an Arizona limited
liability company

MANAGER: Londen Center L.L.C., an Arizona limited
liability company

LANDLORD'S AND 4343 East Camelback Road, Suite 400
MANAGER'S ADDRESS: Phoenix, Arizona 85018
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
(For Notices Only)

TENANT: TRG, Inc., an Indiana corporation

TENANT'S ADDRESS: 4343 East Camelback Road, Suite 300
(As of beginning of Term) Phoenix, Arizona 85018

PREMISES IDENTIFICATION: The 3rd floor of the Building as approxi
mately crossed hatched on Exhibit B attached
to and made a part of this Lease by this
reference. The Premises shall not include
any portion of the atrium (whether airspace
or structural components thereof), any public
walkways and corridors located within the
atrium, the public bathrooms and related
hallways, the elevator lobbies and areas and
any other area of the 3rd floor located outside
of the interior surface of the walls and doors
comprising the Premises which delineate the
boundary between the Premises and the
adjacent atrium and related common areas
located outside of such interior surface of
such walls and doors

PREMISES RENTABLE AREA: 33,407 rentable square feet based on 29,695
usable square feet measured by BOMA
standards and a 12.50% "load" factor

USE: General office use; engineering and product
development; sale, display and customer
service; service and repair; education and
training, together with all uses incidental or
related thereto

SCHEDULED COMMENCEMENT DATE: May 1, 1995

SCHEDULED TERMINATION DATE: April 30, 2001

TERM OF LEASE: 6 years beginning on the Commencement
Date (as hereinafter defined in Section 2.1)
and ending on the Termination Date (as
hereinafter defined in Section 2.1), which
Termination Date shall be the last day of a
calendar month

ANNUAL RENT (Article 3): $504,445.70 (which is equal to $15.10 per
rentable square foot in the Premises x 33,407
rentable square feet in the Premises), plus
applicable rental taxes per Article 26 of the
Lease, except the first year's rent shall be
$493,936.43

MONTHLY INSTALLMENT OF
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C>
ANNUAL RENT (Article 3): $42,037.14 (which
is equal to Annual
Rent (divided by) 12),
plus applicable rental
taxes per Article
26 of the Lease,
except the first
month's rent shall
be $31,527.85

BASE YEAR (DIRECT EXPENSES): Calendar year 1995
OR
EXPENSE STOP $ N/A per square foot

BASE YEAR (TAXES): Taxes levied or imposed for calendar year
1995 whether payable by Landlord in 1995 or
1996
OR
TAX STOP $ N/A per square foot

TENANT'S PROPORTIONATE
SHARE OF BUILDING: 30.82% (based on 108,380 rentable square
feet in the Building)

REAL ESTATE BROKER DUE
COMMISSION: CB Commercial by separate agreement
between Landlord and its broker
</TABLE>

The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control. This Lease includes Exhibits A through D,
and Schedules 1 through 3, all of which are made a part of this Lease.

LANDLORD: TENANT:

LONDEN CENTER L.L.C., TRG, INC.,
an Arizona limited an Indiana corporation
liability company

By______________________________ By________________________________

Its___________________________ Its_______________________________
<PAGE> 17
LEASE

By this Lease Landlord leases to Tenant and Tenant leases from
Landlord the Premises in the Building located on the Project as set forth and
described on the Reference Page. The Reference Page, including all terms defined
thereon, is incorporated as part of this Lease.

The Building and Land are part of a project legally described on
Exhibit A (the "Project"), which includes the Building, a parking garage
comprising a portion of the Building and exterior parking and common areas. As
used in this Lease, the "Project's common areas" and terms of similar meaning
shall mean all areas and facilities in the Project which are provided and
designated from time to time by the owner of the Project for the general and
nonexclusive use and convenience of Tenant, with Landlord and other owners or
tenants of the Project and their respective employees, invitees, customers,
licensees and other visitors, including, without limitation, the driveways,
walkways, terraces, docks, courts, loading areas and trash facilities.

This Lease includes the right of Tenant to use the common building
facilities in common with other tenants of the Building. The words "common
building facilities" and terms of similar meaning shall mean all of the
Project's common areas described above and any other facilities within the
Building designed and intended for use by the tenants of the Building in common
with Landlord and each other, including corridors; elevators; fire stairs;
telephone and electric closets; telephone trunk lines and electric risers;
aisles; walkways; restrooms; service areas; lobbies; and all other common and
service areas of the Building intended for such use on the date hereof.

1. USE.

1.1 Landlord represents and warrants that the Premises and other
portions of the Project are in compliance with all applicable laws, rules,
ordinances, regulations, orders and other requirements of governmental
authorities. The Premises are to be used solely for the purposes stated on the
Reference Page and purposes incidental thereto.

1.2 Landlord represents and warrants that the Premises and other
portions of the Project do not contain any Hazardous Materials (as hereinafter
defined) in concentrations which violate any Environmental Laws (as hereinafter
defined) and that the Premises are in compliance with all Environmental Laws.
Landlord shall be entitled to permit Circle K Corporation to continue to
maintain and replace its existing gas tanks located at the Project in accordance
with applicable law. Tenant shall not at any time handle, use, manufacture,
store or dispose of in or about the Premises or the Building any (collectively
"HAZARDOUS MATERIALS") flammables, explosives, radioactive materials, hazardous
wastes or materials, toxic wastes or materials, or other similar substances,
petroleum products or derivatives or any substance subject to regulation by or
under any federal, state and local laws and ordinances relating to the
protection of the environment or the keeping, use or disposition of
environmentally hazardous materials, substances, or wastes, presently in effect
or hereafter adopted, all amendments to any of them, and all rules and
regulations issued pursuant to any of such laws or ordinances (collectively
"ENVIRONMENTAL LAWS"), nor shall Tenant suffer or permit any Hazardous Materials
to be used in any manner not fully in compliance with all Environmental Laws, in
the Premises. Notwithstanding the foregoing, Tenant may handle, store, use or
dispose of products containing small quantities of Hazardous Materials to the
extent customary and necessary for the use of the Premises for general office
purposes; provided that Tenant shall always handle, store, use, and dispose of
any such Hazardous Materials in a safe and lawful manner and never allow such
Hazardous Materials to contaminate the Premises, Building and appurtenant land
or the environment.

1.3 Landlord represents and warrants that neither asbestos nor
asbestos-containing
<PAGE> 18
materials were used in the construction of the Building and, notwithstanding any
other provision of this Lease, Landlord agrees to comply with all laws, rules,
regulations and ordinances governing the installation or removal of asbestos and
asbestos-containing materials at Landlord's sole cost and expense.

1.4 Landlord shall not waive and shall enforce existing lease
provisions contained in its lease with the occupant of the existing convenience
market in the Project prohibiting the location of advertising, banners and other
signs within 12 inches of the storefront windows of such store. Landlord shall
not permit the occupant of the existing convenience market in the Project to
install different types or colors of signage or additional signage on its
storefront or within the Project common areas. No Retail Space other than the
Retail Space open for business on the Lease Reference Date may be located in the
Project unless Tenant's consent is first obtained.

1.5 Landlord acknowledges that Tenant develops and uses proprietary
software in the day-to-day operation of its business. Accordingly, no party may
occupy any portion of the Building if its business is directly or indirectly
related to software development for higher education unless adequate protections
and security measures and other matters are satisfactory to Tenant in its
reasonable discretion.

2. TERM.

2.1 The Term of this Lease shall begin on the date ("COMMENCEMENT
DATE") which shall be the later of (a) the Scheduled Commencement Date as shown
on the Reference Page and (b) the date of Substantial Completion (as hereinafter
defined) of the Premises and shall end on the date (the "TERMINATION DATE")
which shall be the later of (a) the Scheduled Termination Date as shown on the
Reference Page and (b) such date as shall be six (6) years from the last day of
the month in which said Commencement Date shall occur, unless the term is
otherwise extended pursuant to the attached Addendum. "SUBSTANTIAL COMPLETION"
of the Premises shall be deemed to have occurred only when (a) the work
described in the WORK LETTER attached as Exhibit C has been substantially
completed, (b) all standard and necessary building services described under
Article 12 are available to Tenant and the Premises, (c) a certificate of
occupancy has been issued by the appropriate governmental authorities with
respect to the Premises, and (d) the Landlord has delivered to Tenant prior
notice of the Commencement Date, as provided below, and the notice period called
for therein has elapsed. The work to be completed pursuant to clause (a) above
shall be substantially completed when construction is completed excepting only
(i) so-called punch-list items consisting of uncompleted minor elements of
construction, decoration or finish work and mechanical adjustment which would
not interfere materially with the use and enjoyment by Tenant and Tenant's
ability to conduct business (such punch-list items to be diligently completed by
Landlord) and (ii) matters such as balancing of heating, ventilating and air
conditioning systems which cannot be completed owing to their seasonal nature.
Landlord shall give Tenant written notice of the Commencement Date at least ten
(10) days before the occurrence of such date and shall confirm or correct to a
later date at least five (5) days before the Commencement Date. Landlord and
Tenant shall execute a memorandum setting forth the actual Commencement Date and
Termination Date.

2.2 Landlord shall deliver the Premises not later than May 1, 1995.
In the event that the Premises are not delivered timely, Landlord shall be
liable to Tenant for all rental obligations incurred by Tenant at its existing
space for each day after May 1, 1995 through the date of Substantial Completion
of the Premises, together with any moving, rescheduling or similar fees actually
paid by Tenant based on the then-existing construction schedule for the Premises
and after reasonable efforts to mitigate such fees. In addition, Tenant shall
not be liable for any rent until the time when Landlord can, after notice to
Tenant, deliver possession of the Premises to Tenant. Landlord shall not be
liable for any delay which is as a result of strikes, shortages of materials or
<PAGE> 19
similar matters beyond the reasonable control of Landlord and Tenant is notified
by Landlord in writing as to such delay or as a result of: (a) Tenant's failure
to agree to plans and specifications; (b) Tenant's request for materials,
finishes or installations other than reflected on the plans and specifications
for the work, except as for such, if any, that Landlord shall have expressly
agreed to furnish without extension of time agreed by Landlord; or (c) Tenant's
change in any plans or specifications, which change shall delay construction and
result in a change to the Schedule attached to the Work Letter.

2.3 In the event Landlord shall permit Tenant to occupy the
Premises prior to the Commencement Date, such occupancy shall be subject to all
the provisions of this Lease as provided below. Said early possession shall not
advance the Termination Date.

2.4 If the Term of this Lease shall not commence within three years
from the Lease Reference Date, this Lease shall be of no further force or
effect.

3. RENT.

3.1 Subject to the provisions of Article 2, Tenant agrees to pay to
Landlord the Annual Rent in effect from time to time by paying the Monthly
Installment of Rent then in effect on or before the first day of each full
calendar month during the Term, except any prorated rent for a partial month at
the beginning of the Term shall be paid on the Commencement Date. The Monthly
Installment of Rent in effect at any time shall be one-twelfth of the Annual
Rent in effect at such time. Rent for any period during the Term which is less
than a full month shall be a prorated portion of the Monthly Installment of Rent
based upon a thirty (30) day month. Said rent shall be paid to Landlord, without
notice or demand, at the Landlord's address, as set forth on the Reference Page,
or to such other person or at such other place as Landlord may from time to time
designate in writing. Tenant may occupy the Premises prior to the Scheduled
Commencement Date at Tenant's option. In such event, Tenant shall be entitled to
occupy the Premises at 25% of the otherwise applicable rent for the Premises
until the Scheduled Commencement Date. Tenant's early occupancy at reduced rent
shall not constitute acceptance of the Premises or modify the Term or the
Commencement Date or Termination Date of the Term; provided, further, Tenant
shall otherwise comply with all the terms and conditions contained in this Lease
and Tenant shall also reimburse Landlord for reasonable utility charges and
similar charges relating to Tenant's early occupancy. In addition, Tenant shall
be entitled to free rent and no rent shall be due or payable for the first week
after the Commencement Date in which 100% rent is otherwise due and payable
hereunder.

3.2 Tenant recognizes that late payment of any rent or other sum
due under this Lease will result in administrative expense to Landlord, the
extent of which additional expense is extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that if rent or any other sum
is not paid within ten (10) days of when such amount is due and payable pursuant
to this Lease, a late charge shall be imposed in an amount equal to the greater
of: (a) Fifty Dollars ($50.00), or (b) a sum equal to simple interest calculated
at twelve percent (12%) per annum on the unpaid rent or other payment from the
date such amount became due and payable, to the date of payment.

4. RENT ADJUSTMENTS.

4.1 For the purpose of this Article 4, the following terms are
defined as follows, subject to the provisions of Section 4.3 below:

(a) Lease Year: Each calendar year falling partly or
wholly within the Term.
<PAGE> 20
(b) Direct Expenses: In each calendar year, the aggregate
of all reasonable and actual costs, charges and expenses paid by Landlord (less
any rebates, reimbursements, refunds and credits received on account of such
costs, charges and expenses), obtained at competitive prices, which are directly
attributable to the normal and customary operation, maintenance and repair of
the Building, as determined in accordance with generally accepted accounting
principles, consistently applied, including the following costs by way of
illustration, but not limitation: water and sewer charges; insurance premiums of
or relating to all insurance policies and endorsements deemed by Landlord to be
reasonably necessary or desirable and relating in any manner to the protection,
preservation, or operation of the Building or any part thereof (but excluding,
however, savings attributable to self-insurance by the Landlord), utility costs
including, but not limited to, the cost of heat, light, power, steam, gas, and
waste disposal; the cost of janitorial services; the cost of security and alarm
services; window cleaning costs; labor costs; costs and expenses of managing the
Building including management fees, provided, however, that such management fees
do not exceed five percent (5%) of the gross rent which would be achieved by the
Building if the Building were 100% leased at Tenant's rental rate; air
conditioning costs; elevator maintenance fees and supplies; material costs;
equipments costs, including the cost of maintenance, repair and service
agreements; purchase costs of equipment other than capital items; current rental
and leasing costs of items which would be amortizable capital items if
purchased; tool costs; licenses, permits and inspection fees; wages and
salaries; employee benefits and payroll taxes; accounting and legal fees for
Building operation; any sales, use or service taxes incurred in connection
therewith. Direct Expenses shall not include repairs or other work occasioned by
fire or other casualty, whether or not the same is covered by insurance;
Landlord's cost of services sold to Tenant or provided or sold to others, and
for which Landlord is entitled to reimbursement other than through the scheduled
payment of rent; except as below, costs incurred by Landlord for alterations
which are considered capital improvements and replacements under generally
accepted accounting principles, consistently applied; depreciation and
amortization, except as taken in connection with costs incurred as provided
below; except as provided below, costs of a capital nature, including, without
limitation, capital improvements, capital repairs, capital equipment and capital
tools; expenses in connection with services or other benefits which are not
available to Tenant, or for which Tenant must pay a charge in excess of the
scheduled rental payments, but which are provided to another tenant or occupant
of the Building; Landlord's general corporate overhead and general
administrative expenses; real estate commissions, finder's fees, loan fees or
similar charges incurred with respect to any sale, exchange or financing of the
Building; costs incurred with the original construction of the Building or any
reconstruction, refurbishment or repair of the Building or in connection with
any major change in the Building, such as adding or deleting floors, costs of
correcting defects in or inadequacy of the design or construction of the
Building, and costs of any equipment, device or capital improvement required by
any change in laws, rules, regulations or requirements where such change was in
effect on or prior to the Commencement Date, or was reasonably foreseeable as of
the Commencement Date; payments of principal, interest or other charges on
mortgages, ground rents, and other debt costs, if any; costs of leasing rentable
areas in the Building, including advertising, leasing commissions, public
relations expenses, legal and accounting expenses related to lease negotiations
or enforcement, and the costs of improving tenant space, including the Premises
(including, without limitation, the Tenant Improvement Allowance and Overage as
defined in the Work Letter); salaries, wages and other associated costs of
building personnel above the rank of building general manager (including
principals of Landlord) or of other offsite personnel of Landlord or any
employee who does not devote substantially all his/her time to the Building;
costs for which the Landlord is reimbursed by any tenant or occupant of the
Building or by Landlord's insurance carrier or any tenant's carrier or by any
other third party; costs associated with the operation of the business of the
company or entity which constitutes the Landlord, as the same are distinguished
from the costs of operation of the Building, including accounting and legal
matters; costs of defending lawsuits with any mortgagee or beneficiary, costs of
selling, syndicating, financing, mortgaging or hypothecating any of the
Landlord's interest in the Building,
<PAGE> 21
costs (including attorneys' fees and costs of settlement judgments and payments
in lieu thereof) arising from claims, litigation or arbitrations pertaining to
any tenant, the Landlord, the Building, the Project or the site upon which the
Building is situated; any other expenses which, in accordance with generally
accepted accounting principles, consistently applied, would not normally be
treated as operating costs by landlords of comparable buildings; any charge not
paid or required to be paid by another tenant in the Project; disproportionate
usage of utilities or wear and tear to common facilities by other tenants in the
Building; any bad debt loss, rent loss or reserves for bad debts or rent loss;
expenses directly resulting from the negligence of Landlord, its agents,
servants or employees, and costs incurred because Landlord or another tenant
violated the terms of any lease; fines, penalties and interest; all federal
income taxes, federal excess profit taxes, franchise taxes and federal estate
inheritance or estate taxes; Taxes (as hereinafter defined); and the costs of
removing Hazardous Materials (including, without limitation, asbestos) from the
Building. In addition, Landlord shall be entitled to amortize and include as an
additional rental adjustment: (i) an allocable portion of the cost of capital
improvement items which are reasonably calculated to reduce operating expenses;
and (ii) fire sprinklers and suppression systems and other life safety systems.
All such costs shall be amortized over the reasonable life of such improvements
in accordance with such reasonable life and amortization schedules as shall be
determined by Landlord in accordance with generally accepted accounting
principles, consistently applied, with interest on the unamortized amount at one
percent (1%) in excess of the prime lending rate announced as such by Bank One,
Arizona or its successor as of February 1st of each year.

