<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1999
                                       OR

  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                        COMMISSION FILE NUMBER: 0-27838

                              FORTE SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)

                  DELAWARE                             94-3131872
      (State or other jurisdiction of        (I.R.S. Employer identification
       incorporation or organization)                     No.)

                1800 HARRISON STREET, OAKLAND, CALIFORNIA 94612
             (Address of principal executive offices and Zip Code)

       Registrant's telephone number, including area code: (510) 869-3400

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                        Preferred Share Purchase Rights

    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 Registration 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. /X/

    The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on June 1,
1999 as reported on the Nasdaq National Market System, was approximately
$113,283,672. Shares of Common Stock held by each officer and director and by
each person who owns 5 percent or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes. As of June 1, 1999, the Registrant had outstanding 20,365,604 shares
of Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on August 18, 1999 are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                              FORTE SOFTWARE, INC.
                            1999 REPORT ON FORM 10-K
                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                     <C>
PART I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of
  Operations

Item 8. Financial Statements and Supplementary Data

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
  Disclosure

PART III

Item 10. Directors and Executive Officers of Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

Signatures
</TABLE>

                                       2
<PAGE>
                                     PART I

    THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WHICH
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVES," "EXPECTS,"
"INTENDS," "FUTURE," AND OTHER SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "BUSINESS RISKS" BELOW AND IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE ANTICIPATED.

ITEM 1. BUSINESS

INTRODUCTION

    Forte Software, Inc. ("Forte" or the "Company") develops and markets an
industry leading family of application integration and development products for
enterprise computing. Forte's products simplify the creation and delivery of
scalable production systems for Internet environments. Unlike traditional
integration tools with weak development capabilities, and unlike traditional
development tools with weak integration capabilities, Forte provides a robust
integration suite and expects to release its new Java development suite in the
Fall of calendar year 1999. Because they are based on industry integration and
development standards, these product families can be used in conjunction with
each other or separately with third-party products.

    Forte products are designed to enable organizations to create applications
with powerful functionality that support up to hundreds or thousands of
concurrent users with high levels of reliability, performance and manageability.
Forte reduces complexity for developers by providing automatic application
partitioning, object-oriented, component-based development and independence from
specific hardware platforms, operating systems and databases. Forte's multi-tier
architecture increases developer productivity, business flexibility and the
efficient use of computing resources. Forte allows organizations to use
information technology ("IT") more strategically and improve their ability to
compete in today's business environment.

    Forte is a pioneer in advanced development and integration software for all
classes of enterprise applications. IT organizations, systems integrators and
independent software vendors use the Forte product family as their application
and integration environment to more efficiently build, integrate, deploy and
manage powerful business solutions that run on the Internet and enterprise
networks.

    Forte products are marketed and sold worldwide through the Company's direct
sales force, distributors, system integrators and value-added resellers in all
major markets. Forte has been adopted by customers in a wide variety of
industries, including banking, consumer/retail, education, energy, finance,
government, healthcare/pharmaceuticals, insurance, manufacturing, media,
technology and telecommunications.

INDUSTRY BACKGROUND

BUSINESS NEED FOR MORE POWERFUL APPLICATIONS

    In today's increasingly competitive global markets, businesses must rapidly
and continuously improve their operations. The strategic use of information
technology is often critical to making such improvements. Information systems
that automate simple tasks are no longer sufficient, as business entities are
demanding applications with increased levels of functionality to automate
complete business processes spanning across entire enterprises.

    The growing demand for more powerful, flexible and useable computer
applications presents major challenges to corporate IT organizations. These
organizations have historically not been able to keep up with the demand for
computer applications, and for the past several years they have been asked to
provide applications that are more powerful, easier to implement and use, and
more readily adaptable to rapidly changing business requirements. These
challenges have grown more complex recently with increased

                                       3
<PAGE>
corporate use of the Internet for many basic business functions. To meet these
challenges, new application development and integration techniques are required.

NEED FOR DISTRIBUTED COMPUTING

    While demand for more powerful applications has continued to grow, a shift
in computing architectures has continued at the same time, with the
proliferation of the Internet, the growth of the relational database management
system ("RDBMS") market, and the demand by end users and customers for more
responsive information systems with access to enterprise-wide data and
applications. Many organizations began by shifting from mainframe or other
host-based environments to a two-tier model of computing. Traditionally, most
organizations have processed their business critical applications in mainframe
or other host-based computing environments. These environments offer high levels
of reliability, centralized management and control, and scaleability for large
numbers of concurrent users running transaction-intensive applications. However,
mainframe and other host-based systems are inflexible, require lengthy
development and maintenance cycles, and are closely linked with rigid,
character-based user interfaces. Partially as a result of these limitations, new
application development shifted to the Internet and client/ server environments.

    The growth of the Internet as a means of delivering information and
conducting business has begun to heavily influence computing architectures. The
Internet has validated the multi-tier distributed computing model of desktop
applications communicating with application servers that talk with databases.
The PC, as the client, provides an easy-to-use interface that can include the
Internet or an intranet, and the RDBMS, as a database server, provides simple
and flexible information storage. Today, organizations want to combine the
usability and flexibility of the client/server and the Internet with the
robustness of the mainframe model to create a new generation of distributed,
component-based applications.

CHALLENGES OF IMPLEMENTING DISTRIBUTED APPLICATIONS

    Many organizations that have attempted to build distributed applications
have concluded that most client/server tools do not provide sufficient
performance and manageability for business critical applications with large
numbers of concurrent users or high transaction volumes, and are not suitable
for Internet use. Performance and manageability are limited because all the
application logic resides on the client. Performance is compromised because this
architecture requires large amounts of data to be sent over the network from the
server to the client for such business needs as investment portfolio analysis or
complex order processing. A more efficient approach would be to perform the
analysis on the server where the data is located so that only the results of the
analysis would be sent over the network. Manageability is limited because
application updates need to be deployed on each client PC rather than on a
single server.

    To overcome these and other limitations, many organizations have sought to
augment these tools with complex server programming in C or C++ and stored
procedures in relational databases, along with the integration of transaction
processing monitors or other "middleware" to connect the clients and servers.
Some users seeking robust, scaleable Internet applications have also utilized
newer Web-based tools and application servers with such server programming and
middleware. Such approaches introduce substantial complexity and require
technical expertise in a myriad of hardware, software, database, networking and
other technologies. Even where such expertise does exist in-house, or where it
can be obtained through a system integrator, the complexity, cost and effort of
building and maintaining applications with several different tools is often
prohibitive.

MARKET OPPORTUNITY

    The Company believes that (1) a comprehensive, integration and distributed
application development, deployment and management environment is required for
the widespread adoption of the distributed

                                       4
<PAGE>
computing model, and (2) in particular, such an environment is required to
simplify the development and deployment of robust, scaleable Internet
applications. To be successful, such an environment must:

    - Reduce complexity--Allow programmers to focus on the business rules rather
      than the complex technical details involved in building and maintaining
      distributed applications.

    - Enable advanced applications--Enable programmers to rapidly create,
      integrate and easily modify applications with more powerful functionality
      to meet more demanding business requirements.

    - Provide distributed application support--Enable high levels of
      reliability, performance and manageability for deployed Internet and
      non-Internet applications.

THE FORTE SOLUTION

    The Company was founded with the belief that the implementation of
distributed applications requires dramatically different approaches from those
offered by previously available technologies. As a result, the Company designed
and developed Forte, an application development, deployment and management
environment that enables organizations to effectively create distributed
applications. Applications built with Forte can provide new and advanced
functionality to enable a more competitive use of information technology, can be
easily modified as business requirements or the technical infrastructure evolve,
and can provide the high levels of reliability, performance and manageability
required for distributed applications. Forte offers the following features and
benefits:

REDUCED COMPLEXITY

    APPLICATION PARTITIONING.  With Forte, programmers develop an application as
if it were to run on a single system even though it may be deployed on multiple
hardware platforms, operating systems, RDBMSs and networks. Following
development, Forte automatically PARTITIONS, or splits apart, the application,
placing the appropriate application logic on the appropriate system. By using
application partitioning to automate the distribution of application logic,
Forte significantly reduces the complexity of creating distributed applications.

    By correctly partitioning an application, Forte can substantially reduce
network traffic, enabling applications to run faster and scale better.
Partitioning also improves the management of applications because business rules
can be enforced centrally on a server rather than on each user's desktop
computer. This allows organizations to update business rules in one place,
simplifying change management and ensuring consistency.