(c) Taxes: Ad valorem real estate taxes which are levied
with respect to the Building or the land appurtenant to the Building, or with
respect to any improvements, fixtures and equipment or other property of
Landlord, real or personal, located in the Building and used in connection with
the operation of the Building and said land; and all fees, expenses and costs
incurred by Landlord in protesting or contesting any increase in any
assessments, levies or the tax rate pertaining to any Taxes to be paid by
Landlord in any Lease Year. Taxes shall not include any corporate franchise, or
estate, inheritance or net income tax, or tax imposed upon any transfer by
Landlord of its interest in this Lease or the Building. No assessments, general
or special, shall be included in the definition of Taxes.

4.2 If during any Lease Year the Building is not ninety-five
percent (95%) occupied, or if less than all of a full year's expenses have been
incurred, the Direct Expenses actually incurred in such year which vary with
occupancy shall be increased to the sum which would have been incurred at
ninety-five percent (95%) occupancy for a full year.

4.3 Portions of the Project are presently occupied by a Circle K
Convenience Store and a Jack-In-The-Box Restaurant (the space when used for
retail purposes being "Retail Space" and the occupants using such space as
Retail Space being "Retail Merchants", respectively) pursuant to existing leases
between the Landlord and those respective tenants. Landlord hereby represents
and warrants to Tenant that the Retail Merchants are solely responsible for all
their own Direct Expenses and Taxes (as those terms are defined herein) with
respect to the Retail Space and their occupancy within the Project.
Notwithstanding anything in this Lease to the contrary, for so long as the
Retail Space is leased or otherwise occupied by Retail Merchants, the Direct
Expenses of the Building of which Tenant shall share a pro rata portion shall be
calculated exclusive of all Direct Expenses or similar charges (whether incurred
or paid by Landlord or the Retail Merchants) attributable to the Retail Space,
and the Taxes of the Building of which Tenant shall share a pro rata portion
shall be calculated exclusive of all Taxes or similar charges (whether incurred
or paid by Landlord or the Retail Merchants) attributable to the Retail Space.
The provisions of this Section 4.3 are intended to protect Tenant from being
responsible directly or indirectly for any Direct Expenses or Taxes respecting
the Retail Space. Landlord represents and warrants that Landlord has and will
continue to have throughout the Term the right and obligation to maintain and
clean the Project's common areas (including drives, parking areas and
landscaping adjacent to the Retail
<PAGE> 22
Space) related to the Retail Space and the cost of such maintenance as
attributable to the Retail Space will not be paid directly or indirectly by
Tenant. "Retail Merchants" shall expressly include Circle K and Jack-In-The-Box
and their respective successors and assigns and other occupants or subtenants
which are in the retail business. In the event the existing Retail Space is
incorporated into the Building as general office space, the Tenant's
Proportionate Share of the Building set forth on the Reference Page shall be
adjusted based on actual proportionate shares of the Building and Project.

4.4 If in any Lease Year commencing with Lease Year 1996, (i)
Direct Expenses paid or incurred by Landlord shall exceed Direct Expenses paid
or incurred in the Base Year (Direct Expenses) or (ii) Taxes paid or incurred by
Landlord shall exceed the amount of such Taxes which became due or payable in
the Base Year (Taxes), Tenant shall pay as additional rent for such Lease Year
Tenant's Proportionate Share of such excess. If the Direct Expenses for any
calendar year after the Base Year are less than the Direct Expenses for the Base
Year (but Landlord and Tenant stipulate that Annual Rent shall never be reduced
even if such Direct Expenses become less than the direct expenses used to
establish the full service rental hereunder), Landlord shall allow a rent credit
to Tenant for such deficiency. If the Taxes for any calendar year after the Base
Year are less than the Taxes for the Base Year, Landlord shall have no
obligation to allow a rent credit to Tenant for such deficiency, but the same
shall be credited against Tenant's obligation for Taxes in any subsequent year
during the Term.

4.5 Notwithstanding anything to the contrary in Article 4 of this
Lease, "Controllable Expenses" (as defined below) shall be included in Direct
Expenses only to the extent that they do not exceed the "Cost Cap" (as defined
below). "Controllable Expenses" means all Direct Expenses except utilities and
insurance premiums. The "Cost Cap" shall mean, with respect to calendar year
1996, 105% of the actual Controllable Expenses for calendar year 1995. For each
subsequent calendar year, the Cost Cap shall be 105% of the Cost Cap for the
immediately preceding calendar year.

4.6 The annual determination of Direct Expenses and Taxes
(including exclusions therefrom for Retail Space pursuant to Section 4.3 above)
shall be made by Landlord by March 15 of each Lease Year for the previous Lease
Year. Tenant may review the books and records supporting such determination in
the office of Landlord, or Landlord's agent, during normal business hours, upon
giving Landlord five (5) days advance written notice within sixty (60) days
after receipt of such determination, but in no event more often than twice in
any one year period.

4.7 Prior to the actual determination thereof for a Lease Year
after the Base Year, Landlord may from time to time reasonably estimate Tenant's
liability for Direct Expenses and/or Taxes under Section 4.4 for the Lease Year
after the Base Year or portion thereof. Landlord will give Tenant written
notification of the amount of such estimate and Tenant agrees that it will pay,
by increase of its Monthly Installments of Rent due in such Lease Year,
additional rent in the amount of such estimate. Any such increased rate of
Monthly Installments of Rent pursuant to this Section 4.7 shall remain in effect
until further written notification to Tenant pursuant hereto.

4.8 When the above-mentioned actual determination of Tenant's
liability for Direct Expenses and/or Taxes is made in any Lease Year and when
Tenant is so notified in writing, then:

(a) If the total additional rent Tenant actually paid
pursuant to Section 4.7 on account of Direct Expenses and/or Taxes for the Lease
Year is less than Tenant's liability for Direct Expenses and/or Taxes, then
Tenant shall pay to Landlord as additional rent in one lump sum within thirty
(30) days of receipt of Landlord's bill therefor such deficiency; and
<PAGE> 23
(b) If the total additional rent Tenant actually paid
pursuant to Section 4.7 on account of Direct Expenses and/or Taxes for the Lease
Year is more than Tenant's liability for Direct Expenses and/or Taxes, then
Landlord shall allow a rent credit for the difference to Tenant.

5. ALTERATIONS.

5.1 Except (a) for those alterations, additions and improvements
specifically provided for in the Work Letter attached as Exhibit C to this
Lease, and (b) to the extent that any alterations, additions and improvements to
be made at any one time cost less than $5,000, in the aggregate, provided that
Tenant complies with applicable laws and such alterations, additions and
improvements do not negatively affect the structural integrity of the Building,
Tenant shall not make or suffer to be made any alterations, additions, or
improvements, including, but not limited to, the attachment of any fixtures or
equipment in, on, or to the Premises or any part thereof or the making of any
improvements as required by Article 6, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld; provided, however,
any change pursuant to subpart (b) above shall nevertheless require a written
notice and disclosure of such changes to Landlord. When applying for a required
consent, Tenant shall, if requested by Landlord, furnish complete plans and
specifications for such alterations, additions and improvements.

5.2 In the event Landlord consents to the making of any such
alteration, addition or improvement by Tenant, the same shall be made using
Landlord's contractor, if Landlord's contractor is the lowest bid, at Tenant's
sole cost and expense.

5.3 All alterations, additions or improvements proposed by Tenant
shall be constructed in accordance with all governmental laws, ordinances, rules
and regulations and Tenant shall, prior to construction, provide all such
assurances to Landlord, including but not limited to, waivers of lien and surety
company performance bonds as Landlord shall require to assure payment of the
costs thereof and to protect Landlord and the Building and appurtenant land
against any loss from any mechanic's, materialmen's or other liens.

5.4 All alterations, additions, and improvements in, on, or to the
Premises made or installed by Tenant, including any carpeting installed by
Tenant, shall be the property of Tenant during the Term but, excepting
furniture, furnishings, movable partitions and other trade fixtures, shall
immediately become a part of the realty and belong to Landlord without
compensation to Tenant.

5.5 Tenant shall pay in addition to any sums due pursuant to
Article 4, any increase in ad valorem real estate taxes attributable to any such
alteration, addition or improvement for so long, during the Term, as such
increase is ascertainable; at Landlord's election said sums shall be paid in the
same way as sums due under Article 4.

5.6 Notwithstanding anything to the contrary in this Lease, Tenant
shall not have any responsibility, or directly or indirectly bear any cost or
expense, in respect of the federal Clean Air Act (or similar federal, state or
local law) or any retrofitting or modification of the heating, ventilating and
air conditioning system of the Premises or Building as to freon or other
regulated chemicals or systems.

5.7 Notwithstanding anything to the contrary in this Lease,
Landlord shall be solely responsible for compliance with the Americans with
Disabilities Act for (x) all work performed by Landlord in connection with this
Lease in the Premises (including existing tenant improvements and those
constructed pursuant to this Lease) and (y) all other portions of the Building
and Project, without cost to or reimbursement by Tenant. Tenant shall solely be
responsible for compliance
<PAGE> 24
with the Americans with Disabilities Act for all tenant improvements within the
Premises not constructed or installed by the owner of the Building.

6. REPAIR.

6.1 Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises, except as specified in the Work Letter
attached as Exhibit C. Landlord hereby represents and warrants that the Premises
and the Building are in good repair and condition and that all fixtures and
equipment (including, without limitation, plumbing, air conditioning, heating
and electrical systems) are in good working order, repair and condition.
Continuously throughout the Term, Landlord shall operate, maintain and repair
the Building in a manner consistent with a first-class office building and real
estate complex in the Camelback Corridor in Phoenix, Arizona, and in accordance
with applicable laws, building codes and governmental requirements, including,
without limitation, maintaining and repairing in a timely fashion the
foundations, roofs, exterior walls, exterior windows, floor slabs, elevators,
other structural components, plumbing, air conditioning, heating and electrical
systems, and other facilities as necessary or desirable to maintain the
first-class stature of the Building.

6.2 Tenant shall, at all times during the Term, keep the Premises
in good condition and repair excepting reasonable wear and tear, damage by fire
or other casualty, or condemnation and, subject to the terms of this Lease, in
compliance with all applicable governmental laws, ordinances and regulations,
promptly complying with all governmental orders and directives for the
correction, prevention and abatement of any violations or nuisances in or upon,
or connected with, the Premises (except for capital improvements otherwise
includable in Direct Expenses pursuant to Section 4.1(b) of this Lease), all at
Tenant's sole expense.

6.3 Landlord shall be liable to make any repairs or to perform any
maintenance within a reasonable time after written notice of the need of such
repairs or maintenance is given to Landlord by Tenant. Landlord shall schedule
such repairs and maintenance so as to minimize interference with Tenant's
business. Landlord shall provide Tenant with reasonable notice (except in the
case of emergency) of any repairs or maintenance that Landlord intends to
perform that will affect Tenant's use or occupancy of the Premises.

7. LIENS. Tenant shall keep the Premises, the Building and appurtenant
land and Tenant's leasehold interest in the Premises free from any liens arising
out of any services, work or materials performed, furnished, or contracted for
by Tenant, or obligations incurred by Tenant.

8. ASSIGNMENT AND SUBLETTING.

8.1 Tenant shall not have the right to assign or pledge this Lease
or to sublet the whole or any part of the Premises, or permit the use or
occupancy of the Premises by anyone other than Tenant, and shall not make,
suffer or permit such assignment, subleasing or occupancy without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
and said restrictions shall be binding upon any and all assignees of the Lease
and subtenants of the Premises; provided, however, that notwithstanding the
foregoing, Tenant may freely assign or sublet all or any portion of the Premises
to (x) any of its subsidiaries or affiliates (including by merger or otherwise
by operation of law) or (y) any entity acquiring substantially all of the assets
and operations of Tenant as an on-going business and which has substantially the
same net worth as Tenant (including by merger or otherwise by operation of law).
Tenant shall give Landlord written notice of any assignment not requiring
Landlord's prior written consent.

8.2 Tenant will pay to Landlord on demand a sum equal to all of
Landlord's reasonable costs, including attorneys' fees, incurred in
investigating and considering any proposed
<PAGE> 25
assignment or pledge of this Lease or sublease of any of the Premises requiring
Landlord's consent hereunder, regardless of whether Landlord shall consent to,
refuse consent, or determine that Landlord's consent is not required for, such
assignment, pledge or sublease. Any purported sale, assignment, mortgage,
transfer of this Lease or subletting which does not comply with the provisions
of this Article 8 shall be void.

9. INDEMNIFICATION.

9.1 Tenant shall protect, indemnify and hold harmless the Landlord
from and against any and all loss, claims, liability or costs (including court
costs and attorneys' fees) incurred by Landlord by reason of (a) any damage to
any property (including but not limited to property of Landlord) or any injury
(including but not limited to death) to any person occurring in, on or about the
Premises or the Project or Building to the extent that such injury or damage
shall be caused by or arise from any act, neglect, fault, or omission by or of
Tenant, its agents or employees to meet any standards imposed by any duty with
respect to the injury or damage; (b) the conduct or management of any work or
thing whatsoever done by the Tenant in or about the Premises or from
transactions of the Tenant concerning the Premises; or (c) subject to the
provisions of this Lease, Tenant's failure to comply with any and all
governmental laws, ordinances and regulations applicable to the condition or use
of the Premises or its occupancy.

9.2 Landlord shall protect, indemnify and hold harmless the Tenant
from and against any and all loss, claims, liability or costs (including court
costs and attorneys' fees) incurred by Tenant by reason of (a) any damage to any
property (including but not limited to property of Tenant) or any injury
(including but not limited to death) to any person occurring in, on or about the
Premises or the Project or Building to the extent that such injury or damage
shall be caused by or arise from any act, neglect, fault, or omission by or of
Landlord, its agents or employees to meet any standards imposed by any duty with
respect to the injury or damage; (b) the conduct or management of any work or
thing whatsoever done by the Landlord in or about the Premises or Project or
Building or from transactions of the Landlord concerning the Premises or the
Project; (c) Landlord's failure to comply with any and all governmental laws,
ordinances, rules and regulations applicable to the condition or use of the
Premises or the Building; or (d) the existence of any Hazardous Materials
(including, but not limited to, asbestos) on the Premises or in or on the
Building or Project other than Hazardous Materials placed on the Premises or in
the Building by Tenant.

9.3 The provisions of this Article 9 shall survive the termination
of this Lease with respect to any claims or liability occurring prior to such
termination.

10. INSURANCE.

10.1 Tenant shall keep in force throughout the Term a commercial
general liability insurance policy or policies to protect the Landlord against
any liability to the public or to any invitee of Tenant or Landlord incidental
to the use of or resulting from any accident occurring in or upon the Premises
with a comprehensive single limit of not less than $1,000,000.00 per occurrence
and not less than $2,000,000.00 in the aggregate. Tenant shall also keep in
force throughout the Term property insurance protecting Tenant against loss of
or damage to Tenant's business personal property situated in or about the
Premises to not less than ninety percent (90%) of the replacement value of the
property so insured.

10.2 Each of the aforesaid policies shall (a) be provided at
Tenant's expense; (b) name the Landlord as additional insureds (but shall not
afford primary coverage); (c) be issued by an insurance company with a minimum
Best's rating of B+ at the time such insurance is procured; and (d) provide that
said insurance shall not be cancelled unless thirty (30) days prior written
notice
<PAGE> 26
shall have been given to Landlord; and said policy or policies or certificates
thereof shall be delivered to Landlord by Tenant upon the Commencement Date and
at least ten (10) days after each renewal of said insurance.

10.3 Tenant may participate in any self-insurance program provided
the self-insurance participants have a confirmed net worth of at least
$5,000,000.

10.4 Landlord shall at all times during the Term maintain casualty
insurance insuring against the perils included within the classification of fire
and extended coverage, in an amount consistent with the insurance coverage that
would be maintained by a prudent landlord of a first-class office building in
Phoenix, Arizona, and comprehensive public liability insurance and primary
coverage and in the amount required from time to time by Landlord's first
mortgagee or, if there is no such mortgagee, in commercially reasonable amounts.
Such insurance shall (a) be provided at Landlord's expense, (b) name Tenant as
additional insured, (c) be issued by an insurance company with a minimum Best's
rating of B+ at the time such insurance is procured, and (d) provide that said
insurance shall not be cancelled unless fourteen (14) days prior written notice
shall have been given to Tenant.

11. WAIVER OF SUBROGATION. Tenant and Landlord hereby mutually waive
their respective rights of recovery against each other for any loss insured by
fire, extended coverage, all risks or other insurance now or hereafter existing
for the benefit of the respective party. Each party shall obtain any special
endorsements required by their insurer to evidence compliance with the
aforementioned waiver.

12. SERVICES AND UTILITIES.

12.1 Subject to the other provisions of this Lease, Landlord agrees
to furnish to the Premises during the hours of 6:00 a.m. to 7:00 p.m. Monday
through Friday and 8:00 a.m. to 1:00 p.m. Saturday (including all legal holidays
that fall on such days but exclusive in any event of Sundays), the following
full-service services and utilities subject to the rules and regulations of the
Building prescribed from time to time: (a) water suitable for normal office use
of the Premises; (b) heat and air conditioning required for the use and
occupation of the Premises; (c) janitorial service as described in Schedule 1
hereto; (d) elevator service; (e) such window washing as may from time to time
be reasonably required; provided, however, not less than three times during any
twelve month period; (f) equipment to bring to Tenant's meter, electricity for
lighting, convenience outlets and other normal office use; and (g) electricity.
After hours heat and air conditioning shall be available on a "zone basis"
within the Premises and provided to Tenant at Landlord's actual cost for such
services within such zone. To the extent that Tenant uses more than its pro rata
share of electricity for the Building, Landlord shall, at its expense,
separately meter the Premises and Tenant shall pay to Landlord the charges
associated with such increased use. The charge shall be at the rates charged for
such services by the local public utility. Landlord shall be liable for, and
Tenant shall be entitled to, an abatement or reduction of rental by reason of
Landlord's failure to furnish any of the foregoing for any period of five (5)
consecutive days or for ten (10) days in any twelve month period, after written
notice of such failure is given to Landlord by Tenant and provided that Landlord
shall not be liable when such failure is caused by accident, breakage, repairs,
labor disputes of any character, energy usage restrictions or by any other
cause, similar or dissimilar, beyond the reasonable control of Landlord.
Landlord shall use reasonable best efforts to remedy any interruption in the
furnishing of services and utilities.

12.2 Should Tenant require any additional work or service, as
described above, including services furnished outside ordinary business hours
specified above, Landlord may, on terms to be agreed, upon reasonable advance
notice by Tenant, furnish such additional service and Tenant agrees to pay
Landlord such charges as may be agreed upon, including any tax imposed
<PAGE> 27
thereon, but in no event at a charge less than Landlord's actual cost plus
overhead for such additional service and, where appropriate, a reasonable
allowance for depreciation of any systems being used to provide such service.

12.3 Temperature standards currently in effect for the Building are
reflected on Schedule 2 to this Lease. Wherever heat-generating machines or
equipment are used by Tenant in the Premises which affect the temperature
otherwise maintained by the air conditioning system, Landlord reserves the right
to install supplementary air conditioning units in or for the benefit of the
Premises and the cost thereof, including the cost of installation and the cost
of operations and maintenance, shall be paid by Tenant to Landlord upon demand
as such additional rent, subject to Section 12.4 below.

12.4 Tenant shall be entitled to one computer room within the
Premises delineated as an "Equipment Room" on Space Plan #2 for the Premises.
The computer room shall not be subject to metering for electricity and shall
have continuous cooling requirements at no extra cost to Tenant based on
Tenant's reasonable design criteria based on the existing HVAC system, including
design for alarm reporting to the Manager and Tenant and modem features for
emergencies.

13. HOLDING OVER. Tenant shall pay Landlord for each day Tenant retains
possession of the Premises or part of them after termination of this Lease by
lapse of time or otherwise at the rate which shall be the sum of (a) as to the
first 3 months of such holdover, 125% of the amount of the Annual Rent in effect
for the last period prior to the date of such termination and, as to the 4th
month and thereafter of such holdover, 150% of the amount of the Annual Rent in
effect for the last period prior to the date of such termination plus (b) all
Rent Adjustments under Article 4.

14. SUBORDINATION. Landlord hereby covenants with Tenant to fully and
timely perform the obligations of the ground lessee under the existing ground
lease for the Project. Landlord hereby represents to Tenant that as of the Lease
Reference Date and the Commencement Date no mortgage, deed of trust or other
monetary lien encumbers the Project or any portion thereof. Without the
necessity of any additional document being executed by Tenant for the purpose of
effecting a subordination, this Lease shall be subordinate at all times to the
existing ground lease and to the lien of any future mortgages or deeds of trust
placed after the Commencement Date on, against or affecting the Building,
Landlord's interest or estate in the Building, or any other future ground lease;
provided, however, that Landlord shall obtain a non-disturbance agreement for
the benefit of Tenant, in form and substance satisfactory to Tenant, from the
holder of any such future leases, mortgages or deeds of trust prior to the
effectiveness thereof, and provided further that if the lessor, mortgagee,
trustee, or holder of any such future lease, mortgage or deed of trust elects to
have Tenant's interest in this Lease be superior to any such instrument, then,
by notice to Tenant, this Lease shall be deemed superior, whether this Lease was
executed before or after said instrument. Notwithstanding the foregoing, Tenant
covenants and agrees to execute and deliver upon demand such further instruments
evidencing such subordination or superiority of this Lease as may be required by
Landlord.

15. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
with all the rules and regulations as set forth in Exhibit D to this Lease and
all reasonable modifications of and additions to them from time to time put into
effect by Landlord, provided, however, that no such modification or amendment
shall be adopted in order to impact Tenant or Tenant's intended use of the
Premises disproportionately.
<PAGE> 28
16. BUILDING MODIFICATIONS. Landlord shall have the right at any time
to change the arrangement and/or locations of entrances, or passageways, doors
and doorways, and corridors, elevators, stairs, toilets or other common building
facilities in order to comply with any laws, rules, regulations or ordinances of
any governmental authorities and to change the name, number or designation by
which the Building is commonly known, except no Project common areas on the 3rd
floor shall be rearranged without Tenant's prior written consent. In the event
that Landlord damages any portion of any wall or wall covering, ceiling, or
floor or floor covering within the Premises, Landlord shall repair or replace
the damaged portion to match the original as nearly as commercially reasonable
but shall not be required to repair or replace more than the portion actually
damaged. Tenant reserves the right to cause the Premises to be measured at
Tenant's expense within 12 months of the Commencement Date to confirm the BOMA
measurement of usable square footage set forth on the Reference Page. If such
measurement results in a different usable square footage, the rental for the
first 12 months of the Term and future rental and other terms of this Lease
shall be equitably adjusted.

17. DEFAULT.

17.1 The following events shall be deemed to be Events of Default
under this Lease:

(a) Tenant shall fail to pay when due any sum of money
becoming due to be paid to Landlord under this Lease, whether such sum be any
installment of the Rent reserved by this Lease, any other amount treated as
additional rent under this Lease, or any other payment or reimbursement to
Landlord required by this Lease, whether or not treated as additional rent under
this Lease, and such failure shall continue for a period of fifteen (15) days
after written notice that such payment was not made when due.

(b) Tenant shall fail to comply with any term, provision
or covenant of this Lease which is not provided for in another Section of this
Article 17 and shall not cure such failure within thirty (30) days (forthwith,
if the failure involves a hazardous condition) after written notice of such
failure to Tenant.

17.2 Although not an Event of Default, Tenant shall give Landlord
written notice if it permanently ceases doing business from the Premises.

18. REMEDIES.

18.1 Upon the occurrence of any of the Events of Default described
or referred to in Article 17, Landlord shall have the option to pursue any one
or more of the following remedies without any notice or demand whatsoever,
concurrently or consecutively and not alternatively:

(a) Landlord may, at its election, terminate this Lease or
terminate Tenant's right to possession only, without terminating the Lease.

(b) Upon any termination of this Lease, whether by lapse
of time or otherwise, or upon any termination of Tenant's right to possession
without termination of the Lease, Tenant shall surrender possession and vacate
the Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter into and upon the
Premises in such event and to repossess Landlord of the Premises as of
Landlord's former estate and to expel or remove Tenant and any others who may be
occupying or be within the Premises and to remove Tenant's signs and other
evidence of tenancy and all other property of Tenant therefrom without being
deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom,
<PAGE> 29
Tenant waiving any right to claim damages for such re-entry and expulsion, and
without relinquishing Landlord's right to rent or any other right given to
Landlord under this Lease or by operation of law.

(c) Upon any termination of this Lease, whether by lapse
of time or otherwise, Landlord shall be entitled to recover as damages, all
rent, including any amounts treated as additional rent under this Lease, and
other sums due and payable by Tenant on the date of termination.

(d) Upon any termination of Tenant's right to possession
only without termination of the Lease:

(i) Neither such termination of Tenant's right to
possession nor Landlord's taking and holding possession thereof as provided in
Section 18.1(b) shall terminate the Lease or release Tenant, in whole or in
part, from any obligation, including Tenant's obligation to pay the rent,
including any amounts treated as additional rent, under this Lease for the full
Term, subject to the provisions of Section 18.1(d)(iii).

(ii) Landlord and Tenant agree that Landlord shall
be required to attempt to relet the Premises using the same efforts Landlord
then uses to lease premises in the Building generally and that in any case that
Landlord shall not be required to give any preference or priority to the showing
or leasing of the Premises over any other space that Landlord may be leasing or
have available and may place a suitable prospective tenant in any such other
space regardless of when such other space becomes available. Landlord may relet
the Premises or any part thereof for such rent and upon such terms as Landlord,
in its sole discretion, shall determine (including the right to relet the
Premises for a greater or lesser term than that remaining under this Lease, the
right to relet the Premises as a part of a larger area, and the right to change
the character or use made of the Premises). In connection with or in preparation
for any reletting, Landlord may, but shall not be required to, make repairs,
alterations and additions in or to the Premises and redecorate the same to the
extent Landlord deems necessary or desirable.

(iii) Until such time as Landlord shall elect to
terminate the Lease and to the extent that Landlord has relet all or any portion
of the Premises pursuant to Section 18.1(d)(ii) above, Tenant shall pay to
Landlord, as liquidated damages, any deficiency between the rent Tenant
covenanted to pay pursuant to this Lease and the net amount, if any, of the
rents collected on account of reletting all or any portion of the Premises, for
each month of the period which would otherwise have constituted the balance of
the Term of this Lease. In computing such liquidated damages, there shall be
added to the said deficiency such expenses as Landlord may incur in connection
with such re-letting, including, but not limited to, attorneys' fees, brokerage,
advertising, and the expenses incurred in connection with maintaining the
Premises and preparing the same for re-letting. Any such liquidated damages
shall be paid in monthly installments by Tenant on the date otherwise specified
in this Lease for the payment of rent. Tenant agrees that Landlord may file
suits from time to time to recover any sums falling due under this Article 18 as
they become due. Any proceeds of reletting by Landlord in excess of the amount
then owed by Tenant to Landlord from time to time shall be credited against
Tenant's future obligations under this Lease but shall not otherwise be refunded
to Tenant or inure to Tenant's benefit.

18.2 Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies provided in this Lease or any other
remedies provided by law (all such remedies being cumulative), nor shall pursuit
of any remedy provided in this Lease constitute a forfeiture or waiver of any
rent due to Landlord under this Lease or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants contained
in this Lease.
<PAGE> 30
18.3 Landlord's acceptance of the payment of rental or other
payments after the occurrence of an Event of Default shall not be construed as a
waiver of such default, unless Landlord so notifies Tenant in writing.
Forbearance by Landlord in enforcing one or more of the remedies provided in
this Lease upon an Event of Default shall not be deemed or construed to
constitute a waiver of such default or of Landlord's right to enforce any such
remedies with respect to such default or any subsequent default.

19. LANDLORD'S DEFAULT. If Landlord defaults in the performance or
observance of any of its covenants, warranties or obligations set forth in this
Lease, Tenant shall give Landlord notice specifying in what manner Landlord has
defaulted and if the default shall not be cured by Landlord within the time
period provided elsewhere in this Lease, and otherwise within thirty (30) days
after the delivery of such notice (except that if the default cannot be cured
within said thirty (30) day period, this period shall be extended for a
reasonable additional time, provided that Landlord commences to cure the default
within the thirty (30) day period and proceeds diligently thereafter to affect
such cure within no more than ninety (90) days), Tenant may declare an event of
default. If Tenant declares an event of default, Tenant, at its option, may pay
the Annual Rent due and to accrue hereunder, to the extent necessary to cover
the cost estimated by Tenant to cure the default. Tenant may deduct all such
costs and expenses from the Annual Rent due and to become due hereunder. In
addition, in the event of Landlord's default, Tenant may terminate this Lease.
If Tenant terminates this Lease, Tenant may recover all damages that incur as a
result of Landlord's default.

20. QUIET ENJOYMENT. Landlord represents and warrants that, as of the
Commencement Date, it owns the Building free and clear of all mortgages and
deeds of trust, and all liens, except as may otherwise be indicated on Schedule
C to this Lease. Landlord further represents and warrants that the remaining
term of the existing ground lease is greater than the Term of this Lease as the
same may be extended pursuant to the Addendum. Landlord further represents and
warrants that it has full right and authority to enter into this Lease and that
Tenant, while paying the rental and performing its other covenants and
agreements contained in this Lease, shall peaceably and quietly have, hold and
enjoy the Premises for the Term without hindrance or molestation from Landlord
or parties claiming through Landlord subject to the terms and provisions of this
Lease.

21. DAMAGE BY FIRE, ETC.

21.1 In the event the Premises or portions of the Building
necessary for Tenant's uninterrupted use and enjoyment of the Premises are
damaged by fire or other cause and in Landlord's reasonable estimation such
damage can be materially restored within ninety (90) days after the Election
Date defined below, Landlord shall forthwith repair the same and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate abatement in rent from the date of such damage. Such abatement of
rent shall be made pro rata in accordance with the extent to which the damage
and the making of such repairs shall interfere with the use and occupancy by
Tenant of the Premises from time to time. Within thirty (30) days from the date
of such damage (the "Election Date"), Landlord shall notify Tenant, in writing,
of Landlord's reasonable estimation of the length of time within which material
restoration can be made. For purposes of this Lease, the Building or Premises
shall be deemed "materially restored" if they are in such condition as would not
prevent or materially interfere with Tenant's access to and use of the Premises
for the purposes for which it was being used immediately before such damage and
the appearance of the Premises and the Building have been substantially restored
to that existing immediately before such damage.

21.2 If such repairs cannot, in Landlord's reasonable estimation,
be made within ninety (90) days after the Election Date, Landlord and Tenant
shall each have the option of giving
<PAGE> 31
the other, at any time within ninety (90) days after such damage, notice
terminating this Lease as of the date of such damage. In the event of the giving
of such notice, this Lease shall expire and all interest of the Tenant in the
Premises shall terminate as of the date of such damage as if such date had been
originally fixed in this Lease for the expiration of the Term. In the event that
neither Landlord nor Tenant exercises its option to terminate this Lease in the
event of partial destruction, then Landlord shall repair or restore such damage,
this Lease continuing in full force and effect, and the rent becoming due under
this Lease shall be proportionately abated as provided in Section 21.1. Landlord
shall not be required to repair or replace any damage or loss by or from fire or
other cause to any partitions, office fixtures, trade fixtures or any other
property or improvements installed on the Premises by or belonging to Tenant.
Any insurance which may be carried by Landlord or Tenant against loss or damage
to the Building or Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control.

21.3 In the event that Landlord should fail to complete such
repairs and material restoration by the date estimated by Landlord therefor on
the Election Date as may be extended by this Section 21.3 for acts of force
majeure, Tenant may at its option and as its sole remedy terminate this Lease by
delivering written notice to Landlord, within thirty (30) days after the
expiration of said period of time estimated by Landlord on the Election Date,
whereupon the Lease shall end on the date of such notice or such later date
fixed in such notice as if the date of such notice was the date originally fixed
in this Lease for the expiration of the Term; provided, however, that if
construction is delayed because of changes, deletions or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of God,
material or labor shortages, government regulation or control or other causes
beyond the reasonable control of Landlord, the period for restoration, repair or
rebuilding shall be extended for the amount of time Landlord is so delayed.

21.4 Notwithstanding anything to the contrary contained in this
Article 21, Landlord shall not have any obligation whatsoever to repair,
reconstruct, or restore the Premises when the damages resulting from any
casualty covered by the provisions of this Article 21 occur during the last six
(6) months of the Term or any extension thereof, but if Landlord determines not
to repair such damages Landlord shall notify Tenant and if such damages shall
render any material portion of the Premises untenantable Tenant shall have the
right to terminate this Lease by notice to Landlord within fifteen (15) days
after receipt of Landlord's notice.

21.5 In the event of any damage or destruction to the Building or
Premises by any peril covered by the provisions of this Article 21, it shall be
Tenant's responsibility to properly secure the Premises and upon notice from
Landlord to remove forthwith, at its sole cost and expense, such portion of all
of the property belonging to Tenant or its licensees from such portion or all of
the Building or Premises as Landlord shall request and Tenant hereby
indemnifies, protects, defends and holds harmless Landlord from any loss,
liability, costs and expenses, including attorneys' fees, arising out of any
claim of damage or injury as a result of any actual or alleged failure of Tenant
to properly secure the Premises prior to such removal.

21.6 This Lease shall be considered an express agreement governing
any case of damage to or destruction of the Premises, Building or Project by
fire or other casualty, and any present or future law which purports to govern
the rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.

22. EMINENT DOMAIN.

22.1 If all or any part of the Premises shall be taken or
appropriated by any public or quasi-public authority under the power of eminent
domain, or conveyance in lieu thereof, either party to this Lease shall have the
right, at its option, of giving the other, at any time within ninety (90) days
after such taking, notice terminating this Lease.
<PAGE> 32
22.2 If any part of the Building that is outside of the Premises
and is not under exclusive control of other tenants shall be taken or
appropriated by any public or quasi-public authority under the power of eminent
domain or conveyance in lieu thereof and causes material inconvenience to
Tenant's use and enjoyment of the Premises, Tenant shall have the right, at its
sole option, to terminate this Lease at any time within ninety (90) days after
such taking.

22.3 If any portion of the Project not described in Section 22.1 or
22.2 above shall be taken or appropriated by any public or quasi-public
authority under the power of eminent domain, or conveyance in lieu thereof,
Tenant shall have the right to terminate this Lease at any time within ninety
(90) days after such taking if Tenant's access to the Project, the Building or
the Premises is materially and adversely affected. Provisions of this Section
22.3 shall also apply in the event offsite access and traffic circulation to the
Premises is materially and adversely altered.

22.4 If the entire Project shall be taken or appropriated by any
public or quasi-public authority under the power of eminent domain, or
conveyance in lieu thereof, this Lease shall terminate effective as of the date
of the taking.

22.5 If neither party to this Lease shall elect to terminate this
Lease as provided in this Article 22, the rental during any condemnation and
thereafter shall be equitably abated and adjusted under the circumstances. In
the event of a partial taking of the Premises, Building or Project which does
not result in a termination of this Lease, Landlord shall restore the remaining
portion of the Building and Premises within 120 days of the taking as nearly
practicable to its condition prior to the condemnation or taking, but only to
the extent of the Building Standard and only to the Tenant Improvement Allowance
as to the Tenant Improvements (as the foregoing terms are defined in the Work
Letter attached as Exhibit C).