    TECHNOLOGY INDEPENDENCE.  Forte allows organizations to develop applications
that are independent of specific hardware, software, networking and other system
components. Decisions regarding the selection of such components do not have to
be finalized until deployment. Technology independence also allows customers to
add or replace hardware or software to take advantage of emerging technologies
without having to rewrite their applications. To enable these capabilities,
Forte supports popular hardware platforms, operating systems, RDBMSs, networking
equipment and other connectivity software.

    OBJECT-ORIENTED DEVELOPMENT.  Forte's fully object-oriented development
environment makes it easier to model the business, simplifies ongoing
application maintenance and allows organizations to reuse application functions.
With Forte, developers build high-level objects, commonly referred to as
application services, that represent business processes such as a credit check
function. This close mapping between the business and the application
architecture enables IT personnel to more easily design, maintain and reuse
application services. Forte's easy to learn development language allows
programmers to focus on the business logic rather than complex technical
details.

    JAVA DEVELOPMENT.  In May 1999, Forte announced SynerJ, its new Java
Application Environment, which the Company anticipates shipping in the Fall of
calendar year 1999. SynerJ is a highly modular suite

                                       5
<PAGE>
of development, deployment and optimization tools for creating and running pure
Java applications. This second-generation Java environment makes
enterprise-scale projects easy to develop, deploy and upgrade.

    APPLICATION INTEGRATION.  The majority of application development also
requires a high degree of integration with custom, legacy and package
applications. In March 1999, Forte shipped the full production release of its
fusion product family. Fusion enables complex business processes to run across
applications that have been designed with no knowledge of each other.

ADVANCED APPLICATIONS

    MULTI-TIER DISTRIBUTED ARCHITECTURE.  Forte enables advanced applications to
be built as a set of components. Small development teams can be assigned to
develop each component, and the Forte environment enables the components to work
together in a multi-tier architecture. Client components request actions from
application services that, in turn, access one or more data sources. Shared
application services are installed on one or more servers so they can be
accessed simultaneously by multiple users. Once a shared service is developed
and deployed, it can be reused in different applications. Shared application
services enhance developer productivity through reuse, ease of maintenance
provided by the modular architecture and increased consistency created by
providing the same view of the business to multiple applications.

    BUSINESS EVENT NOTIFICATION.  Forte incorporates an event model by which any
component of an application can notify any other component of significant
business occurrences that might call for immediate action by users and/or
application services. By immediately and automatically responding to important
events, businesses can rapidly resolve problems or take advantage of new
opportunities.

DISTRIBUTED APPLICATION SUPPORT FOR INTERNET AND NON-INTERNET APPLICATIONS

    PERFORMANCE.  Forte achieves high levels of performance for large numbers of
concurrent users. In addition to application partitioning, which reduces network
traffic, Forte employs various other techniques to improve performance, such as
multi-threading server requests to increase server throughput, compiling code to
improve server response time, caching system information to reduce network
traffic and replicating application services to handle a greater load.

    RELIABILITY.  Forte employs a number of technologies to provide high levels
of reliability and eliminate single points of failure. For example, if a server
or network fails, backup servers can be specified to automatically assume the
workload. In addition, Forte incorporates transaction support to provide
application consistency in case a transaction is aborted.

    MANAGEABILITY.  Forte incorporates many management capabilities for the
deployment of distributed applications. Forte provides a performance monitor to
report on key performance statistics, a configuration manager to insure that all
the distributed components of an application are at a compatible level, an
environment console to manage the environment and an interface to third-party
systems management tools such as the Tivoli Management Environment. These
management capabilities are critical to the successful implementation of
distributed applications.

STRATEGY

    The Company has recently announced two major strategic initiatives and
expects that both will merge in the future as development and integration
requirements converge.

    ENTERPRISE JAVA BUSINESS UNIT.  Formation of an Enterprise Java Business
Unit is intended to focus on capturing new business opportunities for Forte's
Java-based products. These products are currently in the beta-testing phase.
This business unit utilizes dedicated engineering, consulting, marketing and
sales

                                       6
<PAGE>
personnel, chartered to develop partnerships and expand the customer base for
Forte's Java-based products.

    ENTERPRISE APPLICATION INTEGRATION BUSINESS UNIT.  The Company's Enterprise
Application Integration ("EAI") Business Unit was created with the purpose of
developing products that will enable customers to integrate their current
applications. Integration will serve as a basis for reaching new classes of
customers using web-enabled systems needed to meet their challenging and
evolving business requirements. The Company's robust server architecture,
numerous open interfaces and business process automation capabilities provide a
strong technology base upon which to add the required adapters to successfully
integrate application packages.

    The Company's strategies continue to incorporate the following key elements:

    EXPAND GLOBAL SALES CAPABILITIES.  The Company intends to expand its global
sales capabilities by increasing the direct sales organization in major markets
and continuing to leverage distributors in other selected markets. The Company
has direct operations in Australia, Belgium, Canada, France, Germany, Holland,
Switzerland, the United Kingdom and the U.S.

    LEVERAGE THIRD-PARTY RELATIONSHIPS.  The Company continues to promote the
widespread adoption of Forte products through the establishment of close
relationships with systems integrators, value-added resellers, and development
partners. An increasing share of Forte's customers and prospects enlist the
assistance of these partners in implementing distributed applications. To date,
the Company has established and actively maintains many relationships with such
third parties and intends to establish additional relationships. The Company has
established a Partner Group within its sales organization dedicated to this
objective.

    PROMOTE SUCCESSFUL CUSTOMER IMPLEMENTATION.  The Company's success is
dependent upon its customers' successful implementation and integration of
distributed applications using Forte products. As a result, the Company actively
advises on customer development, integration and deployment efforts. The Company
assigns an account management team, provides extensive introductory and advanced
training courses, offers advanced consulting services and provides extensive
post-sale support to customer accounts.

    EXTEND TECHNOLOGICAL LEADERSHIP.  The Company pioneered the use of
application partitioning and shared application services for multi-tier,
distributed applications. The Company has extended this technology, along with
business process integration capabilities, to the Internet in order to support
browser-based access to mission-critical business functions. The Company has
committed substantial resources to extend its technology in the areas of open
language support, open component support and open communications.

THE FOREGOING STATEMENTS REGARDING THE COMPANY'S STRATEGY, EXPECTATIONS AND
INTENTIONS ARE FORWARD-LOOKING STATEMENTS, AND ACTUAL RESULTS MAY VARY
SUBSTANTIALLY DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THE DEVELOPMENT OF
EMERGING MARKETS FOR DISTRIBUTED APPLICATION DEVELOPMENT SOFTWARE, COMPETITION,
TECHNOLOGICAL CHANGE, CHANGING CUSTOMER NEEDS, EVOLVING INDUSTRY STANDARDS, ANY
PRODUCT DEVELOPMENT DELAYS, AND THE ABILITY OF THE COMPANY TO MANAGE ANY FUTURE
GROWTH AND NEW DISTRIBUTION CHANNELS. THERE CAN BE NO ASSURANCE THAT ANY NEW
PRODUCTS WILL BE COMPLETED IN A TIMELY BASIS OR THAT MARKETS WILL DEVELOP FOR
SUCH PRODUCTS. SEE THE "BUSINESS RISKS" SECTION BELOW.

PRODUCTS

    Forte is a collection of products used for the integration, development,
deployment and management of Internet and distributed applications. The Company
licenses its software for integration, development and deployment. Development
license fees are based upon the number of developers and the complexity of the
development environment. Deployment and integration licenses are based upon the
number of concurrent users, and the size and number of servers that will be
running Forte components.

                                       7
<PAGE>
FORTE APPLICATION ENVIRONMENT

    The Forte Application Environment is comprised of three separate facilities
for application definition, system generation, and deployment.

    Developers define the application's functionality using an integrated set of
object-oriented software tools including a graphical user interface ("GUI")
designer, an object-oriented fourth generation language ("4GL"), a comprehensive
set of class libraries, a repository to support team development, and interfaces
with external systems such as legacy applications and electronic data feeds.

    For system generation, Forte partitions the application into a specific
deployment environment. Forte provides a tool for defining the hardware in the
environment. Using this environment information, Forte automatically maps the
application to a specific set of hardware platforms, automatically deploys the
code to these platforms and establishes efficient communications among the Forte
components.

    For deployment, Forte supports a robust distributed execution environment,
including a scaleable communications infrastructure, fail-over, load balancing,
parallel processing, and an application management console for managing the
deployed application.

    On the desktop, Forte supports Windows, Windows NT, Macintosh, Motif,
Netscape Navigator and Microsoft Explorer. Forte supports the leading open
systems server platforms including Digital Alpha Open VMS and UNIX, Digital VAX
Open VMS, HP 9000, IBM RS/6000, Sequent, Sun Solaris, and Windows NT. Forte also
supports the leading RDBMSs including DB2/6000, Amdahl, Hitachi, IBM, Informix,
Ingres, Microsoft SQL Server, Oracle, Rdb and Sybase as well as the Microsoft
ODBC interface.

FORTE EXPRESS

    In March 1996, the Company began shipping Forte Express, an optional
application generator designed for use with the Forte Application Environment.
Forte Express can significantly reduce development time by automatically
generating a three-tier application. Forte Express developers use simple models
and a drag-and-drop development style to create client user interface components
that are portable across multiple platforms, a framework for implementing
business policies as shared Forte services and database access. The default user
interface window definitions generated by Forte Express include window layouts,
menus and buttons and can be later modified in Forte. Any customizations are
preserved if the application is later modified in Forte Express.

FORTE WEBENTERPRISE

    In June 1996, the Company shipped the Forte Web SDK, and in December 1997
the Company began shipping the follow-on product, Forte WebEnterprise, which
enables World Wide Web ("Web") access to the Forte Application Environment.
Forte WebEnterprise enables Web browsers to function as Forte clients with full
access to the Forte Application Environment. Forte WebEnterprise provides
organizations with the facilities they need to rapidly deploy Web-accessible,
business-critical applications, such as order processing, without duplicating
existing systems. The product supports major Internet standards including IIOP,
Java, HTTP, CGI, NSAPI, and ISAPI, across multiple operating systems, platforms
and databases.

FORTE WEBENTERPRISE DESIGNER

    Forte WebEnterprise Designer is a graphical, wizard-based Internet
application generator. WebEnterprise Designer rapidly generates Web applications
that incorporate good application design principles and coding standards without
sacrificing scalability and reliability. The resulting application can be
deployed from the workgroup to the enterprise with no code changes.

                                       8
<PAGE>
FORTE CONDUCTOR

    In September 1997, the Company began shipping Forte Conductor, an
environment for integrating mission-critical business processes. With Forte
Conductor, developers use an intuitive graphical process designer to define
business processes which, in turn, are managed at runtime by a distributed,
fault-tolerant process integration engine. Forte Conductor also provides an easy
way to track and analyze the status of work in progress. Forte Conductor can be
used with the Forte Application Environment and/or non-Forte applications.

    Forte Conductor deployment licenses are based on the number of deployment
sessions, and the number of engines that will be running Forte Conductor
components. A Forte core system, with a U.S. list price of $75,000, includes
five developer licenses for the Forte Application Environment, Forte Express,
Forte WebEnterprise and Forte WebEnterprise Designer, unlimited RDBMS Adapter
(excluding OS/390 databases), two server environment (excluding OS/390), one
multi-user repository server, and one hardcopy and CD-ROM complete documentation
set. A Forte Conductor core system, when purchased with Forte, carries a U.S.
list price of $50,000 and includes five developers, three additional designated
developer licenses, unlimited Conductor development servers and a development
engine. A typical initial direct sale to an end-user customer ranges from
$200,000 to $300,000. This includes separate pricing for development and initial
deployment licenses, maintenance, training and consulting services.

FORTE APPLICATION SERVER FOR OS/390

    This product set includes the Forte Application Server for OS/390, the Forte
Adapter for DB2 for OS/390 and the Forte Transaction Adapter for OS/390.

    The Forte Application Server for OS/390 provides a robust environment for
deploying scalable platform-independent distributed computing applications. It
extends the deployment strengths of the Forte Application Environment to the
OS/390 platform and allows organizations to rapidly deploy Forte component-based
applications to enterprise server platforms.

    The Forte Adapter for DB2 provides high-speed access to DB2 for OS/390
without the necessity for gateway products or additional technology. It enables
customers to integrate legacy data stored in DB2 for OS/390 into Internet and
distributed applications. The Company began shipments of this product in its
quarter ending June 30, 1999.

    The Forte Transaction Adapter for OS/390 provides integration with CICS, IMS
and other OS/390 systems and applications. The Transaction Adapter enables
customers to integrate traditional mainframe on-line transaction processes and
batch applications into a distributed computing architecture and to leverage
these applications for use within an Enterprise Application Integration
strategy.

FORTE SYNERJ PRODUCT SUITE

    In May 1999, Forte announced SynerJ, its new Java Application Environment.
The Company anticipates shipments of SynerJ in the Fall of calendar year 1999.
The suite of three products, currently in beta testing, is one of the first that
enables corporations to create, deploy and manage truly reliable and scalable
enterprise applications based on Java Software's new Java2 Platform Enterprise
Edition, including the latest versions of the Enterprise JavaBean ("EJB") and
Java Server Page specifications. SynerJ is able to interchange standard Java
source and binary components with popular Java Integrated Development
Environments and EJB servers and is designed to integrate directly with external
components, as well as with Forte Fusion, Forte's EAI product suite (see below).
SynerJ is a highly modular suite of development, deployment and optimization
tools for creating and running pure Java applications that run on standard Java
Virtual Machines ("JVM's") with no proprietary runtime environment. This
second-generation Java environment makes enterprise-scale projects easy to
develop, deploy and upgrade.

                                       9
<PAGE>
    SynerJ Developer is a stand-alone IDE for creating Java applications. This
product allows import and export of code and components with other Java
development environments and features a cross-reference browser, the ability to
test run an application in distributed mode, and a distributed debugger.

    SynerJ Server is a stand-alone EJB deployment environment for Java code and
EJB's with any Java IDE. It supports all Java2-compliant JVM's, and is itself
written in pure Java. The SynerJ Server achieves very high performance by
harnessing several JVM's as a unified processing resource, all controlled by a
centralized management facility. It provides load balancing and failover for
demanding enterprise-level applications, along with the ability to dynamically
monitor running applications in either test or production environments.

    SynerJ Deployer provides unique flexibility for mapping distributed Java and
EJB applications into evolving heterogeneous environments. This latest update to
Forte's patented partitioning system uses properties set on each component to
generate fully working applications optimized for each target environment. The
system also manages component configurations and automates software distribution
for Java and CORBA applications.

FORTE FUSION EAI PRODUCT SUITE

    In March 1999, Forte began shipping its EAI Product Suite, Forte Fusion.
Forte Fusion for EAI enables organizations to integrate and extend application
packages, legacy systems and custom components in a standards-based environment.
Forte Fusion greatly simplifies application integration by separating business
process integration logic (process flow) from integration logic (data conversion
and application interfacing). The benefit of this approach is that it allows
business processes to be defined and changed at a business level without
affecting the applications. Conversely, changes to the portfolio of applications
and components are dealt with by an XML-based integration layer and do not
affect the business process model. Forte's business process integration solution
supports multiple communication standards, while its integration capabilities
are built upon a standards-based XML foundation. The result is a powerful,
flexible architecture for rapidly integrating, extending and exploiting a
changing application.

    The Forte Fusion product line includes the following products.

    Forte Conductor is the first open business process integration environment
for mission-critical applications. Conductor, which is at the heart of Forte
Fusion, isolates application logic from process logic, collects real-time data
for use in analysis, and ensures the integrity of business process execution.
Business processes are graphically defined and are managed at runtime by a
distributed, fault-tolerant process integration engine. With a broad array of
open interfaces, Conductor easily integrates existing applications via industry
standard protocols, including XML. Conductor-managed business processes can
subsequently be expanded to include new business modules created with any
development tool.

    Forte Fusion Backbone provides an XML-based integration infrastructure to
simplify the creation, maintenance and management of an integration solution.
The unique benefit of the Forte Fusion Backbone is that it provides a distinct
abstraction layer for integration logic, sitting between the process logic in
Conductor and the various applications and components that the process spans.
This allows the business processes to be defined and changed at the business
level without impacting the applications. Conversely, changes to the portfolio
of applications and components are dealt with by the integration layer and do
not affect the business process model.

    Forte Package Adapter Series is a set of sophisticated pre-built adapters
for leading application packages, currently including SAP and Vantive.
Additional adapters for Siebel, Baan and S.W.I.F.T. are being developed. The
Forte Adapter Construction Tools support the creation and configuration of
adapters for any package, custom or legacy application across a heterogeneous
environment. All Forte adapter technology is based on the use of XML data
formats, which is rapidly emerging as the preferred

                                       10
<PAGE>
standard for sharing structured data across heterogeneous systems and for
defining common business object representations within vertical application
areas.