22.6 Landlord shall be entitled to any and all income, rent, award,
or any interest whatsoever in or upon any such sum, which may be paid or made in
connection with any such public or quasi-public use or purpose, and Tenant
hereby assigns to Landlord any interest it may have in or claim to all or any
part of such sums, other than any separate award which may be made with respect
to Tenant's trade fixtures and moving expenses; Tenant shall make no claim and
hereby assigns its award to Landlord for the value of any unexpired Term.

23. ESTOPPEL CERTIFICATES. Within ten (10) days following any written
request made by either party hereto (the "REQUESTING PARTY") from time to time,
the other party shall execute and deliver to the Requesting Party a sworn
statement certifying: (a) the date of commencement of this Lease; (b) the fact
that this Lease is unmodified and in full force and effect (or, if there have
been modifications to this Lease, that this Lease is in full force and effect,
as modified, and stating the date and nature of such modifications); (c) the
date to which the rent and other sums payable under this Lease have been paid;
(d) the fact that there are no current defaults under this Lease by either
Landlord or Tenant except as specified; and (e) such other matters as may be
reasonably requested. Landlord and Tenant intend that any statement delivered
pursuant to this Article 23 may be relied upon by any mortgagee, transferee,
assignee, sublessee, beneficiary or purchaser and shall be liable for all loss,
cost or expense resulting from the failure of any sale or funding of any loan or
any other transaction caused by any material misstatement contained in such
estoppel certificate.

24. SURRENDER OF PREMISES. At the end of the Term or any renewal of the
Term or other sooner termination of this Lease, Tenant will peaceably deliver up
to Landlord possession of the Premises, together with all permanent improvements
or additions therein, by whomsoever made, in the same condition received or
first installed, broom clean and free of all debris, excepting only ordinary
wear and tear and damage by fire or other casualty. Tenant may, and at
Landlord's written request shall, at Tenant's sole cost, remove upon termination
of this Lease, any and all
<PAGE> 33
furniture, furnishings, and other movable trade fixtures, title to which shall
not be in or pass to Landlord upon such termination, repairing all damage caused
by such removal. Property not so removed shall be deemed abandoned by the
Tenant.

25. NOTICES. Any notice or document required or permitted to be
delivered under this Lease shall be addressed to the intended recipient, shall
be transmitted personally, by fully prepaid registered or certified United
States Mail return receipt requested, or by reputable independent contract
delivery service furnishing a written record of attempted or actual delivery,
and shall be deemed to be delivered when tendered for delivery to the addressee
at its address set forth opposite its signature on the Reference Page, or at
such other address as it has then last specified by written notice delivered in
accordance with this Article 25, or if to Tenant at either its aforesaid address
or its last known registered office, whether or not actually accepted or
received by this addressee.

26. RENT TAX. In addition to rent and other charges to be paid by
Tenant under this Lease, Tenant shall reimburse to Landlord, upon demand, any
and all taxes payable by Landlord (other than net income taxes) upon, allocable
to, or measured by or on the net rent payable under this Lease (as said taxes or
tax rates are reduced from time to time).

27. HEADINGS. The Article headings shown in this Lease are for
convenience of reference and shall in no way define, increase, limit or describe
the scope or intent of any provision of this Lease.

28. TENANT'S AUTHORITY. Each of the persons executing this Lease on
behalf of Tenant represents and warrants that Tenant has been and is qualified
to do business in the State of Arizona, that the corporation has full right and
authority to enter into this Lease, and that all persons signing on behalf of
the corporation were authorized to do so by appropriate corporate actions.
Tenant agrees to furnish promptly upon request a corporate resolution or other
appropriate documentation evidencing the due authorization of Tenant to enter
into this Lease.
<PAGE> 34
29. COMMISSIONS. Each of the parties: (a) represents and warrants to
the other that it has not dealt with any broker or finder in connection with
this Lease, except as described on the Reference Page; and (b) indemnifies and
holds harmless the other from any and all losses, liability, costs or expenses
(including liens and attorneys' fees) incurred as a result of any alleged breach
of the foregoing warranty by it. Landlord hereby agrees to pay any and all
commissions owing any broker or finder in connection with this Lease as
described on the Reference Page.

30. TIME AND APPLICABLE LAW. Time is of the essence of this Lease. This
Lease shall in all respects be governed by the laws of the State of Arizona.

31. SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 8, the
terms, covenants and conditions contained in this Lease shall be binding upon
and inure to the benefit of the heirs, successors, executors, administrators and
assigns of the parties to this Lease.

32. ENTIRE AGREEMENT. This Lease, together with its exhibits, schedules
and the addenda, contains all agreements of the parties to this Lease and
supersedes any previous negotiations. There have been no representations made by
the Landlord or understandings made between the parties other than those set
forth in this Lease and its exhibits. This Lease may not be modified except by a
written instrument duly executed by the parties to this Lease.

33. RECORDATION. Tenant may, at its expense, record a short form
memorandum of this Lease and Landlord shall execute and deliver such instrument.
The legal description of the property on which the Building is located is set
forth on Exhibit A.

LANDLORD: TENANT:

LONDEN CENTER L.L.C., TRG, INC.,
an Arizona limited an Indiana corporation
liability company

By_______________________________ By_________________________________

Its____________________________ Its________________________________

State of Arizona

County of Maricopa

The foregoing instrument was acknowledged before me this ___
day of ________, 1994, by ______________________, the ________________________
of Londen Center L.L.C., an Arizona limited liability company, on behalf of the
company.

(Seal and Expiration Date)

__________________________________________
Notary Public
<PAGE> 35
State of __________

County of ____________

The foregoing instrument was acknowledged before me this
___ day of ________, 1994, by TRG, Inc., an Indiana corporation, on behalf of
the corporation.

(Seal and Expiration Date)

__________________________________________
Notary Public
<PAGE> 36
EXHIBIT A
Legal Description of Project
<PAGE> 37
Exhibit A
Legal Description of Project

LEGAL DESCRIPTION

A PARCEL OF LAND IN MARICOPA COUNTY, ARIZONA, IN THE NORTHWEST QUARTER OF
SECTION 19, TOWNSHIP 2 NORTH, RANGE 4 EAST OF THE GILA AND SALT RIVER BASE AND
MERIDIAN FURTHER DESCRIBED AS FOLLOWS:

BEGINNING AT THE NORTHWEST CORNER OF SECTION 19;

THENCE SOUTH 87(DEGREE)16'00" EAST ALONG THE NORTH SECTION LINE OF SAID SECTION
19 A DISTANCE OF 2,174.95 FEET TO A POINT;

THENCE SOUTH 02(DEGREE)44'00" WEST A DISTANCE OF 55.00 FEET TO THE TRUE POINT OF
BEGINNING;

THENCE SOUTH 02(DEGREE)44'00" WEST A DISTANCE OF 61.28 FEET TO A POINT;

THENCE SOUTH 53(DEGREE)22'30" WEST A DISTANCE OF 67.68 FEET TO A POINT;

THENCE SOUTH 37(DEGREE)40'00" EAST A DISTANCE OF 274.49 FEET TO A POINT;

THENCE SOUTH 82(DEGREE)38'55" EAST A DISTANCE OF 14.15 FEET TO A POINT;

THENCE NORTH 52(DEGREE)22'10" EAST A DISTANCE OF 161.22 FEET TO A POINT;

THENCE SOUTH 89(DEGREE)28'45" EAST A DISTANCE OF 138.90 FEET TO A POINT;

THENCE NORTH 00(DEGREE)31'13" EAST (PARALLEL TO AND 50 FEET WEST OF THE
MIDSECTION LINE OF SECTION 19) A DISTANCE OF 158.84 FEET TO A POINT;

THENCE NORTH 37(DEGREE)19'30" WEST A DISTANCE OF 49.10 FEET TO A POINT OF CURVE;

THENCE ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 65.34 FEET, A CENTRAL ANGLE
OF 10(DEGREE)20'04", AN ARC LENGTH OF 11.78 FEET, AND A CHORD WHICH BEARS NORTH
42(DEGREE)29'32" WEST TO A POINT ON A LINE;

THENCE NORTH 87(DEGREE)16'00" WEST (PARALLEL TO AND 50 FEET SOUTH OF THE NORTH
SECTION LINE OF SECTION 19) A DISTANCE OF 355.30 FEET TO THE TRUE POINT OF
BEGINNING.
<PAGE> 38
Addendum to Lease Dated December 19, 1994
Between Londen Center L.L.C., as Landlord,
and TRG, Inc., an Indiana corporation, as Tenant

Signage. Tenant shall have signage in accordance with the Work Letter
and Schedule C-1, thereto. Tenant shall always have the first (highest) sign
portion on the one(1) existing Project monument sign subject to one (1) higher
sign for "Londen Insurance." Tenant's signage shall be of size at least equal to
any other signage thereon. Circle K and Jack-In-The-Box shall always have the
last (lowest) two positions on the existing monument sign. Complete tenant names
shall be used and no logos shall be permitted on the existing monument sign. A
sign panel on any monument sign for any other tenant shall be of the same size
or less than Tenant's sign panel and all signage shall be of uniform
presentation, color and lettering, except as may be required on the future
monument sign referred to below in order to erect and maintain such future
monument sign. The Building shall not be a signature building or otherwise known
by reference to any business in the software development industry. During the
Term no other Project signage shall be established or permitted and in no event
shall any tenant have signage on the exterior of the Building except only (x)
existing first floor tenant signage (and replacements thereof in accordance with
the foregoing criteria) is permissible for Circle K and Jack-In-The-Box, (y)
future other first floor tenants may have exterior signage on the first floor on
the Building identifying their premises, but such signage shall be of
substantially the same color and lettering as any signage of such tenant on the
Project's monument sign and (z) Landlord may erect and maintain in the future
one (1) additional monument sign in the Project and Tenant shall, subject to any
requirements to erect or maintain such future monument sign, always have the
first (highest) sign position on such Project Monument sign subject only to one
(1) higher sign for "Londen Insurance." Jack-In-The-Box shall always have the
last (lowest) positions on such additional monument sign, subject to any
requirements to erect or maintain such future monument sign, Circle K shall have
no signage on such additional monument sign. The signage shall conform to
Landlord's sign standards on Schedule C-1 to the Work Letter and shall be in
conformance with the City of Phoenix sign ordinances.

Renewal Options. In the event Tenant is not then in default under this
Lease, Tenant shall have the right to extend the term of this Lease for two
periods of three years each (the "Renewal Terms"). Each option shall be
exercised, if at all, by written notice given to Landlord at least 180 days
before the last day of the then current Term. All of the terms and conditions of
this Lease shall continue in full force and effect during each Renewal Term,
except that the amount of the Base Rent shall be increased (and in no event
decreased) at the beginning of each Renewal Term to 95% of the "Prevailing
Rate". "Prevailing Rate" shall mean the fair market rental rate then being
charged for like space similarly situated in similar office buildings located in
the Camelback Corridor in Phoenix, Arizona, taking into consideration the
applicable Base Year for purposes of determining additional rent, as well as the
value of rent concessions, buildout allowances and the like.

Cancellation Option. In the event Tenant is then not in default of this
Lease, Tenant shall have the right to cancel this Lease effective at any time
after the third anniversary of the Commencement Date by (I) a written notice
delivered to Landlord at least 180 days prior to the Lease termination date
specified in such notice and (ii) payment to Landlord, prior to the effective
<PAGE> 39
cancellation date, of the unamortized portions of (x) the Construction Costs (as
defined in Section I of the Work Letter) of the Tenant Improvements (as defined
in Section I of the Work Letter) and (y) the actual leasing commissions paid to
CB Commercial for this Lease not to exceed $5.00 per rentable square foot of the
Premises (i.e., $167,035), based on a level amortization of the Construction
Costs and leasing commissions over the original 6 year Term of the Lease
commencing from the Commencement Date. Effective as of the cancellation date and
surrender of the Premises in accordance with this Lease, this Lease shall be of
no force or effect without further liability under this Lease by either Landlord
or Tenant.

Circle K Gas Tanks. In no event shall Tenant be or become directly or
indirectly liable or obligated as to the underground storage tanks now or
hereafter located on the Project.

Landlord's Lien For Rent. Landlord shall not unreasonably withhold its
consent to any instrument subordinating the Landlord's statutory lien for rent
to financing of Tenant secured by its personal property located in the Premises.

Tenant Improvements. All Tenant Improvements (as defined in the Work
Letter attached as Exhibit C) incorporated, affixed or permanently attached to
the Premises are to be placed on secured property tax rolls of Project and taxed
as real property.

Satellite & Antenna. Subject to applicable ordinances and Tenant
obtaining all required permits, Tenant shall have a right to locate satellite
and antenna equipment used in conjunction with its business within the Premises
upon the roof of the Building. All expenses, including the equipment and any
necessary supports, location and screening expenses as required in Landlord's
reasonable discretion and load and other engineering studies, shall be at
Tenant's sole cost and expense. All such equipment shall be removed by Tenant at
the termination of the Lease at its cost.

Card Access and Parking. Landlord shall issue to Tenant, at Landlord's
cost, 200 access cards providing access to the parking garage of the Building,
the other public areas of the Building and its elevator system and the Premises.
Tenant shall only issue such cards to its own employees and its business
contractors. Tenant shall surrender all access cards immediately upon a
termination of the Lease. Each card shall permit the holder of such card free
access and parking in the parking garage located under the Building. Landlord
shall at all times provide to Tenant for the benefit of the users of such cards
at least 157 unreserved employee parking spaces in the parking garage. Landlord
shall have a right to monitor the use of the parking garage to confirm that
average daily parking by Tenant does not consistently exceed 157 spaces. If such
parking use does consistently exceed such 157 parking spaces, Landlord may
require payment of $10.00 per car per month for the consistent excess over 157
parking spaces. Landlord shall issue additional cards over the initial 200
access cards from time to time at Tenant's request, for Landlord's cost but at
Tenant's expense, and such cards shall entitle the cardholder at its option to
park in the parking garage at a parking rate of $10.00 per month for such
employee parking space (all cardholders over 200 being required to pay $10.00
per month if such cardholder uses the parking garage). In addition, Landlord
shall provide free, reserved visitor parking during the entire term of the Lease
in such amounts and locations as are reasonable satisfactory to Tenant. Subject
to the foregoing requirements, the parking shall be subject to such terms,
conditions and regulations
<PAGE> 40
as landlord may reasonably establish from time to time.

First Right. Subject to all of the terms and conditions set forth in
this paragraph, Landlord hereby grants to Tenant the first right (the "First
Right"), to be offered by Landlord the opportunity to lease any and all premises
located on the 2nd and 4th floors of the Building, as the same may exist from
time to time (the "Additional Space"). If, at any time while the First Right is
in effect, Landlord should intend in good faith to lease any portion of the
Additional Space to a third party tenant (excluding in all events any affiliate
of Landlord), Landlord shall, prior to binding itself to any such lease except
as subject to Tenant's rights hereunder, notify Tenant of the portion of the
Additional Space which is the subject of the proposed lease (an "Offer Notice").
Tenant shall have until the tenth business day after Landlord's delivery of an
Offer Notice (the "Deadline") to notify Landlord that Tenant would like to lease
all of the portion of the Additional Space described in the Offer Notice (an
"Acceptance Notice"). If Tenant delivers its Acceptance Notice prior to the
Deadline, then Landlord and Tenant shall negotiate for a period of 20-days
after delivery of Tenant's Acceptance Notice the terms and provisions of an
amendment to the lease pursuant to which the subject portion of the Additional
Space will be incorporated into the Premises for the remainder of the Term. If
Tenant fails to deliver its Acceptance Notice prior to the Deadline, or if
Landlord and Tenant fail to agree upon the terms of such an amendment within
such 20-day period, of if Landlord and Tenant have agreed to such terms but fail
to finalize and execute such amendment within 60 days after Tenant's delivery of
its Acceptance Notice, then, in any such case, for a period of 180 days from and
after the subject Deadline, 20-day period or 60-day period, as the case may be
(a "Leasing Period"), Landlord shall be free, without further restriction, to
enter into a lease with a third-party tenant for the portion of the Additional
Space described in the subject Offer Notice, but only on the terms and
conditions contained in the Offer Notice. If Landlord has not entered into a
lease for the portion of the Additional Space described in an Offer Notice on or
before the expiration of the Leasing Period applicable to such Offer Notice,
then Landlord shall be required to repeat the procedures set forth in this
paragraph prior to binding itself to any lease of the subject portion of the
Additional Space. The First Right shall commence on the 90th day after the
Commencement Date and expire nine months before the end of the Term. For the
purposes of this paragraph, "lease" shall include any partial assignment of
Landlord's interest in the Additional Space in lieu of a lease of such space.
This First Right shall not apply to any transaction for Additional Space between
Landlord and any affiliated insurance company or other affiliate of Landlord,
nor to any portion of the 1st floor of the Building.
<PAGE> 41
Exhibit B

Site Plan of Project and Floor Plan of Premises

A Project is a four story office building located on the southwest corner of
Camelback Road and 44th Street in Phoenix, Arizona. On the ground floor, a
Circle K store faces 44th Street, and a Jack in the Box Restaurant faces
Camelback Road. There is a parking garage comprising a portion of the
building and there are also exterior parking and common areas.

B The Floor Plan showing the 3rd Floor consisting of 33,407 rentable square
feet based on 29,695 usable square feet measured by BOMA standards and a
12.50% "load" factor.
<PAGE> 42
EXHIBIT C

WORK LETTER

Without limiting or changing the obligations and rights set forth in
the Lease, Landlord and Tenant agree as follows:

I. Definitions.

A. Architect means Pinnacle Design, Inc.

B. Base Building means the improvements presently contained
within the Project, the Building and the Premises, subject to the work required
below in this definition and subject also to the removal of such existing
improvements as required pursuant to the Space Plan. Landlord agrees that the
Base Building shall be completed (including Punch List Items) at no cost to
Tenant and shall not constitute a Construction Cost or be reimbursable from the
Tenant Improvement Allowance. Landlord agrees that the following shall be
furnished, installed and, if appropriate, repaired and made operational as part
of the Base Building prior to Substantial Completion and the Scheduled
commencement Date:

1. All existing walls within the public corridors, restrooms
and other third floor common areas shall be refurbished, including cleaning,
repairing and painting of surfaces as required. Damaged existing exterior and
atrium window frames, windowsills and molding shall be reattached, resecured and
refurbished as required. All existing exterior and atrium window glass and
window frames shall be cleaned and broken glass replaced as required.

2. The existing Building Standard ceiling grid and existing
ceiling tiles in common areas shall be cleaned and repaired as required, with
all damaged or stained ceiling tiles being replaced as required throughout the
entire third floor of the Building.

3. Existing flooring within all public corridors and other
common areas located on the third floor shall be fully cleaned to remove all
existing stains or replaced as required. All base will be replaced.

4. Building Standard light fixtures shall remain at the
presently-installed common area locations with all fixtures, lamps, lenses and
ballasts cleaned and repaired as required.

5. Men's and women's restrooms shall be cleaned and repaired as
required.

6. All existing appliances, sinks and Building Standard
drinking fountains shall be cleaned and repaired as required.

7. The present main heating ventilation and air conditioning
(HVAC) plant (including energy management system and integration) shall be in
good working order. The HVAC and air distribution system serving and within the
Premises shall be integrated into the Tenant Improvements and fully operational
and balanced after the Tenant Improvements are completed. All controls,
including thermostats, shall be in working order in a number of the present
ratio of thermostats to space in the Premises, after the Tenant Improvements are
completed.

<PAGE> 43
8. All sprinkler rises and sprinkler heads required by law
shall be in working order and repair.

9. All fire hose cabinets and fire extinguisher cabinets shall
be stocked and in working order as required by applicable law.

10. Hardware on all doors throughout the third floor and
entrance doors to the Building shall be replaced to comply with Americans with
Disabilities Act ("ADA") requirements. The quality of replacement hardware
outside of the Premises shall be consistent with the hardware used in the
Premises.

11. All present main Building electrical systems and
electrical distribution rooms, including panel boards, shall be in good working
order.

12. All present telephone distribution rooms shall be in good
working order. Telephone trunk lines to the Premises shall be in good working
order and shall be in capacity to adequately service Tenant's business needs.
Fiber optic cable is presently delivered to the Building.

13. Building Standard exterior window blinds and Building
Standard interior blinds for all interior window lights and side lights shall be
supplied or repaired as required.

14. All elevators and related equipment (including card access
security system) shall be in good working order.

15. All signs and graphics not located on the 3rd floor of the
Building shall be supplied by Landlord in accordance with Schedule C-1: Elevator
buttons, monument signage and directory information. Tenant signage on the 3rd
floor of the Building shall be funded from the Tenant Improvement Allowance.

All Base Building improvements shall be in compliance with ADA
requirements. "As required" shall mean all Base Building finishes shall be of at
least the same quality and state of repair as the interior finishes within the
Premises as improved by the Tenant Improvements. All Base Building work and
improvements located on the third floor shall be of quality consistent with the
Tenant Improvements and shall be of consistent color and finish with the
existing improvements as modified by the Tenant Improvements.

C. Construction Costs means the total cost and price for
designing, constructing and completing (including Punch List Items) the Tenant
Improvements before deducting any Tenant Improvement Allowance.

D. Contractor means Jokake Construction Company.

E. Overage means the amount by which Construction Costs exceed
the Tenant Improvement Allowance. The Overage shall be solely the responsibility
of Landlord except solely in the event of a Tenant Change Order, which Tenant
Change Order expense shall be solely at Tenant's cost.
<PAGE> 44
F. Project Completion Document means the following:

1. Certification by the Architect that the Tenant
Improvements have been completed in compliance with the provisions of the Space
Plan, the Working Drawings and Specifications and the Lease.

2. A final Certificate of Occupancy for the Premises.

3. Copies of all manufacturer's guarantees and
warranties covering equipment and systems installed by Landlord or the
Contractor on the Premises.

4. A binder comprised of manufacturer's installation,
operation, service and maintenance manuals for equipment and systems installed
by Landlord or the Contractor on the Premises.

5. Air balance report for the completed Premises
reasonably approved by Tenant.

G. Savings means the amount by which Construction Costs are
less than the Tenant Improvement Allowance. This Savings shall be split 50/50
between Landlord and Tenant, with Tenant's portion of the Savings to be applied
to cabling within the Premises or reimbursement to Tenant for such cabling
costs.

H. Space Plan means "Space Plan #2" prepared by the Architect
(and containing notations thereon by Tenant) for the Premises which shall be
comprised of layout plans and specifications which identify all Tenant
Improvements to be completed in the Premises, including design specifications
and criteria as may be required to reasonably establish the quality of all
Tenant Improvements and which may reasonably facilitate preparation of the
Working Drawings and Specifications and bidding. The final Space Plan #2 with
notations shall be identified by written Tenant Representative authorization and
initialing thereon.

I. Substantial Completion shall mean when all the requirements
of Section 2.1 of the Lease respecting the "Substantial Completion" (as defined
therein) of Premises have been satisfied, including the completion of the Base
Building construction and all Tenant Improvements in accordance with the Space
Plan and the Working Drawings and Specifications, so that the Premises is
completed and functioning as general office space, subject only to the Punch
List, and in all events Substantial Completion shall not be deemed to occur
unless and until a final Certificate of Occupancy has been issued for the
Premises as improved.

J. Tenant Improvements means all improvements, alterations and
installations, as approved by Tenant, which are required for Tenant's turn-key
occupancy and use and which are in conformance with the Space Plan and the
Working Drawings and Specifications. Such Tenant Improvements will be fully
described in and shown on the Working Drawings and Specifications, which shall
be based on the Space Plan, subject only to Tenant Change Orders.

K. Tenant Improvement Allowance means $10.00 for each square
foot of Premises Rentable Area ($334,070.00 total). To the extent the Tenant
Improvement Allowance is not exhausted by the construction of the Tenant
Improvements, the remaining Tenant Improvement Allowance (i.e., Savings) shall
be applied in accordance with Section
<PAGE> 45
III.C below.

L. Working Drawings and Specifications means a complete set of
drawings and specifications based on the Space Plan and sufficient to permit
proper bidding by Contractor and subcontractors and also sufficient to obtain a
building permit for the Project. The Working Drawings and Specifications shall
be made with precision and detail, specifying material to be used and the
construction methods to be employed for the complete installation and
construction of all Tenant Improvements. Such Working Drawings and
Specifications shall include at a minimum:

1. Architectural, mechanical and electrical plans and
structural plans (if structural plans are required). Architectural to include
reflected ceiling plan, elevations, sections, details and schedules, color
schemes and finishes.

2. To the extent required to update existing plans to
conform with the Space Plan, electrical design for lighting, power and
telephone/data; provided, however, all cabling design beyond wall stubs shall be
solely Tenant's responsibility and at Tenant's sole cost.

3. To the extent required to update existing plans to
conform with the new Space Plan, mechanical design for air distribution systems,
HVAC, control systems and fire protection.

4. To the extent required to update existing plans to
conform with the new Space Plan, updated plumbing design.

II. Working Drawings and Specifications:

A. Preparation. Based strictly on the Space Plan, Landlord shall cause
the Working Drawings and Specifications for the Tenant Improvements to be
prepared by the Architect and its engineers.

B. Approval. Tenant shall approve or disapprove the Working Drawings
and Specifications in accordance with the criteria established on the Space
Plan. Landlord shall revise the Working Drawings and Specifications and resubmit
them to Tenant for approval.

C. Final Approval. No bids shall be approved unless and until Tenant's
Representative has approved in writing the Working Drawings and Specifications,
which approval process shall occur in parallel with bidding of the work.

III. Bidding/Scope of Work/Tenant Improvements.

A. Bids. Contractor will bid the Tenant Improvements to a list of
subcontractors, suppliers and materialmen approved in advance by Landlord and
Tenant, which approval shall not be unreasonably withheld. A minimum of three
(3) bids shall be obtained in each work category unless waived by Tenant. All
bids shall be sealed bids and a final budget by trade shall be delivered to
Tenant for review. The bidding process shall include an aggressive value
engineering effort by Landlord Representative, Architect and Contractor. All
phases of the project costs shall be based on open book review by Tenant at a
reasonable frequency and at reasonable times during business hours.
<PAGE> 46
B. Scope of Work. Landlord shall be fully responsible for all matters
that must be accomplished to perform, finish and completely install the Tenant
Improvements (in operating condition to manufacture specifications, if
applicable) in accordance with the provisions of this Work Letter and the Lease.
Landlord's obligations hereunder shall include furnishing through Contractor all
labor, materials and equipment; filing all plans with the proper governmental
authorities; obtaining all building permits; demolishing all existing
improvements in the Premises as necessary under the Space Plan; supervising all
details of construction; obtaining any temporary certificate of occupancy and
obtaining all final certificates of occupancy; engaging in supervising the
Contractor and its subcontractors and the Architect and its consultants;
promptly paying for all Tenant Improvements except as specifically provided in
Section IV hereof in respect of Tenant Change Orders; repairing and restoring
damaged, lost or destroyed tenant improvements, whether or not installed;
removing all debris from the Premises caused by any trade (including Tenant's
trades and any utility companies); obtaining applicable insurance coverage and
providing utility and building service at its sole cost at all times until the
Scheduled Commencement Date. Tenant has the right to modify current lighting to
provide ambient lighting in workstation areas through the use of ambient
fixtures. Such lighting may or may not use some portion of the existing
parabolics.

C. Overage/Savings. In all events, Landlord shall be responsible for
any Overage in Construction Costs over the Tenant Improvement Allowance except
only those costs incurred in an approved Tenant Change Order. Savings in
Construction Costs shall be split 50/50 between Landlord and Tenant, with
Tenant's portion of the Savings to be applied to cabling within the Premises or
reimbursement to Tenant for such cabling costs.

D. ADA. Landlord shall be responsible for all compliance with ADA
requirements for the Base Building and shall be similarly responsible for all
ADA requirements for the Tenant Improvements through the Commencement Date. ADA
requirements for the Tenant Improvements subsequent to the Commencement Date
shall be solely at Tenant's cost and expense.

E. Contractor. All Tenant Improvements will be of quality set forth on
the Space Plan and the Working Drawings and Specifications, completed only in
accordance with the Working Drawings and Specifications approved by Tenant, and
completed only by the Contractor or such other contractor approved by Tenant
executing such work through subcontractors, materialmen and suppliers set forth
on a list approved by Tenant.

F. Inspection. Tenant shall have the right to inspect the Tenant
Improvements as they are being installed and require corrections as are
necessary for work which is not in compliance with the Space Plan or the Working
Drawings and Specifications.

G. Injury. Tenant shall not be liable for any injury to persons or
damage to property within the Premises during the performance of the Tenant
Improvements, except for Tenant's own negligence. Landlord hereby indemnifies
and holds harmless Tenant from any claims, costs (including reasonable
attorneys' fees), charges, damages, lawsuits and judgments on account of such
injury or damage.

IV. Change Orders.

A. Change Orders Generally. No change orders over $1,000 for the Tenant
Improvement shall be made or executed without Tenant's prior written consent. No
change
<PAGE> 47
orders for the Tenant Improvements affecting in any manner quality of materials,
colors, texture or finish shall be made or executed without Tenant's prior
written consent.

B. Tenant Change Orders. From time to time solely at its cost, Tenant
may make changes to the Space Plan or the Working Drawings and Specifications
and, in addition, to Tenant Improvement already installed ("Tenant Change
Orders"). Tenant may not request changes to the Base Building without Landlord's
prior written consent.

C. Charges. Within three business days after Tenant notifies Landlord
of a Tenant Change Order, Landlord shall submit to Tenant in writing a statement
of additional charges as agreed upon by the Architect, the Contractor and the
Landlord (or any savings involved) and the time period, if any, that the Tenant
Change Order will materially and adversely affect the Schedule or the Scheduled
Commencement Date. Tenant may either approve or disapprove such additional
charges or savings submitted by Landlord.

E. Execution. Landlord shall not be authorized to make or execute any
change and the Schedule shall remain unaffected unless and until Tenant's
Representative shall have approved in writing the cost and Schedule changes of a
Tenant Change Order proposal. If Tenant's Representative approves in writing the
additional charges or savings and the change in the Schedule, Landlord shall
cause the approved Tenant Change Orders to be made and executed and the Schedule
shall be adjusted appropriately.

V. Pricing of Tenant Improvement Costs and Change Orders.

A. Approved Subcontractors. All Tenant Improvement costs shall be
competitively bid by Contractor from a list of approved subcontractors,
materialmen and suppliers in accordance with Section III.A. above. All Tenant
Change Orders shall be first bid with the subcontractor, materialmen or supplier
that has bid or been awarded the subcontract for such matter; provided, however,
Tenant, at its sole cost and expense, shall have the right to cause another
subcontractor to bid or perform any Tenant Change Order.

B. Cost Breakdown. Landlord shall submit, prior to the commencement of
the Tenant Improvements, final breakdown by trade of all Construction Costs.
Tenant shall have the right, prior to the commencement of construction of the
Tenant Improvements, to review and approve the Construction Costs.

VI. Plan Costs.

A. Without modifying any other agreement contained in this Work Letter
or the Lease, the following plan costs and expenses shall be paid as indicated:

1. Preparation or modification of any Base Building plans:
Landlord-solely at its cost and without reimbursement.

2. Preparation of Space Plan through Lease Reference Date:
Landlord-solely at its cost and without reimbursement.
<PAGE> 48
3. Revision of Space Plan after Lease Reference Date:

(a) Due to Tenant changes: Tenant-solely at its cost and
without reimbursement.

(b) Due to Landlord's errors or omissions:
Landlord-solely at its cost and without
reimbursement.

4. Preparation of Working Drawings and Specifications:
Landlord-with a reimbursement from the Tenant Improvement
Allowance, not to exceed 85 cents/usable square foot.

5. Coordination, if required, of Working Drawings and
Specifications with the Base Building plans: Landlord-solely
at its cost and without reimbursement.

6. Modification of Working Drawings and Specifications after
Tenant's final approval thereof:

(a) Due to Tenant changes: Tenant-solely at its cost and
without reimbursement.

(b) Due to Landlord's errors and omissions:
Landlord-solely at its cost and without
reimbursement.

7. Project Completion Documents: Landlord-with reimbursement from
the Tenant Improvement Allowance except the certificate of
completion shall be at Landlord's sole cost if costs related
to the issuance thereof is from an Overage.

VII. Payment of Tenant Improvement Costs.

Landlord shall be responsible for all Construction Costs of the Tenant
Improvements, including Overages, except specifically only the following:

1. All costs and expenses approved in writing by Tenant for a
Tenant Change Order shall be paid solely by Tenant.

2. Tenant shall pay all Tenant Change Orders within 30 days
after receipt of an invoice from Landlord, such payment shall be 90% of the
Tenant Change Order, as estimated by the Architect, as completed and
incorporated into the Premises since the last billing. All retention shall be
paid upon completion of the Punch List. Landlord shall be responsible to cause
the Contractor to pay all subcontractors, materialmen and suppliers that have
worked on a Tenant Change Order.

VIII. Scheduling.

Landlord and Tenant shall comply with the SCHEDULE attached hereto as
Schedule 2 and with the BENCHMARK DATES set forth below, unless modified in
writing by the Landlord Representative and the Tenant Representative.
<PAGE> 49
A. Working Drawings and Specifications delivered by Landlord
to Tenant within 30 calendar days after Lease execution and date Landlord and
Tenant approve the final Space Plan.

B. Tenant's comments on the Working Drawings and
Specifications delivered to Landlord within 5 working days after Tenant receives
such plans and specifications. Review to occur during bidding process.

C. Landlord shall use best efforts to complete bidding of the
job and review of bids with Tenant within 10 working days after completion of
Working Drawings and Specifications.

D. Landlord shall use best efforts to obtain a building permit
within 10 working days after completion of Working Drawings and Specifications.

E. Construction of Tenant Improvements to commence immediately
after the building permit is issued and Tenant has approved the bids except for
demolition which will be bid and completed prior to start of new construction.

F. March 20, 1995: Date when Tenant may commence cabling
installation within the Premises.

G. March 31, 1995: Date when Tenant may begin to install
computer and phone systems, move in work-
stations and other furniture and perform
other pre-occupancy activities for a
general office space, which in all events
and notwithstanding anything to the
contrary in this Work Letter or the
Lease, must be at least 15 calendar days
before the Premises is substantially
Completed.

H. May 1, 1995: The Premises and the Tenant Improvements
are Substantially Completed.

I. May 1, 1995: Scheduled Commencement Date.

I.-1 May 15, 1995: Penalty Date

J. By May 1, 1995: Initial Punch List submitted by Tenant
to Landlord.

K. May 1, 1995: Punch List Items completed by Landlord,
but not less than 5 days after receipt
of Initial Punch List.

L. May 1, 1995: Project Completion Documents delivered
to Tenant.

M. Landlord covenants and agrees that the Base Building will
be completed, including Punch List Items therefor, on or before the Scheduled
Commencement Date. Tenant reserves the right to submit additional punch list
items after occupancy and throughout the warranty period.

IX. Representatives
<PAGE> 50
Landlord appoints Jim Cunning ("Landlord Representative") to act for
Landlord in all matters covered by this Work Letter. Tenant appoint Derek
McKelvey or Mike Bridge (Tenant's Representative") to act for Tenant in all
matters covered by this Work Letter. All inquiries, requests, instructions,
authorizations and approvals with respect to the matters covered by this Work
Letter shall be made to Landlord's Representative or Tenant's Representative as
applicable.