    DATA INTEGRATION AND MESSAGING.  Forte provides built-in messaging and
integration capabilities for a wide range of middleware, ORB's TP monitors,
databases and languages. These offerings are supplemented by Forte's support for
third-party data integration and message transport technologies, such as New Era
of Networks, Inc. ("NEON"), IONA Technologies, TIBCO and IBM MQSeries, enabling
Forte Fusion to support the widest range of integration requirements.

TECHNOLOGY

APPLICATION PARTITIONING.

    In order to partition an application, Forte analyzes the application
definition that is stored in the development repository and maps it into a
specific target deployment environment using a description of each machine that
is also stored in the repository. The partitioning process involves splitting
apart the application and targeting the presentation components for the
available clients and shared business logic for the available servers.
Application components that access an external resource, such as an RDBMS, are
placed on the machine where the external resource resides. The partitioning
process also involves converting the environment-neutral definition of each
component into an environment-specific implementation. This produces GUI/browser
screens for each desktop machine by using that client's native toolkit and
converts RDBMS-neutral database access commands into efficient instructions for
accessing a specific target RDBMS. Once a partitioning scheme is selected, Forte
moves the application components from the repository to the appropriate machines
in the environment. This distribution of application code is done at the 4GL
level (often called dynamic partitioning), allowing developers to easily test
the application after it has been partitioned, while still providing the option
to subsequently generate C++ code that can be compiled into machine code (often
called static partitioning) for optimizing deployment performance. Forte also
enables developers to easily modify the default partitioning scheme using simple
drag-and-drop commands on a map that displays the components comprising each
partition and the location of each partition.

SHARED APPLICATION SERVICES

    Two enabling technologies permit a single copy of an application service to
be simultaneously accessible by multiple clients in a multi-tier application
architecture. First, Forte multi-threads connections by multiple users, queues
requests and efficiently manages the processing of the queue. Second, Forte
provides concurrency control to keep users from interfering with each other's
work. In addition, Forte assists with managing the shared application services
by providing configuration management, system monitoring and operational
controls.

BUSINESS EVENT NOTIFICATION

    Forte uses asynchronous events to notify an application component of
significant business occurrences that might call for immediate action by users
and/or application services. Forte supports a publish-and-subscribe event model.
When a Forte application component is interested in a particular event, it
registers its interest with a simple statement. When the event occurs, Forte
automatically sends a notification of the event to all components that have
registered an interest in that event. This event model obviates the need for
polling and, in contrast to the broadcast event model, it only sends the event
notification to those components that are interested in processing the event,
thereby reducing network traffic. Forte's asynchronous communication support
includes a multi-threading model to enable Forte application components to
process the arrival of an event even if it is processing another application
task at the time.

                                       11
<PAGE>
INTEGRATION

    For desktop integration, Forte users can leverage work in other personal
productivity applications by using Microsoft Active X/DCOM to both import and
export information. For example, users can enter data in a Forte application and
have it automatically update a spreadsheet. Forte offers integration options via
Java Beans or CORBA/IIOP whereby external clients and servers can interoperate
with Forte services. Forte can both call external programs and be called by
external programs. Forte also provides several options for integrating with
mainframes using third-party tools. In addition to these automated interfaces,
Forte facilitates external integration through a general purpose wrappering
facility. This can be used to encapsulate an external service, such as a
real-time data feed or an existing application, and treat it as a Forte
component. These capabilities allow organizations to assemble new applications
from existing Forte and non-Forte components, thereby leveraging other IT
investments.

REPLICATION

    For increased reliability and performance, Forte can replicate application
services onto multiple servers and use them for either fail-over or
load-balancing. In fail-over mode, Forte will automatically redirect requests to
the backup server whenever the primary application service is unavailable. In
load-balancing mode, Forte can allocate service requests across multiple copies
of an application service as a way to increase scaleability.

SUPPORT FOR TRANSACTIONS

    Forte incorporates transaction support within the application. This can be
used to automate the synchronization of the client component, the application
service components and the data management component of an application. By
automating transaction consistency across all components of a multi-tier
application, Forte simplifies the work of developers and provides for greater
reliability of the application.

RAPID APPLICATION DEVELOPMENT AND OPTIONAL CODE GENERATION

    By separating the development process from deployment, Forte can support
both rapid application development ("RAD") via an interpretive development
environment and optimal deployment performance via the generation of C++ code,
which is compiled into machine code. During development, Forte supports an
interpretive environment in which the Forte 4GL source code is compiled into an
intermediate pseudo-code that runs with the Forte interpreter. This approach is
similar to most RAD tools that allow developers to rapidly test and view code
without having to go through a lengthy compile and link cycle. When Forte
partitions the application, it partitions at the pseudo-code level, thereby
allowing the developer to test the distributed application quickly. If the
application needs to be repartitioned frequently, it can be deployed using the
pseudo-code. For deployments that call for maximum runtime performance, Forte
generates C++ code that is subsequently compiled using the native C++ compiler
on each target computer. This option is available on a partition by partition
basis.

CUSTOMERS

    The Company's targeted end-user customers include organizations that utilize
sophisticated, distributed information systems with numerous users and diverse,
heterogeneous operating systems and databases. As of March 31, 1999, over 400
end-user customers have licensed Forte, including American Airlines, Andersen
Windows, Bank of America, Bank of Montreal, Barclays, The Boeing Co., Blue Cross
Blue Shield of Texas, British Telecom, British Steel, Carlson Travel, Colombian
Stock Exchange, Corning, EDS, Eli Lilly, The GAP, General Motors Acceptance
Corp., Goodyear, Hewlett-Packard Company, Home Box Office, Kawasaki Steel,
Lockheed Martin, The London Transport, Long's Drug Stores, Inc., Lufthansa
Systems, Marriott International, MCI WorldCom, Mitsui Trust Bank, Merrill Lynch
Canada, Montreal Exchange, Nippon Telegraph & Telephone, Online Resources &
Communications, Pacific Bell

                                       12
<PAGE>
Information Services, Pacific Gas & Electric Company, Paging Network, Philip
Morris, Purolator, Reuters, Saskatchewan Telephone, Save Smart Inc., SNS Reaal
Group, Sun Life of Canada, Telecom Italia Mobile, Thomas Cook, TransCanada
Pipelines, USAA, U.S. West Communications, Viking Freight, World Bank and Xerox.

    No customer accounted for more than ten percent of the Company's total
revenues for the fiscal years ended March 31, 1998 or 1999. However, revenues
from U.S. West Communications, Inc. accounted for approximately 12 percent of
total revenue in fiscal year 1997.

SALES AND MARKETING

    Forte markets its software and services through its direct sales
organization, complimented by third-party sales and referral channels including
international distributors, system integrators and value added resellers.

    DIRECT SALES.  As of March 31, 1999, the Company's direct sales force
included 37 sales representatives located throughout the United States and in
international sales offices in Australia, Belgium, Canada, France, Germany,
Holland, Switzerland, and the United Kingdom.

    The Company uses a consultative sales model for selling to major accounts.
This model entails the collaboration of technical and sales personnel to
formulate proposals that address the specific requirements of the customer. Due
to the importance of business-critical distributed applications, the Company
focuses its initial sales efforts on senior IT department personnel and other
members of the customer's management team.

    THIRD-PARTY CHANNELS. A key element in Forte's sales and marketing strategy
is the continued expansion of third-party relationships to increase market
awareness and acceptance of Forte. The goal is to deliver complete customer
solutions; therefore, Forte partners with industry-leading companies.

    Delivering complete customer solutions requires a broad range of
capabilities. Forte's partners help satisfy these needs by providing territorial
sales focus, on-going development of Forte products, integration with
complementary products, availability of pre-packaged vertical solutions or
pre-built pieces of code, or additional Forte-knowledgeable resources.

    DISTRIBUTORS.  As of March 31, 1999, the Company was also represented by 20
international distributors (covering 22 countries), which principally operate in
markets where the Company does not have a direct sales organization. The Company
has also licensed Compaq and Mitsubishi to resell Forte products on a worldwide
basis.

    VALUE-ADDED RESELLERS.  Value-Added Resellers leverage Forte technology by
delivering packaged business applications usually targeted at vertical markets.
These packaged solutions are a good fit for customers looking for robust,
function-rich systems who do not want to develop the entire systems themselves.
Customers are able to enjoy the benefits of Forte's technology and have an
off-the-shelf solution at the same time.

    Forte's products have several advantages as a solution for value-added
resellers. These advantages allow resellers to focus on the business
functionality and needs of the vertical market they want to address, regardless
of the technical issues associated with building their application for a variety
of different systems. Forte's platform and technology independence lets the
customer choose vertical applications which best fit their needs instead of
choosing applications because they can run in their existing IS infrastructure.
A larger potential customer base is available to resellers for this same reason.