X. Landlord's Additional Obligations.

Landlord, at its sole cost and expense and without reimbursement from
the Tenant Improvement Allowance, shall continuously coordinate the
architectural, engineering, construction and design disciplines for the Base
Building and for all aspects of the Tenant Improvements. Landlord shall have
continuous on-site personnel supervise construction and report any delays to
Tenant's Representative. Landlord shall cause Landlord's Representative to
communicate with Tenant's Representative as to the Tenant Improvements. Landlord
shall notify Tenant of any clarification required by the Contractor or the
Architect in interpreting or implementing material provisions of the Space Plan
or the Working Drawings and Specifications. To insure appropriate communication
and coordination of the Work Landlord's Representative will hold weekly status
meetings from commencement to completion of the work to include Architect,
Contractor and Tenant's Representative. Architect's costs for review of the work
and attendance at status meetings shall be a Landlord expense without
reimbursement from the Tenant Improvement Allowance.

XI. Architect.

The Landlord shall cause the Architect to devote such time and effort
as is required to properly and timely complete the Project in accordance with
the Schedule.

XII. Contractor.

Tenant shall have the right to review the construction contract with
Contractor to assure itself that provisions of the construction contract are
consistent with the terms and conditions of this Work Letter. The construction
contract shall always provide that Contractor agrees to make Tenant Change
Orders without the imposition of general conditions or other overhead or
surcharge for the first 10% (measured by the cost of the initial Construction
Costs) in dollar value of the Tenant Change Orders but with a reasonable
overhead for all Tenant Change Orders exceeding such 10% amount.
<PAGE> 51
SCHEDULE C-1

A drawing showing the Replacement Faces of a Double Faced Display, at the corner
of 44th Street and Camelback Road, Phoenix, Arizona, describing the following:

"Remove and discard the existing faces reading "CIRCLE K" and "DELI
STORE." Fabricate and install new white face panels with cut out black copy
reading "THE LONDON CENTER" and "4343."
<PAGE> 52
SCHEDULE 2

PROJECT SCHEDULE Dec. 12, 1994
TRG, INC. Page 1 of 1

A chart prepared by the Hostetler Corporation setting forth the work schedule
for the completion of the Building, commencing with Lease Negotiations in
November and December through Project Completion Documents in April, as follows:

Timing -
Weeks of

<TABLE>
<CAPTION>
<S> <C>
Lease Negotiations Nov. 28 and Dec. 5
Lease Prep/Execution Nov. 28, Dec. 5-12
Program Data Collection Complete
Preliminary Space Plan Complete
Final Space Plan Nov. 28
General Contractor Selection Complete
Conceptual Estimate Nov. 28 and Dec. 5
Design Dev./Construction Docs. Dec. 19 & 26, Jan.2-9 (1)
Bid Jan. 16-23
Value Engineering Last half of week of Jan.23
city Submittal/Redlines/Permit Jan. 16 (2)
Furniture Order Through Delivery Jan. 16 through March 27
Construction Jan. 23 through April 10 (3)
Cabling March 20-27
FF&E Install April 3-10
Punchlist Completion April 10 (3)
Move-in Mid-April
Project Completion Documents Approx. April 20
</TABLE>

1. Pinnacle Design, Inc. estimate 12/6/94
2. Based on use of Landlord consultant
3. Jokake Construction Estimate 12/6/94; demolition 1 week; construction 10
weeks; punchlist 1 week
<PAGE> 53
EXHIBIT D
BUILDING RULES AND REGULATIONS

1. SIGNS. Subject to Lease and Work Letter: No sign, placard, picture,
advertisement, name or notice shall be inscribed, displayed or printed
or affixed on or to any part of the outside of the Building without the
written consent of Landlord first had and obtained. Landlord shall have
the right to remove any such sign, placard, picture, advertisement name
or notice with notice to and at the expense of Tenant. All approved
signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person approved by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition, or wall which may appear
unsightly from outside the Premises.

2. SERVICES. No Tenant shall obtain for use upon the Premises ice,
drinking water, towel or other similar service or accept barbering or
bootblacking services on the Premises, except from persons authorized
by the Landlord and at the hours and under regulations fixed by the
Landlord.

3. DIRECTORY. The bulletin board or directory of the Building will be
provided exclusively for the display of the name and location of Tenant
only and Landlord reserves the right to exclude any other names
therefrom.

4. OBSTRUCTIONS. The sidewalks, halls, passages, exits, entrances,
elevators and stairways shall not be obstructed by any of the Tenants
or used by them for any purpose other than for ingress to and egress
from their respective premises. The halls, passages, exits, entrances,
elevators, stairways, balconies and roof are not for the use of the
general public and the Landlord shall in all cases retain the right
outside of the leased premises to control and prevent access thereto by
all persons whose presence in the judgment of the Landlord shall be
prejudicial to the safety, character, reputation and interests of the
Building and its Tenants. No Tenant and no employees or invitees of any
Tenant shall go upon the roof of the Building.

5. LOCKS. Tenant shall not alter any lock or install any new or additional
locks or any bolts on any door of the premises.

6. RESTROOMS. The toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be
thrown therein and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant
who, or which employees or invitees, shall have caused it.

7. DAMAGE. Tenant shall not overload the floor of the Premises or mark,
drive nails screw or drill into the partition, woodwork or plaster or
in any way deface the Premises or any part thereof except for purposes
incidental to Tenant's permitted uses.

8. HEAVY EQUIPMENT. No furniture, freight or equipment of any kind shall
be brought
<PAGE> 54
into the Building without the consent of Landlord and all moving of the
same into or out of the Building shall be done at such time and in such
manner as Landlord shall designate. Landlord shall have the right to
prescribe the weight, size and position of all safes brought into the
Building and also the times and manner of moving the same in and out of
the Building. Safes shall, if considered necessary by Landlord, stand
on wood strips of such thickness as is necessity to properly distribute
the weight. Landlord will not be responsible for loss of or damage to
any such safe or property from any cause and all damage done to the
Building by moving or maintaining any such safe or other property shall
be repaired at the expense of Tenant.

9. CLEANING. Tenant shall not employ any person or persons other than the
janitor of Landlord for the purpose of cleaning the Premises unless
otherwise agreed to by Landlord. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord
shall be permitted to enter the Building for the purpose of cleaning
the same. Tenant shall not cause any unnecessary labor by reason of
Tenant's carelessness or indifference in the preservation of good order
and cleanliness. Landlord shall in no way be responsible to any Tenant
for any loss of property on the Premises, however occurring, or for any
damage done to the effects of any Tenant by the janitor or any other
employee or any other person. Janitor service shall include ordinary
dusting and cleaning by the janitor assigned to such work and shall not
include moving of furniture or other special services.

10 NUISANCE. Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the Premises, or permit or suffer
the Premises to be occupied or used in a manner offensive or
objectionable to the Landlord or other occupants of the Building by
reason of noise, odors and/or vibrations, or interfere in any way with
other Tenants or those having business therein, nor shall any animals
or birds be brought in or kept in or about the Premises or the
Building.

11. PROHIBITED ACTIVITIES. No cooking shall be done or permitted except for
microwave oven and beverage preparation in the employee breakrooms by
any Tenant on the Premises, nor shall the Premises be used for the
storage or merchandise, for washing clothes, for loading, or for any
improper, objectionable or immoral purposes.

12. PROHIBITED MATERIALS. Tenant shall not use or keep in the Premises or
the Building any kerosene, gasoline or inflammable or combustible fluid
or material, or use any method of heating or air conditioning other
than that supplied by Landlord.

13. WIRES. The location of the initial telephones, call boxes and other
office equipment affixed to the Premises shall be installed in a manner
consistent with space plan #2.

14. KEYS. Each Tenant, upon the termination of the tenancy, shall deliver
to the Landlord the keys of offices, rooms, and toilet rooms which
shall have been furnished the Tenant or which the Tenant shall have had
made, and in the event of loss of any keys so furnished, shall pay the
Landlord therefor.
<PAGE> 55
PARKING RULES AND REGULATIONS

The following rules and regulations shall govern use of the parking facilities
which are appurtenant to the Building.

1. All claimed damage or loss must be reported and itemized in writing delivered
to the Parking Facility Office within ten (10) business days after any claimed
damages or loss occurs. Any claim not so made is waived. Landlord has the option
to make repairs at its expense of any claimed damage within two (2) business
days after filing of any claim. In all court actions the burden of proof to
establish a claim remains with Tenant. Court actions by Tenant for any claim
must be filed within (90) days from date of parking in court of jurisdiction
where a claimed loss occurred. Landlord is not responsible for damage by water,
fire, or defective brakes or parts, or for the acts or omissions of others, or
for articles left in the car. The total liability of Landlord is limited to
$250.00 for all damages or loss to any car. Landlord is not responsible for loss
of use.

2. Tenant shall not park or permit the parking of any vehicle under its control
in any parking areas designated by Landlord as areas for parking by visitors to
the Building. Tenant shall not leave vehicles in the parking areas overnight nor
park any vehicles in the parking areas other than automobiles, motorcycles,
motor drive or non-motor driven bicycles or four-wheeled trucks.

3. Parking stickers or any other device or form of identification supplied by
Landlord as a condition of use of the Parking Facilities shall remain the
property of Landlord. Such parking identification device must be displayed as
requested and may not be mutilated in any manner. The serial number of the
parking identification device may not be obliterated. Devices are not
transferable and any device in the possession of an unauthorized holder will be
void.

4. No overnight or extended term storage of vehicles shall be permitted except
parking incidental to business travel.

5. Vehicles must be parked entirely within the painted stall lines of a single
parking stall.

6. All directional signs and arrows must be observed.

7. The speed limit within all parking area shall be five (5) miles per hour.

8. Parking is prohibited:

(a) in areas not striped for parking;

(b) in aisles:

(d) on ramps;
<PAGE> 56
(e) in cross-hatched areas; and

(f) in such other areas as may be designated by Landlord or
Garage Manager.

9. Every parking is required to park and lock his own vehicle. All
responsibility for damage to vehicles is assumed by the parker.

10. Loss or theft of parking identification devices from vehicles must be
reported to the Garage Manager immediately, and a lost or stolen report must be
filed by the parker at that time. Landlord has the right to exclude any car from
the parking facilities that does not have an identification device.

11. Any parking identification devices reported lost or stolen found on any
unauthorized car will be confiscated and the illegal holder will be subject to
prosecution.

12. Lost or stolen devices found must be reported to the Parking Facility Office
immediately to avoid confusion.

13. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.

14. Tenant shall acquaint all persons to whom Tenant assigns parking spaces with
these Rules and Regulations. Garage Manager or attendants are not authorized to
make or allow any exceptions to these Rules and Regulations.

15. Landlord reserved the right to refuse to issue monthly stickers or other
parking identification devices to any Tenant or person and/or his agents or
representatives who willfully refuse to comply with these Rules and Regulations
and all unposed city, state or federal ordinances, laws or agreements.

16. Landlord reserves the right to modify and/or adopt such other reasonable and
non-discriminatory rules and regulations for the parking facilities as it deems
necessary for the operation of the parking facilities by giving notice of same
to Tenant as set forth in Section 25 of the Lease. Landlord may refuse to permit
any person who violates these rules to park in the parking facilities, and any
violation of the rules shall subject the car to removal.
<PAGE> 57
SCHEDULE 1
SPECIFICATIONS FOR JANITORIAL SERVICE

1. Daily: Five (5) Day Service

OFFICES
a. Empty all waste baskets and replace liners as needed.
b. Empty and clean all ash trays.
c. Dust all office furniture, window ledges, horizontal surfaces,
blinds, pictures, files cabinets, telephones, moldings and
baseboards.
d. Clean glass doors and thresholds.
e. Vacuum and spot clean carpet.
f. Spot clean marks on walls, next to light switches, doors and
door frames.
g. Turn off all lights and lock all doors upon completion in each
space.

ENTRANCES AND HALLWAYS
a. Clean glass doors and thresholds.
b. Spot clean marks on the painted entrance doors and janitor's
closet door.
c. Vacuum and spot clean carpeting.
d. Maintain entrance mats and clean balconies.
e. Dust window ledges, moldings and baseboards.
f. Clean cigarette urns.
g. Sanitize and polish drinking fountain.
h. Lock doors upon completion of work.

REST ROOMS
a. Dust mop floors and spot clean.
b. Empty and clean waste containers.
c. Empty and clean sanitary containers.
d. Clean and polish mirrors, frames and shelves.
e. Clean and sanitize wash basins and soap dispensers.
f. Check and refill soap, towel and toilet tissue dispensers.
g. Clean and sanitize toilets, toilet seats and urinals.
h. Clean and polish chrome fixtures.
i. Spot clean walls around sinks, towel dispensers, urinals,
partitions, doors and frames.
j. Report fixtures not working properly.

2. Semi-Annually
a. wash HVAC grills and vents.
b. wash light fixtures.

3. Annually
a. Shampoo carpet
b. wash cafeteria/breakroom walls
c. buff floors

4. As Needed
a. light and lamp replacement.
<PAGE> 58
Schedule 2
Temperature Standards

- - Londen Center Temperatures area controlled by a Novell Energy Management
System ("EMS")

- - Water circulating - California Heat Pump System

- - Each zone is approximately 600 square feet/3 tons

- - Each zone has a controller with 30 minutes overrides for after hour
operation

- - Operating Hours: 6:00 a.m. to 7:00 p.m. Monday through Friday, 8:00 a.m. to
1:00p.m. on Saturday

- - Computer controlled with modem for service monitoring

- - Heat/68/70 degrees

- - Cool/73/75 degrees

- - Variance range - 3 degrees

- - Air flow and volume is adjustable
<PAGE> 59
Schedule 3
Permitted Title Exceptions

1. Existing Ground Lease

2. Customary utility easements not having an adverse effect on Tenant's
rights or tenancy.
<PAGE> 60
EXHIBIT C-1

ADDITIONAL SPACE WORK LETTER
(TurnKey)

Without limiting or changing the obligations and rights set
forth in the Lease, as modified by the First Amendment to Lease Agreement (the
"Amendment"), Landlord and Tenant agree as follows:

This Work Letter covers the "Additional Space" (as defined in
the Amendment) and identified spaces located within the existing Premises set
forth on the Space Plan referenced below and generally set forth on Exhibit B-4
("Remodeled Original Premises").

For the purposes of this Work Letter only, the Additional
Space and the Remodeled Original Premises are hereinafter collectively the
"Premises".

I. Definitions

A. Architect means Pinnacle Design, Inc.

B. Base Building means the improvements presently contained
within the Project, the Building and the Premises, subject to the work required
below in this definition and subject also to the removal of such existing
improvements as required pursuant to the Space Plan. Landlord agrees that the
Base Building shall be completed (including Punch List Items) at no cost to
Tenant and shall not constitute a Construction Cost or be reimbursable from the
Tenant Improvement Allowance. Landlord agrees that, to the extent not presently
furnished and operational, the following shall be furnished, installed, repaired
and made operational, as appropriate, as part of the Base Building prior to
Substantial Completion of the Premises and the Scheduled Commencement Date with
respect to the Additional Space.

1. All existing walls and ceilings within the public
corridors, restrooms and other second floor common areas shall be refurbished,
including cleaning, repairing and painting of surfaces as required.

2. Building Standard light fixtures shall remain at
the presently-installed common area locations on the second floor with all
fixtures, lamps, lenses and ballasts cleaned and repaired as required.

3. Any portion of the present main heating
ventilation and air conditioning (HVAC) plant (including energy management
system and integration) and air distribution system serving the Additional Space
shall be integrated into the new HVAC installed as Tenant Improvements and fully
operational and balanced after the Tenant Improvements are completed. All
controls, including thermostats, shall be in working order, after the Tenant
Improvements are completed.

4. All sprinkler risers and sprinkler heads required
by law shall be in working order and repair.

5. All fire hose cabinets and fire extinguisher
cabinets shall be stocked and in working order as required by applicable law.
<PAGE> 61
6. Telephone trunk lines to the Additional Space
shall be in good working order and shall be in capacity to adequately service
Tenant's business needs.

7. Building Standard exterior window blinds and
Building Standard interior blinds for all interior window lights and side lights
shall be supplied.

8. All signs and graphics not located on the second
floor of the Building shall be supplied by Landlord.

In addition, all existing provisions of the Lease
regarding the third floor common areas shall be deemed applicable to the second
floor common areas; the parties agreeing that the common areas of the second and
third floors shall be treated and maintained in a similar manner in accordance
with the provisions of the Lease.

All Base Building improvements shall be in compliance
with ADA requirements, "As required" shall mean all Base Building finishes shall
be of at least the same quality and state of repair as the interior finishes
within the Premises as improved by the Tenant Improvements. All Base Building
work and improvement located on the second floor shall be of quality consistent
with the Tenant Improvements and shall be of consistent color and finish with
the existing improvements as
modified by the Tenant Improvements.

C. Construction Costs means the total cost and price for
designing, constructing and completing (including Punch List Items) the Tenant
Improvements.

D. Contractor means Jokake Construction Company

E. Premises Completion Document means the following:

1. Certification by the Architect that the Tenant
Improvements have been completed in compliance with the provisions of the Space
Plan, the Working Drawings and Specifications and the Lease.

2. A final Certificate of Occupancy for the Premises,
including the Remodeled Original Premises, if required.

3. Copies of all manufacturer's guarantees and
warranties covering equipment and systems installed by Landlord or the
Contractor on the Premises.

4. A binder comprised of manufacturer's installation,
operation, services and maintenance manuals for equipment and systems installed
by Landlord or the Contractor on the Premises.

5. Air balance reports for the completed Additional
Space reasonably approved by Tenant.

F. Space Plan means "Space Plan 5A" consisting of two (2)
sheets, dated December 4, 1995, prepared by the Architect for the Premises which
shall be comprised of layout plans and specifications which identify all Tenant
Improvements to be completed in the Additional Space and the Remodeled Original
Premises, including design specifications and criteria as may be required to
reasonably establish the quality of all Tenant Improvements and which may
reasonably facilitate preparation of the Working Drawings and Specifications and
<PAGE> 62
bidding. The final Space Plan 5A shall be identified by written Tenant
Representative authorization and initialing thereon.

G. Substantial Completion shall mean when all the requirements
of Section 2.1 of the Lease, as modified by the Amendment, respecting the
"Substantial Completion" (as defined therein) of the Premises have been
satisfied, including the completion of the Base Building construction and all
Tenant Improvements in accordance with the Space Plan and the Working Drawings
and Specifications, so that the Premises is completed and functioning as general
office space, subject only to the Punch List, and in all events Substantial
Completion shall not be deemed to occur unless and until a final Certificate of
Occupancy has been issued for the Premises (including the Remodeled Original
Premises, if required) as improved.

H. Tenant Improvements means all improvements, alterations and
installations, as approved by Tenant, which are required for Tenant's turn-key
occupancy and use of the Additional Space and the Remodeled Original Premises
and which are in conformance with the Space Plan and the Working Drawings and
Specifications. Such Tenant Improvements will be fully described in and shown on
the Working Drawings and Specifications, which shall be based on the Space Plan,
subject only to Tenant Change Orders.

I. Working Drawings and Specifications means a complete set of
drawings and specifications based on the Space Plan and sufficient to permit
proper bidding by Contractor and subcontractors and also sufficient to obtain a
building permit for the Tenant Improvements. The Working Drawings and
Specifications shall be made with precision and detail, specifying material to
be used and the construction methods to be employed for the complete
installation and construction of all Tenant Improvements. Such Working Drawings
and Specifications shall include at a minimum:

2. Electrical design for lighting, power and
telephone/data for the Additional Space; provided, however, all cabling design
beyond wall stubs shall be solely Tenant's responsibility and at Tenant's sole
cost.

3. Mechanical design for air distribution systems,
HVAC, control systems and fire protection for the Additional Space.

4. Plumbing design for the Additional Space.

II. Working Drawings and Specifications.

A. Preparation. Based strictly on the Space Plan, Landlord
shall cause the Working Drawings and Specifications for the Tenant Improvements
to be prepared by the Architect and its engineers.

B. Approval. Tenant shall approve or disapprove the Working
Drawings and Specification in accordance with the criteria established on the
Space Plan. Landlord shall revise the Working Drawings and Specifications and
resubmit them to Tenant for approval.

C. Final Approval. No bids shall be approved unless and until
Tenant's
<PAGE> 63
Representative has approved in writing the Working Drawings and Specifications,
which approval process shall occur in parallel with bidding and permitting of
the work.

III. Bidding/Scope of Work/Tenant Improvements.

A. Bids. Contractor will bid the Tenant Improvements to a list
of subcontractors, suppliers and materialmen approved in advance by landlord and
Tenant, which approval shall not be unreasonably withheld. A minimum of three
(3) bids shall be obtained in each work category unless waived by Tenant. All
bids shall be sealed bids and a final budget by trade shall be delivered to
Tenant for review. The bidding process shall include an aggressive value
engineering effort by Landlord Representative, Architect and Contractor. All
phases of the project costs shall be based on open book review by Tenant at a
reasonable frequency and at reasonable times during business hours.

B. Scope of Work. Landlord shall be fully responsible for all
matters that must be accomplished to perform, finish and completely install the
Tenant Improvements (in operating condition to manufacture specifications, if
applicable) in accordance with the provisions of this Additional Space Work
Letter and the Lease, as modified by the Amendment. Landlord's obligations
hereunder shall include furnishing through Contractor all labor, materials and
equipment; filing all plans with the proper governmental authorities; obtaining
all building permits; supervising all details of construction; obtaining any
temporary certificate of occupancy and obtaining all final certificates of
occupancy; engaging in supervising the Contractor and its subcontractors and the
Architect and its consultants; promptly paying for all Tenant Improvements
except as specifically provided in Section IV hereof in respect of Tenant Change
Orders; repairing and restoring damaged, lost or destroyed tenant improvements,
whether or not installed; removing all debris from the Premises caused by any
trade (including Tenant's trades and any utility companies); obtaining
applicable insurance coverage and providing utility and building service at its
sole cost at all times until the Scheduled Commencement Date.

C. ADA. Landlord shall be responsible for all compliance with
ADA requirements for the Base Building and shall be similarly responsible for
all ADA requirements for the Tenant Improvements through the Additional Space
Commencement Date. ADA requirements for the Tenant Improvements subsequent to
the Additional Space Commencement Date shall be solely at Tenant's cost and
expense.

D. Contractor. All Tenant Improvements will be of quality set
forth on the Space Plan and the Working Drawings and Specifications, completed
only in accordance with the Working Drawings and Specifications approved by
Tenant, and completed only by the Contractor or such other contractor approved
by Tenant executing such work through subcontractors, materialmen and suppliers
set forth on a list approved by Tenant.

E. Inspection. Tenant shall have the right to inspect the
Tenant Improvements as they are being installed and require corrections as are
necessary for work which is not in compliance with the Space Plan or the Working
Drawings and Specifications.

F. Injury. Tenant shall not be liable for any injury to
persons or damage to property within the Premises during the performance of the
Tenant Improvements, except for Tenant's own negligence. Landlord hereby
indemnifies and holds harmless Tenant from any claims, costs (including
reasonable attorneys' fees), charges, damages, lawsuits and judgments on account
of such injury or damage.
<PAGE> 64
G. Planning. Landlord shall cause the Tenant Improvements
within the Remodeled Original Premises to be completed with the least amount of
possible disturbance to the ongoing business operations of Tenant, including
after-hours work when necessary and as required by Tenant. Except for
nondisruptive work as determined by Tenant, no work shall occur in the Remodeled
Original Premises between 9:00 a.m. and 6:00 p.m., Monday through Friday.

H. Swing Space. Landlord agrees to make available to Tenant,
rent free, Swing Space on the 4th floor of the Building as hereinafter provided.
The location of the Swing Space is set forth on Exhibit B-5. The following shall
apply to the Swing Space:

1. Tenant shall provide all furniture.

2. Landlord shall provide, at its cost, electricity
delivered to the Swing Space. Tenant shall provide, at its cost, computer wiring
to the Swing Space and each workstation/desk.

3. The Swing Space shall be keyed for access only by
Tenant with ten copies of a unique key and also so that the 3rd floor master key
is usable for such locks.

4. It is the purpose of the Swing Space to permit
Tenant to enjoy space which is otherwise lost with the work to be performed on
the Remodeled Original Premises. Tenant shall be permitted to use the Swing
Space until the remodeled Premises are complete and operational, including the
installation of systems, furniture and workstations.

IV. Change Orders.

A. Change Orders Generally. No change orders over $1,000 for
the Tenant Improvements shall be made or executed without Tenant's prior written
consent. No change orders for the Tenant Improvements affecting in any manner
quality of materials, colors, texture or finish shall be made or executed
without Tenant's prior written consent.

B. Tenant Change Orders. From time to time solely at its cost,
Tenant may make changes to the Space Plan or the Working Drawings and
Specifications and, in addition, to Tenant Improvements already installed
("Tenant Change Orders"). Tenant may not request changes to the Base Building
without Landlord's prior written consent.

C. Charges. Within three business days after Tenant notifies
Landlord of a Tenant Change Order, Landlord shall submit to Tenant in writing a
statement of additional charges as agreed upon by the Architect, the Contractor
and the Landlord (or any savings involved) and the time period, if any, that the
Tenant Change Order will materially and adversely affect the Schedule or the
Scheduled Commencement Date for the Additional Space. Tenant may either approve
or disapprove such additional charges or savings submitted by Landlord.

D. Architect Expenses. In addition to paying for the
additional construction charges resulting from Tenant Change Order approved by
Tenant pursuant to E. below, Tenant shall always pay reasonable fees and
charges, if any, by the Architect in preparing and pricing the Tenant Change
Orders, whether or not the Tenant Change Order is executed.
<PAGE> 65
E. Execution. Landlord shall not be authorized to make or
execute any change and the Schedule shall remain unaffected unless and until
Tenant's Representative shall have approved in writing the cost and Schedule
changes of a Tenant Change Order proposal. If Tenant's Representative approves
in writing the additional charges or savings and the change in the Schedule,
Landlord shall cause the approved Tenant Change Orders to be made and executed
and the Schedule shall be adjusted appropriately.

V. Pricing of Tenant Improvement Costs and Change Orders.

A. Approved Subcontractors. All Tenant Improvement cost shall
be competitively bid by Contractor from a list of approved subcontractors,
materialmen and suppliers in accordance with Section III.A above. All Tenant
Change Orders shall be first bid with the subcontractor, materialmen or supplier
that has bid or been awarded the subcontract for such matter; provided, however,
Tenant, at its sole cost and expense, shall have the right to cause another
subcontractor to bid or perform any Tenant Change Order.

B. Cost Breakdown. Landlord shall submit, prior to the
commencement of the Tenant Improvements, a final breakdown by trade of all
Construction Costs. Tenant shall have the right, prior to the commencement of
construction of the Tenant Improvements to review and approve the Construction
Costs.

VI. Plan Costs.

A. Without modifying any other agreement contained in this
Additional Space Work Letter or the Lease, as modified by the Amendment, the
following plan costs and expenses shall be paid as indicated:

1. Preparation of Space Plan through date of the
Amendment: Landlord (Landlord to direct
architect to directly bill Landlord for all
prior work incurred by either Landlord or
Tenant).

2. Revision of Space Plan after the date of the
Amendment:

(a) Due to Tenant changes: Tenant-solely at
its cost and without reimbursement.

(b) Due to Landlord's errors or omissions:
Landlord-solely at its cost and without
reimbursement.

3. Preparation of Working Drawings and
Specifications: Landlord.

4. Coordination, if required, of Working Drawings
and Specifications with the Base Building
plans: Landlord.

5. Modification of Working Drawings and
Specifications after Tenant's final approval
thereof:

(a) Due to Tenant changes: Tenant.
<PAGE> 66
(b) Due to Landlord's errors and omissions:
Landlord.

6. Project Completion Documents: Landlord.
<PAGE> 67
VII. Payment of Tenant Improvement Costs.

Landlord shall be responsible for all Construction Costs of
the Tenant Improvements, including Overages, except specifically only the
following: All costs and expenses approved in writing by Tenant for a Tenant
Change Order shall be paid solely by Tenant; up to $29,566.00 in reimbursements
as required by Section 6 of the Amendment.

Tenant shall pay all Tenant Change Orders within 30 days after
receipt of an invoice from Landlord, such payments shall be 90% of the Tenant
Change Order, as estimated by the Architect, as completed and incorporated into
the Premises since the last billing. All retention shall be paid upon completion
of the Punch List. Landlord shall be responsible to cause the Contractor to pay
all subcontractors, materialmen and suppliers that have worked on a Tenant
Change Order.

VIII. Scheduling.

Landlord and Tenant shall comply with the Schedule attached
hereto as Schedule 2 and with the Benchmark Dates set forth below, unless
modified in writing by the Landlord Representative and the Tenant
Representative: The 1,320 Square foot portion of Additional Space shall be
designed and constructed on a fast-track basis.

A. Working Drawings and Specifications shall be delivered by
Landlord to Tenant at their completion in accordance with the Schedule attached
as Schedule 2.

C. Landlord shall use best efforts to complete bidding of the
job and review of bids with Tenant after completion of Working Drawings and
Specifications in accordance with the Schedule attached as Schedule 2.

D. Landlord shall submit all plans for the 1,320 square foot
portion of Additional Space no later than December 18, 1995 and for the balance
of the Premises no later than January 4, 1996 to the governmental authorities
and use best efforts to obtain a building permit within three calendar days for
the 1,320 square foot portion of Additional Space and 30 calendar days for the
balance of the Premises after completion of Working Drawings and Specifications.

E. Construction of Tenant Improvements to commence immediately
after the building permits are issued and Tenant has approved the bids except
for demolition, if any, which will be bid and completed prior to start of new
construction.
<PAGE> 68
<TABLE>
<CAPTION>
<S> <C> <C> <C>
F. January 18, 1996 - Swing Space:
January 1, 1996 - 1,320 square
foot portion of Additional
space (1,320 sq.ft.):
February 19, 1996 - Balance
of Premises ("Balance"): Date when Tenant may
commence cabling installation.

G. January 24, 1996: Completed Swing Space
available to Tenant.

H. January 24, 1996 - Swing Space:
January 5, 1996 - 1,320 sq. ft.:
March 15, 1996 - Balance: Date when Tenant may begin to
install computer and phone
systems, move in workstations
and other furniture and perform
other preoccupancy activities in
the Premises for a general office
space, which in all events and
notwithstanding anything to the
contrary in this Additional Space
Work Letter or the Lease, as
modified by the Amendment,
must be at least 7 calendar days
before the space is required to be occupied.

I.-1 January 5, 1996: The 1,320 square foot portion of the
additional Space identified on the Space
Plan are to be Substantially Completed.

I.-2 March 15, 1996: The entire remaining portion of the Premises
and the Tenant Improvements are Substantially
Completed, subject to delay not past the
Scheduled Commencement Date if the building
permit is not issued within time specified
in Article VIII.D above after best efforts
by Landlord.
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
<S> <C> <C> <C>
J. January 12, 1996 - 1,320 sq. ft.:
March 22, 1996 - Balance: Respective Scheduled Commencement Date(s)
for the Premises.

K. January 5, 1996 - 1,320 sq. ft.:
March 15, 1996 - Balance: Initial Punch List submitted by Tenant to
Landlord, subject to I-2. Above.

L. January 12, 1996 - 1,320 sq. ft.:
March 22, 1996 - Balance: Punch List Items completed by Landlord,
subject to I-2. Above.

M. January 12, 1996 - 1,320 sq. ft.:
March 22, 1996 - Balance: Tenant Improvements Completion Documents
delivered to Tenant, subject to I-2. above.
</TABLE>

N. Landlord covenants and agrees that the Base Building will
be completed, including Punch List Items therefor, on or before the Scheduled
Commencement Date for the Balance of the Premises. Tenant reserves the right to
submit additional punch list items after occupancy and throughout the warranty
period.

IX. Representatives.

Landlord appoints Jim Cunning ("Landlord Representative") to
act for Landlord in all matters covered by this Additional Space Work Letter.
Tenant appoints Derek McKelvey/Mike Bridge/Jeff Longstrom ("Tenant's
Representatives") to act for Tenant in all matters covered by this Additional
Space Work Letter. All inquiries, requests, instructions, authorizations and
approvals with respect to the matters covered by this Additional Space Work
Letter shall be made to Landlord's Representative or Tenant's Representative as
applicable.

X. Landlord's Additional Obligations.

Landlord, at its sole cost, shall continuously coordinate the
architectural, engineering, construction and design disciplines for the Base
Building and for all aspects of the Tenant Improvements. Landlord shall have
continuous on-site personnel supervise construction and report any delays to
Tenant's Representative. Landlord shall cause Landlord's Representative to
communicate with Tenant's Representative as to the Tenant Improvements. Landlord
shall notify Tenant of any clarification required by the Contractor or the
Architect in interpreting or implementing material provisions of the Space Plan
or the Working Drawings and Specifications. To insure appropriate communication
and coordination of the work, Landlord's Representative will review the space on
a weekly basis from commencement to completion of the work, such review to
include Contractor and Tenant's Representative. When either Landlord or Tenant
deem it necessary, the parties will hold a status meeting, to include Architect,
Contractor, Landlord's Representative and Tenant's Representative. Attendance by
Architect at such status meetings shall be at Landlord's expense.

XI. Architect.
<PAGE> 70
The Landlord shall cause the Architect to devote such time and
effort as is required to properly and timely complete the Tenant Improvements in
accordance with the Schedule.

XII. Contractor.

Tenant shall have the right to review the construction
contract with Contractor to assure itself that provision of the construction
contract are consistent with the terms and conditions of this Additional Space
Work Letter. The construction contract shall always provide that Contractor
agrees to make Tenant Change Orders without the imposition of general conditions
or other overhead or surcharge for the first 10% (measured by the cost of the
initial Construction Costs) in dollar value of the Tenant Change Orders but with
a reasonable overhead for all Tenant Change Orders exceeding such 10% amount.
<PAGE> 71
FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made and
entered into as of December 20, 1995, by and between LONDEN CENTER L.L.C., an
Arizona limited liability company ("Landlord"), and TRG, INC., an Indiana
corporation ("Tenant").

RECITALS

This Amendment is made with respect to the following facts:

A. Landlord and Tenant have entered into that certain Office
Lease with Addendum and exhibits, each dated December 19, 1994 (collectively,
the "Lease"), pursuant to which Landlord is presently leasing to Tenant
approximately 33,407 square feet of rentable area consisting of all of the 3rd
floor of a building known as The Londen Center and located at 4343 East
Camelback Road, Phoenix, Arizona (the "Building" as more particularly defined in
the Lease).

B. The parties desire to amend the Lease to additionally
provide for the leasing of approximately 1,320 square feet of rentable area on
the 2nd floor of the Building and approximately 3,745 square feet of rentable
area on the 2nd floor of the Building (collectively, the "Additional Space") as
hereinafter provided.

AMENDMENT

NOW, THEREFORE, in consideration of the Lease and the mutual
promises and agreements set forth below, the parties hereby agree as follows:

1. Defined Terms. Except for those terms expressly defined in
this Amendment, all initially capitalized terms used herein shall have the
meanings set forth for such terms in the Lease.

2. Premises. The Lease is hereby amended as necessary to
provide that the term "Premises" as used therein shall mean approximately 38,472
square feet of rentable area in the Building, consisting, collectively, of (a)
the 3rd floor of the Building, as presently described in the Lease and as shown
on Exhibit B of the Lease, containing a total of approximately 33,407 square
feet of rentable area (the "Original Premises"); (b) that portion of the 2nd
floor of the Building shown on Exhibit B-1 to this Amendment, containing
approximately 1,320 square feet of rentable area; and (c) that portion of the
2nd floor of the Building shown on Exhibit B-2 to this amendment, containing
3,745 square feet of rentable area.