                                       13
<PAGE>
    As of March 31, 1999, the Company has licensed Forte to over 100 value-added
resellers, including Albion International, Asyst Software, Bellcore, Chordiant
Software, Descartes Systems, EXE Technologies, Home Account Network, IONA
Technologies, Metrix, New Era of Networks, Inc., Pan Credit and Security First.

    SYSTEMS INTEGRATORS AND CONSULTANTS.  Participants in the Company's
Consulting Partner program represent a ready pool of trained and experienced
Forte systems integrators, developers and consultants. These companies deliver a
broad range of services to Forte customers, including development and
implementation of custom Forte-based applications, and delivery of turnkey
integrated systems. The Company believes that a growing share of the Company's
target market relies on systems integrators for the design, development and
implementation of enterprise and departmental IS initiatives. The Company's
consultants often advise these partners at the customer sites on how to best
design and build Forte applications. The resulting applications satisfy each
customer's unique business requirements.

    As of March 31, 1999, the Company had enlisted over 100 Consulting Partners,
including Andersen Consulting, CACI Technologies, CSC, Compaq (formerly
Digital), EDS, Goldstone Softech, IBM, KPMG Peat Marwick, Lockheed/Martin IMS,
PricewaterhouseCoopers, SAIC, and Siemens.

TECHNOLOGY PARTNERS

    DEVELOPMENT PARTNERS.  Several leading multi-national companies have worked
closely with Forte to help develop and extend the Company's technology. Apple
Computer Systems, Inc., Data General Corp., Digital Equipment Corp., IBM Corp.,
Mitsubishi, and Sequent Computer Systems, Inc. have all sponsored major joint
engineering activities with Forte.

    The Company has a license and development agreement with Compaq, under which
Compaq is granted a worldwide, non-exclusive, royalty-bearing license to
distribute Forte products, to modify and integrate Forte products into Compaq
products, and to use Forte source code for development, maintenance and support.

    The Company also has a license and development agreement with Sirius Inc., a
wholly-owned subsidiary of the Mitsubishi Corporation ("Sirius"), under which
Sirius serves as the exclusive Japan-based distributor of Forte products solely
within Japan and is granted the right to use Forte source code to develop and
maintain a Japanese version of Forte products.

    In May 1997, the Company entered into an agreement with IBM for assistance
in the development of Forte for OS/390, an extension of the Forte Application
Environment to the mainframe. This product enables customers to deploy Forte
applications on IBM OS/390 servers and integrate such applications with existing
S/390 data and resources.

    INTEGRATION WITH COMPLIMENTARY TECHNOLOGIES.  Forte has also forged strong
relationships with industry-leading companies whose products complement the
Forte product set. These relationships further simplify the complexities of
distributed application development and integration. These partners help
implement Forte's vision of open integration by allowing customers to choose
products which best fit their particular needs.

    This array of complementary products provide new, unique functionality as
well as capabilities which supplement and deepen features already in the Forte
product set. Through these relationships, Forte customers have a wide range of
choices of databases, object oriented CASE tools, middleware, report writers,
security tools, system management tools, and testing tools.

    COMPONENT PROVIDERS.  Component Providers use Forte to deliver pre-built
pieces of applications. The use of components for application development is
growing rapidly since purchasing components can be an easier and less expensive
solution than building them from scratch. While not complete systems, these
pre-built subassemblies help speed the development process for Forte customers
since developers do

                                       14
<PAGE>
not have to start from scratch. These robust components, which are easily built
in Forte or other tools, are then integrated into Forte applications.

CUSTOMER SERVICE AND SUPPORT

    The Company believes that a high level of customer support is important to
the successful marketing and sale of its products. Substantially all of the
Company's customers purchase maintenance and support contracts, which typically
have twelve-month terms and entitle the customers to upgrades, if and when
available, and technical support. In addition, the Company offers introductory
and advanced classes and training programs available at the Company's
headquarters, local training centers and customer sites. Telephone hotline
support is complemented by a bulletin board system that provides a repository
for technical tips and skills. Users of Forte products can also attend an annual
user group conference where knowledge of Forte skills and solutions is
exchanged.

    The Company's consulting organization provides a full range of consulting
services to customers integrating, developing and deploying distributed
applications with Forte products. Such consulting services are offered to
promote the successful integration, development and deployment of applications
built with Forte products, and include prototyping assistance, mentoring and
technology transfer, Forte methods, analysis and design assistance and
performance tuning. Fees charged for consulting services vary depending on the
nature and quantity of services to be performed. Multi-day consulting workshops
are also offered on selected topics of key interest to customers. The Company
believes that the availability of effective consulting services is an important
factor in achieving widespread market acceptance.

PRODUCT DEVELOPMENT

    The Company believes that its future success will depend in large part on
its ability to enhance existing products, develop new products, maintain
technological leadership and satisfy an evolving range of customer requirements
for a distributed application environment. The Company's product development
organization is responsible for product architecture, core technology and
functionality, product testing, user interface development and expanding the
ability of Forte to operate with the leading hardware platforms, operating
systems, relational database management systems and networking and communication
protocols. This organization is also responsible for new product development.

    Since inception, the Company has made substantial investments in product
development and related activities. Forte has been developed primarily by the
Company's internal development staff and, in some instances, with the assistance
of external consultants. Certain technologies have been acquired, the costs of
which have been capitalized in some instances, and integrated into Forte through
licensing arrangements.

    As of March 31, 1999, the Company's product development organization
consisted of 96 employees. In the fiscal years ended March 31, 1999, 1998, and
1997, product development expenses were $17.7 million, $15.0 million and $10.6
million, respectively. To date, the Company has not capitalized any internally
derived software development costs and does not anticipate capitalizing any such
software development costs in connection with future releases of Forte or other
products. See Note 1 of Notes to Consolidated Financial Statements.

    The Company expects to continue to devote substantial resources to its
product development activities, with particular focus in the areas of open
language support, open component support and open communications. The Company
also plans continued support of existing and emerging hardware platforms,
operating systems, relational database management systems and networking
communication protocols. The Company is currently pursuing a number of
development initiatives which are intended to allow integration, development and
deployment of Forte applications using HTML, Java, components, XML and the
mainframe.

                                       15
<PAGE>
    The Company entered into a joint sales and marketing, and technology
strategic alliance with New Era of Networks, Inc. ("NEON") in order to
accelerate its strategy to compete in the integration market. NEON develops and
markets a leading solution for Enterprise Application Integration. The NEON
product suite provides a comprehensive platform for EAI by integrating today's
packaged applications, legacy applications, and web-based applications on
disparate platforms and systems across the business enterprise. The parties to
the agreement agreed to develop a joint marketing and selling plan which
includes introducing each others products at various trade shows and sharing
existing customer lists.

    The Company entered into a joint marketing and technology strategic
agreement with IONA Technologies ("IONA") in order to enable new development
efforts by using industry-standard objects. IONA's leading product, Orbix,
provides customers with a standards based enterprise middleware solution to make
diverse software components work together in a reliable, dependable and scalable
manner. The Orbix product is anticipated to be embedded in the Company's SynerJ
product, which is set for a Fall of calendar year 1999 release date.
Amortization of the sublicense fee paid IONA will coincide with the general
availability of Forte's SynerJ product. Orbix is a middleware product used for
integrating applications and resources in the Windows, Unix, embedded systems
and Mainframe environments. The Object Request Broker ("ORB") is provided for
Java and C++ developers. Availability of Orbix and ORB provides Forte customers
with a standards-based enterprise middleware solution to make diverse software
components work together in a reliable, dependable and scalable manner.

COMPETITION

    The market for distributed software used in the development, deployment,
integration and management of distributed applications is intensely competitive
and characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and rapidly changing customer requirements.
Distributed applications that can be developed and deployed using the Company's
Forte environment can also be implemented by integrating a combination of
application development tools and more powerful server programming techniques
such as stored procedures in relational databases and C or C++ programming,
along with networking and database middleware to connect the various components.
As such, the Company effectively experiences its primary competition from
potential customers' decisions to pursue this type of approach as opposed to
utilizing an application environment such as Forte. As a result, the Company
must continuously educate existing and prospective customers, and third-party
systems integrators on whom prospective customers are increasingly relying for
expertise, on the advantages of the Company's products over the approach of
integrating a combination of products. There can be no assurance that these
customers, potential customers or systems integrators will perceive sufficient
value in the Company's products to justify purchasing or recommending Forte
products.

    The Company has also experienced and expects to continue to experience
increased competition from a number of vendors that market software products
specifically targeted for building distributed applications. Actual and
potential competitors include: providers of application development software,
such as Compuware/Uniface, Dynasty Technologies, Inc., IBM Corporation,
Microsoft Corporation, NAT Systems, Inc., Oracle Corporation, Sterling Software,
Inc., and the Powersoft unit of Sybase.; Web-based development tools targeting
production enterprise Internet applications; middleware companies advocating a
middleware-centric approach to building enterprise applications; developers of
packaged applications and application components, templates and frameworks; and
integration software vendors.

    Many of these competing vendors have or will have significantly greater
financial, technical, marketing and other resources than the Company, and may be
able to respond more quickly to new or emerging technologies. Also, many current
and potential competitors have greater name recognition and more extensive
customer bases that could be leveraged, thereby gaining market share to the
Company's detriment. The Company expects to face additional competition as other
established and emerging companies enter the distributed application development
market and new products and technologies are introduced. Increased competition
could result in price reductions, fewer customer orders, reduced gross

                                       16
<PAGE>
margins and loss of market share, any of which could materially and adversely
affect the Company's business, operating results and financial condition. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third-parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially and
adversely affect the Company's ability to sell additional licenses and
maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of Forte
licenses and related products and services, which could materially and adversely
affect the Company's business, operating results and financial condition. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors, and the failure to do so would have a
material adverse effect upon the Company's business, operating results and
financial condition.

    The principal competitive factors affecting the market for Forte are ease of
application development, deployment and management functionality and features,
product architecture, product performance, reliability and scaleability, product
quality, price and customer support. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able to
compete successfully against current and future competitors and the failure to
do so successfully will have a material adverse effect upon the Company's
business, operating results and financial condition.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

    The Company relies primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company currently has one issued
United States patent that expires in 2012 and corresponding patent applications
pending in Canada, Australia, Japan and several member countries within the
European Patent Organization. There can be no assurance that the Company's
patent will not be invalidated, circumvented or challenged, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications, whether or not being
currently challenged by applicable governmental patent examiners, will be issued
with the scope of the claims sought by the Company, if at all. Furthermore,
there can be no assurance that others will not develop technologies that are
similar or superior to the Company's technology or design around the patents
owned by the Company. The Company has obtained registration of the FORTE
trademark in seven countries and has trademark registration applications pending
in numerous additional countries. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition will
not independently develop similar technology. The Company has entered into
source code escrow agreements with a limited number of its customers and
resellers requiring release of source code in certain circumstances. Such
agreements generally provide that such parties will have a limited,
non-exclusive right to use such code in the event that there is a bankruptcy
proceeding by or against the Company, if the Company ceases to do business or if
the Company fails to meet its support

                                       17
<PAGE>
obligations. In addition, Compaq and Sirius each currently possesses copies of
Forte source code for certain limited purposes, subject to the terms of separate
written agreements each company has entered into with the Company. Compaq has an
option to purchase a non-exclusive, fully paid license of the Forte source code.
Compaq's option becomes exercisable if the Company is acquired and the acquiror
fails to agree to assume the Company's contractual obligations to Compaq. The
provision of source code may increase the likelihood of misappropriation by
third-parties.

    The Company is not aware that it is infringing any proprietary rights of
third-parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially and adversely affected.

    The Company relies upon certain software that it licenses from
third-parties, including software that is integrated with the Company's
internally developed software and used in Forte to perform key functions. There
can be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which would materially and adversely affect the
Company's business, operating results and financial condition.

EMPLOYEES

    As of March 31, 1999, the Company had a total of 408 employees, including 96
in product development, 39 in technical support, 229 in sales and marketing and
related customer support services and 44 in administration. Of these employees,
288 were located in the United States, 101 were located in Europe, 13 were
located in Australia and 6 were located in Canada. None of the Company's
employees are represented by a collective bargaining agreement, and the Company
has never experienced any work stoppage. The Company considers its relations
with its employees to be good.

    The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing, customer support and
product development personnel. The loss of key management or technical personnel
could adversely affect the Company. The Company believes that its future success
will depend in large part upon its ability to attract and retain highly-skilled
managerial, sales, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting and retaining qualified personnel. Competition for qualified software
development, sales and other personnel is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
In addition, the Company intends to continue to expand its international direct
sales force. There can be no assurance that the Company can retain its existing
sales personnel or that it can attract, assimilate and retain additional highly
qualified sales personnel in the future. Competitors and others have in the past
and may in the future attempt to recruit the Company's employees. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, operating results and financial condition.

                                       18
<PAGE>
EXECUTIVE OFFICERS

    The executive officers and directors of the Company, and their ages as of
June 1, 1999, are as follows:

<TABLE>
<CAPTION>
NAME                                             AGE                       POSITION
-------------------------------------------      ---      -------------------------------------------
<S>                                          <C>          <C>
Martin J. Sprinzen.........................          50   President, Chief Executive Officer and
                                                            Chairman of the Board of Directors
Jonathan McKay.............................          43   Senior Vice President, Marketing
Paul Butterworth...........................          48   Senior Vice President and Chief System
                                                            Architect
Bob L. Corey...............................          47   Senior Vice President, Chief Financial
                                                            Officer, Secretary and Director
David Taber................................          43   Senior Vice President, Business Development
Alston Gardner.............................          43   Director
Thomas A. Jermoluk.........................          42   Director
William H. Younger, Jr.....................          49   Director
</TABLE>

    MARTIN J. SPRINZEN co-founded the Company in February 1991 and has served as
its President, Chief Executive Officer and Chairman of the Board of Directors
since inception. Mr. Sprinzen also served as the Company's Secretary from
inception to January 1996. From May 1988 to November 1990, Mr. Sprinzen was
employed by Ingres Corp., an RDBMS company, as Executive Vice President,
International Operations. From October 1986 to May 1988, Mr. Sprinzen was
President and Chief Executive Officer of NASTEC, Corp., a computer-aided
software engineering company. From July 1984 to October 1986, Mr. Sprinzen was
employed by Ingres Corp. as Vice President, Engineering. From December 1979 to
June 1984, Mr. Sprinzen was employed by Candle Corp., a mainframe software
management tools company, where his last position was Vice President,
Technology. Mr. Sprinzen holds a B.S. degree in electrical engineering from The
Cooper Union.

    JONATHAN MCKAY was elected to Senior Vice President, Marketing in May 1999.
Prior to that, Mr. McKay served as Vice President, EAI Business Unit from
January 1999 to May 1999 and served as Director of European Distributor
Operations, where he established new subsidiaries in Switzerland, Belgium and
Holland, from April 1997 to January 1999. From April 1992 to April 1997, Mr.
McKay was employed by Sybase, Inc., a database software company, most recently
as its European Sales Operations Director. Prior to that, Mr. McKay spent three
years as Sales & Marketing Director for the financing company Unison Group plc,
as well as seven years with United Leasing plc as its European Operations
Director.

    PAUL BUTTERWORTH has served as Senior Vice President and Chief System
Architect of the Company since March 1991. From September 1990 to March 1991,
Mr. Butterworth was employed by Servio Corp., a manufacturer of object-oriented
database management systems, most recently as Vice President, Engineering. From
September 1980 to September 1990, Mr. Butterworth was employed by Ingres Corp.
where he served as Vice President, Engineering, and Chief Scientist. Mr.
Butterworth holds a B.S. degree and an M.S. degree in information and computer
science from the University of California, Irvine.

    BOB L. COREY, was appointed Senior Vice President of Finance and
Administration and Chief Financial Officer in May 1998. In February 1999, Mr.
Corey was elected to the Board of Directors. Prior to joining Forte, Mr. Corey
was Executive Vice President and Chief Financial Officer of SyQuest Technology
Inc., a provider of removable storage solutions, from July 1997 to April 1998.
Prior to that Mr. Corey was Vice President and Chief Financial Officer of
Primavera Systems, a provider of project management software and services for
PC's, from April 1996 to July 1997. From March 1993 to March 1996, Mr. Corey was
Executive Vice President and Chief Financial Officer of MTI Technology Inc., a
provider of storage solutions. Earlier in his career, Mr. Corey was Vice
President and Controller for Ashton Tate, a provider of

                                       19
<PAGE>
software solutions for PC's. Mr. Corey holds a B.A. in business administration
from California State University at Fullerton. Mr. Corey joined Arthur Andersen
& Co. after completing college where he earned his certificate as a Certified
Public Accountant.