Upon the Additional Space Commencement Date (defined below)
all of the provisions of the Lease shall cover and be applicable to the
Additional Space except to the extent a provision contained in the Lease is
specifically amended or in express conflict with a provision contained in this
Amendment. Any ratio or percentage contained in the Lease and not expressly
referenced herein shall be automatically adjusted to include the Additional
Space from and after the Additional Space Commencement Date.
<PAGE> 72
3. Scheduled Commencement Date. The Lease is hereby amended as
necessary to provide that the term "Scheduled Commencement Date" as used therein
shall mean March 22, 1996 with respect to the Additional Space, subject to
earlier delivery on January 12, 1996 of the 1,320 square foot portion of the
Additional Space shown on Exhibit B-1, as more particularly provided in a Work
Letter with respect to the Additional Space and portions of the Original
Premises (the "Additional Space Work Letter") attached as Exhibit C-1 to this
Amendment.

4. Term. The Lease is hereby amended as necessary to provide
that the Term of the Lease with respect to the Additional Space shall commence
on the date ("Additional Space Commencement Date") which shall be the later of
(a) the Scheduled Commencement Date with respect to the "Balance" (as defined in
Section VIII, F of the Additional Space Work Letter) of the Additional Space and
(b) the date of Substantial Completion of all of the Additional Space. The Term
of the Lease for the entire Premises shall end on the Termination Date, it being
the parties' intent that the Lease shall be coterminous for the entire Premises.
The parties acknowledge and agree that the Termination Date under the Lease is
May 31, 2001. The Lease is hereby further amended to provide that "Substantial
Completion" with respect to the Additional Space shall have the same meaning as
"Substantial Completion" with respect to the Original Premises, as set forth in
Section 2.1 of the Lease, except that the "Work Letter" is the Additional Space
Work Letter. If the Term of the Lease for the Additional Space has not commenced
on the third anniversary of this Amendment, this Amendment shall be of no
further force or effect but without waiving any rights either party may have
hereunder based on a failure to perform by the other party hereto. Tenant may
enter and use any substantially completed portion of the Additional Space prior
to the Scheduled Commencement Date or the Additional Space Commencement Date.
Such use shall be without a rental charge but Tenant shall not interfere with
Landlord's construction work and shall otherwise observe the provisions of the
Lease.

5. Rental. The Lease is hereby amended as necessary to provide
that, beginning on the Additional Space Commencement Date, the term "Annual
Rent" as used therein shall mean (x) $15.10 per rentable square foot in the
Original Premises multiplied by 33,407 rentable square feet in the Original
Premises, plus (y) $19.00 per rentable square foot in the Additional Space
multiplied by 5,065 rentable square feet in the Additional Space, plus (z)
applicable rental taxes per Article 26 of the Lease. The Lease is hereby further
amended as necessary to provide that the term "Monthly Installment of Annual
Rent" as used therein shall mean, beginning on the Additional Space Commencement
Date, the Annual Rent as amended by this Amendment divided by 12. Any Monthly
Installment of Annual Rent shall be prorated if the Additional Space
Commencement Date is other than the first day of a calendar month. It is the
parties' intent that Annual Rent attributable to the Original Premises shall not
be modified by reason of this Amendment. Notwithstanding the foregoing, the
Annual Rent shall be reduced on a proportionate per rentable square foot basis
for the remaining portion of the Premises (based on the applicable rental rate
set forth above) in the event that Tenant exercises its cancellation rights
contained in Paragraph 9 of this Amendment for all or a portion of the
Additional Space.

6. Reimbursement for a Portion of Construction Expenses.
Tenant shall pay to Landlord the actual cost of the tenant improvements built in
the Remodeled Original Premises
<PAGE> 73
(as defined in the Additional Space Work Letter) as hereinafter set forth within
20 days of Substantial Completion of the Additional Space. Although the
transactions evidenced by the Lease require a turnkey premises by the Landlord,
Tenant agrees to reimburse Landlord for the actual cost of the tenant
improvements built in the Remodeled Original Premises pursuant to the Additional
Space Work Letter and Space Plan, but in no event shall such reimbursement
exceed $29,566.00 even if the actual tenant improvement costs are greater than
$29,566.00.

7. Base Year. The Lease is hereby amended as necessary to
provide that the term "Base Year (Direct Expenses)" and "Base Year (Taxes)" as
used therein shall continue to mean calendar year 1995 with respect to the
Original Premises and calendar year 1996 with respect to the Additional Space.

8. Building Share. The Lease is hereby amended as necessary to
provide that the term "Tenant's Proportionate Share of Building" as used therein
shall mean 35.50% (based on 108,380 rentable square feet in the Building) from
and after the Additional Space Commencement Date.

9. Additional Space Cancellation Rights. The Lease is hereby
amended as necessary to provide that Tenant shall also have the right to cancel
the Lease with respect to (i) all of the Additional Space, or (ii) only the
1,320 square foot portion of the Additional Space shown on Exhibit B-1, or (iii)
only the 3,745 square foot portion of the Additional Space shown on Exhibit B-2
on the same terms as contained in the Addendum to the Lease entitled
"Cancellation Option," except that (i) the cancellation option contained in this
Paragraph 9 of the Amendment may only be exercised for a termination date
occurring after the second anniversary of the Additional Space Commencement Date
if the termination is not for the entire Premises including the Original
Premises, (ii) the Construction Costs and Tenant Improvements related to the
Additional Space, or either portion thereof, shall be defined in Section I of
the Additional Space Work Letter, provided Tenant shall receive a credit against
the cancellation payment otherwise payable to Landlord in an amount equal to
$7.50 per rentable square foot of the cancelled Additional Space, to evidence a
stipulated amount of Construction Costs deemed necessary to bring the Additional
Space to base building standards, and (iii) the actual brokerage commission
shall not exceed $5.00 per rentable square foot of the cancelled Additional
Space. Effective on the termination of the Lease for less than the entire
Premises, the Annual Rent, Tenant's Proportionate Share of the Building and
other ratios and percentages shall be proportionally reduced.

10. Original Premises Cancellation Rights. Landlord and Tenant
hereby acknowledge that Tenant shall have the right to cancel the Lease for all
or a portion of the Premises as follows: (i) on the terms as presently contained
in the Addendum to the Lease entitled "Cancellation Option" with respect to the
Original Premises and (ii) on the terms provided for under Paragraph 9 of this
Amendment with respect to the Additional Space, provided, Tenant must
simultaneously cancel the Lease for all of the Additional Space if it elects to
cancel the Lease for the Original Premises.

11. Renewal Option. Landlord and Tenant agree that Tenant
shall have the option, in its discretion, to exercise the renewal options
contained in the Lease for either (x) just
<PAGE> 74
the Original Premises or (y) the Original Premises and all or portions of the
Additional Space. In no event may Tenant exercise its renewal options for only
the Additional Space. The renewal options shall be for the same term for the
entire Premises for which the renewal option is exercised, it being the parties'
intent that the renewal option(s) shall commence on the same date and terminate
on the same date for the entire Premises.

12. Additional Parking. In addition to access cards and
unreserved employee parking spaces presently required by the Lease, the Lease is
hereby amended as necessary to provide that Landlord will proportionally
increase the access cards and unreserved employee parking spaces based on the
increased space.

13. Storage Space. The lease is hereby amended as necessary to
provide that Landlord shall provide to Tenant 250 square feet of secured storage
space within the Building's G-2 parking garage level (at the location delineated
on Exhibit B-3) at no charge to Tenant commencing on the Additional Space
Commencement Date.

14. Third Party Training. Tenant may permit portions of the
Additional Space to be used as a training center for third party entities. No
single third party may use the Additional Space as a training center for more
than 14 consecutive days. Such use shall not unduly burden the parking in the
Project.

15. First Right. The parties acknowledge that this Amendment
fulfills the Landlord's obligations under the provision of the Lease entitled
"First Right" with respect to the Additional Space. The "First Right" provisions
of the Lease shall remain in full force and effect for all other portions of the
Building subject thereto.

16. Broker Fees. Landlord shall pay any brokerage fee due to
CB Commercial/Jerry Roberts by separate agreement.

17. Signage. All signage within the Building (including second
floor signage and any other signage previously required by the Lease) shall be
changed to "USA Group-TRG" at Landlord's expense prior to the Additional Space
Commencement Date. Tenant may cause a similar change to occur at any time on the
Project monument sign, but at its own expense.

18. No Additional Modifications. Except as modified hereby,
the Lease has not been amended, and, as modified hereby, the Lease is in full
force and effect and applicable to the Original Premises and Additional Space as
provided above.

19. Counterpart. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first set forth above.

LANDLORD:
<PAGE> 75
LONDEN CENTER L.L.C., an Arizona limited
liability company

By: /s/ Jack Londen
_________________________________________

Its Manager
_________________________________________

TENANT:

TRG, INC., an Indiana corporation

By: /s/ Derek McKelvey
_________________________________________

Its Vice President, Operations
_________________________________________

State of Arizona

County of Maricopa

The foregoing instrument was acknowledge before me this 20th
day of December, 1995, by Jack Londen, the Manager of Londen Center L.L.C., an
Arizona limited liability company, on behalf of the company.

(Seal and Expiration Date)

/s/ Marce L. Boersma
_______________________________________
Notary Public
<PAGE> 76
State of Arizona

County of Maricopa

The foregoing instrument was acknowledge before me this 20th
day of December, 1995, by Derek McKelvey, the VP of Operations of TRG, Inc. an
Indiana corporation, on behalf of the corporation.

(Seal and Expiration Date)

/s/ Patty K. Bigley
__________________________________
Notary Public
<PAGE> 77
Schedule 2
PROJECT SCHEDULE Dec. 15, 1995
TRG, Inc. Page 1 of 1

A chart prepared by the Hostetler Corporation setting forth the work schedule
for the completion of the Building, commencing with Review/Execute Lease
Amendment in December through Project Completion Documents in March, as follows:

Timing -
Weeks of

<TABLE>
<CAPTION>
<S> <C>
Review/ Execute Lease Amendment Dec. 4-18
Space Plan Approved Dec. 4
1320 - Working Drawings & Specifications Dec. 11 (last half of week) (1)
Balance of Working Drawings &
Specifications Last half of week, Dec. 11 through first half of week Jan.1
Cable 4th Floor Swing Space Last half of week, Jan. 15 through first half of week, Jan. 22
Vacate 3rd Floor, Remodel Spaces Last half of week, Jan. 22 through first half of week, Jan. 29
1320 - City Submittal/Redlines/Permit Dec. 20/95
Balance of Space - City Submittal/
Redlines/Permit Last half of week, Jan. 1, through first half of week, Jan. 29,
Feb. 1, 1996
1320 - Review Bids First half of week, Jan. 18
Balance of Space - Review Bids Last half of week, Jan. 1 through first half of week, Jan.8
1320- Furniture Order through Delivery Dec. 18 through Jan. 1
Balance of Space - Furniture Order
through Delivery Dec. 18 through first half of week, March 11
1320 - Construction Last half of week, Dec. 18 through Jan. 5, 1996
Balance of Space Construction Last half of week, Jan. 29, through March 15, 1996
1320 - Cabling Jan. 1 - 8
Balance of Space Cabling Feb. 12; last half of week, March 4 through March 18
1320 - FF&E Install Jan. 8
Balance of Space - FF&E Install March 18
1320 - Punchlist Completion Jan. 8
Balance of Space - Punchlist Completion March 18
1320 - Move-in & Project Completion
Documents Jan. 12. 1996
Balance of Space - Move-in and Project
Completion Documents March 22, 1996
</TABLE>

1. 1320 refers to that separate portion of additional space on Floor Two
consisting of 1320 S.F.
<PAGE> 78
Exhibit B-1

A drawing of the second floor, showing 1320 square feet cross-hatched.
<PAGE> 79
Exhibit B-2

A drawing of the 2nd floor showing 3,745 square feet of rentable area
cross-hatched.
<PAGE> 80
Exhibit B-3

A drawing showing Level Two of the Garage showing placement of fire
extinguishers, fire exits and pull boxes.
<PAGE> 81
Exhibit B-4

A drawing of the third floor, completely cross-hatched.
<PAGE> 82
Exhibit B-5

A drawing of the fourth floor.
<PAGE> 83
Exhibit C

Consists of a drawing of the Assigned Premises showing assigned areas cross-
hatched in addition to all applicable 2nd floor space pursuant to the first
amendment of the Lease dated 12/20/95.
<PAGE> 84
Exhibit D

Consists of a drawing of the Retained Premises - cross-hatched areas retained on
2nd floor, pursuant to the first amendment of the Lease dated 12/2/95.

<PAGE> 1

EXHIBIT 11

VIASOFT, INC. AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1995(2) 1996(2) 1997
-------- -------- --------
<S> <C> <C> <C>
PRIMARY:
Common shares outstanding, beginning of period.......... 3,438 15,949 16,719
Effect of Weighting Shares:
Warrants and employee stock options outstanding....... 924 1,001 --
Shares issued related to R&O acquisition(3)........... -- -- 241
Sale of common stock, net............................. 1,146 137 121
Employee stock options exercised...................... 228 305 131
Conversion of preferred stock(1)...................... 8,848 -- --
------- ------- -------
Weighted average number of common and common share
equivalents outstanding(2)............................ 14,584 17,392 17,212
======= ======= =======
Net income (loss)....................................... $ 5,192 $ 6,217 $(15,536)
======= ======= =======
Earnings (loss) per common and common share
equivalent............................................ $ 0.36 $ 0.36 $ (0.90)
======= ======= =======
FULLY DILUTED:
Common shares outstanding, beginning of period.......... 3,438 15,949 16,719
Effect of Weighting Shares:
Warrants and employee stock options outstanding....... 1,062 1,192 --
Shares issued related to R&O acquisition(3)........... -- -- 241
Sale of common stock, net............................. 1,146 137 121
Employee stock options exercised...................... 228 305 131
Conversion of preferred stock(1)...................... 8,848 -- --
------- ------- -------
Weighted average number of common and common share
equivalents outstanding(2)............................ 14,722 17,583 17,212
======= ======= =======
Net income (loss)....................................... $ 5,192 $ 6,217 $(15,436)
======= ======= =======
Earnings (loss) per common and common share
equivalent............................................ $ 0.35 $ 0.35 $ (0.90)
======= ======= =======
</TABLE>

- ---------------
(1) Conversion of preferred stock was assumed in 1994.

(2) Reflects effect of the December, 1994 one-for-three reverse stock split and
the August 30, 1996 two-for-one stock split.

(3) See Note 2 to Notes to Consolidated Financial Statements.

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF VIASOFT, INC.

<TABLE>
<CAPTION>
Jurisdiction
of
Incorporation
-------------
<S> <C>
VIASOFT International, Inc. Delaware

VIASOFT U.K. Limited* England

VIASOFT International GmbH* Germany

VIASOFT Pty. Ltd.* Australia

VIASOFT Benelux, S.A.* Belgium

ANASAZI Holdings GmbH* Germany

VALIANT Holdings GmbH* Germany

Rottger & Osterberg Software
Technik GmbH* Germany

R&O (UK) Ltd.* England

R&O Inc.* Delaware

VIASOFT de Mexico, S.A. de C.V. Mexico

VIASOFT (FSC), Ltd. Barbados
</TABLE>

*Subsidiaries denoted with an asterisk are indirect subsidiaries of
VIASOFT, Inc. and are owned directly by the subsidiary under which its name is
listed.

<PAGE> 1
EXHIBIT 23

ARTHUR ANDERSEN

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
registration statement File Nos. 33-89868, 33-89870, 333-16519, 333-14671,
333-33815 and 333-35779, as amended.

ARTHUR ANDERSEN LLP

Phoenix, Arizona,
September 22, 1997.

<PAGE> 1
Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Mark R. Schonau or Catherine R.
Hardwick (with full power of substitution), his true and lawful attorney-in-fact
and agent, in any and all capacities, to do any and all acts and things and to
execute any and all documents, forms and reports which said attorney-in-fact and
agent may deem necessary or advisable to enable VIASOFT, Inc., a Delaware
corporation (the "Corporation") to sign an annual report on Form 10-K for the
fiscal year ended June 30, 1997 and to file the same with all exhibits thereto,
and all documents in connection therewith, and to comply with the Securities
Exchange Act of 1934 and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, and the undersigned does
hereby ratify and confirm all that said attorney-in-fact and agent shall do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 25th day of September, 1997.

/s/ Alexander S. Kuli
_____________________________________
Signature

Alexander S. Kuli
_____________________________________
Printed Name

_____________________________________
Witness

STATE OF Arizona )
) ss.
County of Maricopa )

On this 25th day of September, 1997, before me, the undersigned Notary
Public, personally appeared Alexander S. Kuli, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Joni K. Summers
____________________________________
Notary Public
My commission expires:

March 30, 2000
<PAGE> 2
POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 24th day of September, 1997.

/s/ J. David Parrish
____________________________________
Signature

J. David Parrish
____________________________________
Printed Name

____________________________________
Witness

STATE OF Arizona )
) ss.
County of Maricopa )

On this 24th day of September, 1997, before me, the undersigned Notary
Public, personally appeared J. David Parrish, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Joni K. Summers
_________________________________
Notary Public
My commission expires:

March 30, 2000
<PAGE> 3
POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 22nd day of September, 1997.

/s/ Arthur C. Patterson
________________________________
Signature

Arthur C. Patterson
________________________________
Printed Name

________________________________
Witness

STATE OF California )
) ss.
County of San Francisco )

On this 22nd day of September, 1997, before me, the undersigned Notary
Public, personally appeared Arthur C. Patterson, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Judith Maurer
_______________________________________
Notary Public
My commission expires:

8-2-99