    DAVID TABER has served as Senior Vice President of Business Development
since May 1999. Prior to that, Mr. Taber served as Senior Vice President of the
Java Business Unit from January 1999 until May 1999 and served as Senior Vice
President of Marketing from September 1997 to January 1999. Prior to joining
Forte, Mr. Taber was Vice President, Worldwide Marketing for ILOG, a provider of
C++ business application components, from May 1996 to September 1997. From
October 1994 to May 1996, Mr. Taber was Group Director of Strategic Marketing
for Sybase Inc., a database software company, where he was responsible for
Internet marketing, competitive marketing, corporate pricing, and industry
analyst relations. From January 1988 to October 1994, Mr. Taber held several
marketing positions with Sun Microsystems. Mr. Taber earned an M.B.A. from the
University of California Berkeley and a B.A. degree from the University of
California Santa Cruz.

    ALSTON GARDNER has been a director of the Company since February 1999. Mr.
Gardner has served as Chief Executive Officer of OnTarget, Inc. (formerly Target
Marketing Systems, Inc.), a sales training and consulting firm, since June 1989.
Prior to founding Target Marketing Systems, Mr. Gardner was a consultant to
technology firms. From 1977 to 1988, Mr. Gardner held various sales and sales
management positions with Dun & Bradstreet Computing Services, Information
Science, Automatic Data Processing and Wallace Computer Services. Mr. Gardner
holds a B.A. degree from the University of North Carolina and has attended the
executive programs at Harvard Business School, Stanford and the University of
Virginia.

    THOMAS A. JERMOLUK has been a director of the Company since February 1996.
Mr. Jermoluk currently serves as Chief Executive Officer and as Chairman of the
board of directors of Excite@Home, Inc., a distributor of high-speed interactive
services to residences and businesses using the cable industry's hybrid-fiber
coaxial infrastructure and its own network architecture. From 1986 to 1996, Mr.
Jermoluk was employed by Silicon Graphics, Inc., a manufacturer of high
performance visual computing systems, as President and a member of its board of
directors from 1994 to 1996, and as Chief Operating Officer from 1992 to 1996.
Mr. Jermoluk's other positions at Silicon Graphics included Executive Vice
President from 1991 to 1992 and Vice President/General Manager, Advanced Systems
Division, from 1988 to 1991. Mr. Jermoluk holds a B.S. degree in computer
science/electrical engineering and an M.S. degree in computer science from
Virginia Tech.

    WILLIAM H. YOUNGER, JR., has been a director of the Company since February
1991. Mr. Younger has been a Managing Director of the general partner of Sutter
Hill Ventures, a venture capital firm, since 1983. Mr. Younger currently serves
as a director of Information Advantage Inc. and several private companies. Mr.
Younger holds a B.S.E.E. degree from the University of Michigan and an M.B.A.
from Stanford University.

                                       20
<PAGE>
                                 BUSINESS RISKS

    IN EVALUATING THE COMPANY'S BUSINESS, READERS SHOULD CAREFULLY CONSIDER THE
BUSINESS RISKS DISCUSSED IN THIS SECTION IN ADDITION TO THE OTHER INFORMATION
PRESENTED IN THIS ANNUAL REPORT ON FORM 10-K. THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS WHICH REFLECT THE COMPANY'S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. IN THIS REPORT, THE
WORDS "ANTICIPATE," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," AND OTHER
SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE
DISCUSSED BELOW, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE ANTICIPATED.

    LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES.  The Company was
founded in February 1991 and first shipped product in August 1994. After
achieving profitability from December 1995 through March 31, 1997, the Company
incurred net losses for each subsequent quarter through the quarter ended June
30, 1998. The Company has shown a modest profit for each of the three quarters
ended September 30, 1998, December 31, 1998 and March 31, 1999. At March 31,
1999, the Company had an accumulated deficit of $31.0 million. A substantial
portion of the accumulated deficit is due to the deployment of significant
resources to the Company's product development, sales and marketing
organizations. The Company expects to continue to devote substantial resources
in these areas and as a result will need to significantly increase revenues to
return to profitability. There can be no assurance that any of the Company's
business strategies will be successful or the Company will be profitable in any
future quarter or period.

    POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNCERTAINTY OF FUTURE
OPERATING RESULTS; SEASONALITY.  The Company's quarterly operating results have
varied significantly in the past and are likely to vary significantly in the
future, depending on factors such as the size and timing of significant orders
and their fulfillment, demand for the Company's products, changes in pricing
policies by the Company or its competitors, the number, timing and significance
of product enhancements and new product announcements by the Company and its
competitors, the ability of the Company to develop, introduce and market new and
enhanced versions of the Company's products on a timely basis, the rate of
adoption and use of the Company's products by third-party system integrators and
value added resellers, changes in the level of operating expenses, changes in
the Company's sales incentive plans, budgeting cycles of its customers, customer
order deferrals due to intervening information technology projects of a higher
priority such as, the Year 2000 Issue, or in anticipation of enhancements or new
products offered by the Company or its competitors or other causes, the
cancellation of licenses during the warranty period or nonrenewal of maintenance
agreements, product life cycles, software bugs and other product quality
problems, personnel changes, changes in the Company's strategy, the level of
international expansion, seasonal trends and general domestic and international
economic and political conditions, among others. A significant portion of the
Company's revenues have been, and the Company believes will continue to be,
derived from a limited number of orders placed by large organizations, and the
timing of such orders and their fulfillment has caused and could continue to
cause material fluctuations in the Company's operating results, particularly on
a quarterly basis. In addition, competition for sales personnel is intense, and
there can be no assurance that the Company can retain its existing sales
personnel or that it can attract, assimilate and retain highly qualified sales
personnel in the future. The timing of the Company's hiring of new sales
personnel and the rate at which new sales people become productive could also
cause material fluctuations in the Company's quarterly operating results. Due to
the foregoing factors, quarterly revenues and operating results are difficult to
forecast. Revenues are also difficult to forecast because the market for
distributed enterprise application development software is rapidly evolving, and
the Company's sales cycle, from initial evaluation to purchase and the provision
of support services, is lengthy and varies substantially from customer to
customer. Product orders are typically shipped shortly after receipt, and
consequently, order backlog at the beginning of any quarter has in the past
represented only a small portion of that quarter's revenues. As a result,
license revenues in any quarter are substantially dependent on orders booked and
shipped in that quarter. Due to all of the foregoing, revenues for any future
quarter are not

                                       21
<PAGE>
predictable with any significant degree of accuracy. Accordingly, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful and should not be relied upon as indications of future
performance. The prior revenue growth experienced by the Company should not be
considered indicative of future revenue growth, if any, or of future operating
results. Failure by the Company, for any reason, to increase revenues would have
a material adverse effect on the Company's business, operating results and
financial condition.

    To achieve its quarterly revenue objectives, the Company is dependent upon
obtaining orders in any given quarter for shipment in that quarter. Furthermore,
the Company has often recognized a substantial portion of its revenues in the
last month, or even weeks or days, of a quarter. The Company's expense levels
are based, in significant part, on the Company's expectations as to future
revenues and are therefore relatively fixed in the short term. If revenue levels
fall below expectations, net income is likely to be disproportionately adversely
affected because a proportionately smaller amount of the Company's expenses
varies with its revenues. There can be no assurance that the Company will be
able to return to profitability on a quarterly or annual basis in the future.
Due to all the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected.

    The operating results of many software companies reflect seasonal trends,
and the Company expects to be affected by such trends in the future.

    RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE.  The Year 2000 Issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

    The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. At present,
the Company has completed its assessment of all systems that could be
significantly affected by the Year 2000, including the Company's products, its
internal Information Technology, supplier and service provider compliance and
operating equipment with embedded chips or software (e.g. laptop computers). The
Company has also completed the remediation phase and is currently in the testing
and implementation phases of the process. The Company is approximately 75
percent complete with regards to the testing of its operating systems, firmware,
software and business applications and is approximately 25 percent complete with
the resulting required implementation. It is anticipated that these last two
phases will be substantially completed by the end of the Company's second fiscal
quarter ending September 30, 1999. The Company has established a Year 2000 Issue
Team which is representative across operating departments and is coordinating
the completion of Year 2000 implementation (via a Year 2000 laboratory used for
testing key environments) and testing across all platforms. Periodic follow-up
meetings are held whereby the current status is updated and documented, and
assignments are prescribed for the following week.

    The costs incurred in addressing the Year 2000 Issue are being expensed as
incurred in compliance with generally accepted accounting principles. To date,
such costs only include the salary expenses of Forte employees associated with
the project. None of these costs are expected to materially impact the results
of operations in any one period. Funding of these costs will come from the
Company's normal working capital.

    The Company believes that its products are fully Year 2000 compliant. All
Forte products use four digit years for all internal manipulations and
representations. In addition, for customers who require the storage and
manipulation of two digit years, the Company's current products provide the
ability to specify a range of years for comparison and calculation. For example,
the customer may specify that the years 0-39

                                       22
<PAGE>
are interpreted as 2000-2039 and the years 40-99 are interpreted as 1940-1999.
Using this feature, a customer can save on the amount of data stored and
manipulated by the Company. The Company regularly runs regression tests on its
software, including tests for the above functionality at the rollover to the
Year 2000. Based on the above, it is not expected that the Company's products
will be adversely affected by date changes in the Year 2000. However, there can
be no assurance that the Company's products contain, or will contain all
features and functionality considered necessary by customers, distributors,
resellers and system integrators to be Year 2000 compliant.

    The Company believes that Year 2000 issues may affect the purchasing
patterns of customers and potential customers in a variety of ways. Many
companies are expending significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase enterprise application software products
such as those offered by the Company. Conversely, Year 2000 issues may cause
other companies to accelerate purchases of application development and
deployment software to replace non-Year 2000 compliant applications, causing a
short-term increase in demand for the Company's products. There is no assurance
that such an increase in demand will be realized, or that companies will resume
application development if and when they resolve their Year 2000 issues. Either
of the foregoing could have a material adverse effect upon the Company's
business, operating results and financial condition. Further, the Company
believes that, as the second half of calendar year 1999 approaches, some of its
current and potential customers may reduce or suspend a significant amount of
their development, deployment and integration projects in favor of an intense
focus and increased efforts on their Year 2000 Issue compliance projects. This
would have a material adverse effect on the Company's business, financial
performance and cash resources.

    The Company has queried its significant suppliers and service providers that
do not share information systems with the Company. To date, the Company is not
aware of any supplier or service provider with a Year 2000 Issue that would
materially impact the Company's business, operating results or financial
condition. However, the Company has no means of ensuring that suppliers and
service providers will be Year 2000 ready. The inability of suppliers and
service providers to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by any
of the Company's suppliers or service providers is not determinable.

    The Company has identified certain critical applications and has classified
potential disasters. The Company has provided a list of requirements and
priorities including, for example, customer service, billing and invoicing, and
engineering.

    Although the Company is not aware of any material operational issues or
costs associated with preparing its internal systems for the Year 2000, there
can be no assurance that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in its internal systems, which include
third-party software and hardware technology. Management of the Company believes
it has an effective program in place to resolve the Year 2000 Issue in a timely
manner. However, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company. The Company could be
subject to litigation for computer systems product failure, for example,
equipment shutdown or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated.

    PRODUCT CONCENTRATION; IMPACT OF MARKET FACTORS.  All of the Company's
revenues have been attributable to sales of Forte and related products and
services. The Company currently expects Forte and related products and services
to account for all or substantially all of the Company's future revenues. As a
result, factors adversely affecting the pricing of or demand for Forte and
related products, such as competition or technological change, could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's future financial performance will depend, in
significant part, on the successful development, introduction and customer
acceptance of new and enhanced versions of Forte and related products. There can
be no assurance that the Company will continue to be successful in

                                       23
<PAGE>
marketing the Forte product, related products or other products. The Company's
prior revenue growth should not be considered indicative of future revenue
growth, as there can be no assurance that the market for Forte and related
products, or the market for products used in the development, deployment and
management of distributed applications, will continue to grow. Recently,
industry analysts and competitors have noted that market demand in the
enterprise application development sector appears to be slowing, and predicted
that the prior success achieved by that sector may not continue in future
periods, due to a variety of factors including but not limited to (1) a
diversion of customer resources from enterprise application development to the
Year 2000 Issue and other higher priority information technology projects, (2) a
general shortage of qualified programmers and a shift of available programming
resources from corporate users to systems integrators, (3) market confusion
caused by the complex and rapidly changing mix of alternative technologies for
enterprise application development, and (4) the increased availability and
popularity of packaged software applications. Additionally, recent instability
in the economies and financial markets in the Asia-Pacific region, which had
previously been regarded as a potentially strong source of revenue growth for
enterprise software vendors, has introduced additional uncertainty concerning
the sector. If the market for Forte and related products or enterprise
application development products used in the development, deployment and
management of distributed applications fails to grow, or grows more slowly than
the Company currently anticipates, the Company's business, operating results and
financial condition would be materially and adversely affected.

    DEPENDENCE ON KEY PERSONNEL.  The Company's success depends to a significant
degree upon the continuing contributions of its key management, sales,
marketing, software development and customer support personnel, and its ability
to attract and retain such highly-skilled personnel. The loss of key personnel
could materially and adversely affect the Company. Competition for qualified
personnel is intense, particularly in the sales and software development areas,
and there can be no assurance that the Company can retain its existing personnel
or that it can attract, assimilate and retain additional highly qualified
personnel in the future. The timing of the Company's hiring of new sales
personnel and the rate at which new sales people become productive could also
cause material fluctuations in the Company's quarterly operating results. The
Company has at times experienced and continues to experience difficulty in
recruiting and retaining qualified personnel. The Company experienced
significant turnover in its North America sales organization during fiscal years
1998 and 1999. Competitors and others have in the past and may in the future
attempt to recruit the Company's employees. Failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
operating results and financial condition.

    RISKS ASSOCIATED WITH EXPANDING DISTRIBUTION.  To date, the Company has sold
its products through its direct and indirect sales force, systems integrators,
distributors and value added resellers. The Company's customers and potential
customers often rely on third-party system integrators and value added resellers
to develop and deploy distributed applications. The Company's ability to achieve
significant revenue growth in the future will depend in large part on its
success in recruiting, training and retaining sufficient sales personnel and
establishing and maintaining relationships with distributors, resellers and
systems integrators. Although the Company is currently investing, and plans to
continue to invest significant resources to maintain and selectively expand its
sales force and to develop relationships with third-party distributors,
resellers and systems integrators, the Company has at times experienced and
continues to experience difficulty in recruiting and retaining qualified sales
personnel and in establishing necessary third-party relationships. There can be
no assurance that the Company will be able to successfully hire, train and
retain needed sales personnel or develop and maintain sufficient third-party
relationships, or that such efforts will result in an increase in revenues. Any
failure by the Company to maintain a sufficiently large and trained sales force
and continue to establish other distribution channels would materially and
adversely affect the Company's business, operating results and financial
condition.

    COMPETITION.  The market for distributed software used in the development,
deployment, integration and management of distributed applications is intensely
competitive and characterized by rapidly changing

                                       24
<PAGE>
technology, evolving industry standards, frequent new product introductions and
rapidly changing customer requirements. Distributed applications that can be
developed and deployed using the Company's Forte environment can also be
implemented by integrating a combination of application development tools and
more powerful server programming techniques such as stored procedures in
relational databases and C or C++ programming, along with networking and
database middleware to connect the various components. As such, the Company
effectively experiences its primary competition from potential customers'
decisions to pursue this type of approach as opposed to utilizing an application
environment such as Forte. As a result, the Company must continuously educate
existing and prospective customers, and third-party systems integrators on whom
prospective customers are increasingly relying for expertise, on the advantages
of the Company's products over the approach of integrating a combination of
products. There can be no assurance that these customers, potential customers or
systems integrators will perceive sufficient value in the Company's products to
justify purchasing or recommending them.

    The Company has also experienced and expects to continue to experience
increased competition from a number of vendors that market software products
specifically targeted for building distributed applications. Actual and
potential competitors include: providers of application development software,
such as Compuware/Uniface, Dynasty Technologies, Inc., IBM Corporation,
Microsoft Corporation, NAT Systems, Inc., Oracle Corporation, Seer Technologies,
Inc., Sterling Software, Inc., and the Powersoft unit of Sybase, Inc.; web-based
development tools targeting production enterprise Internet applications;
middleware companies advocating a middleware-centric approach to building
enterprise applications; developers of packaged applications and application
components, templates and frameworks; and integration software vendors.

    Many of these competing vendors have or will have significantly greater
financial, technical, marketing and other resources than the Company, and may be
able to respond more quickly to new or emerging technologies. Also, many current
and potential competitors have greater name recognition and more extensive
customer bases that could be leveraged, thereby gaining market share to the
Company's detriment. The Company expects to face additional competition as other
established and emerging companies enter the distributed application development
market and new products and technologies are introduced. Increased competition
could result in price reductions, fewer customer orders, reduced gross margins
and loss of market share, any of which could materially and adversely affect the
Company's business, operating results and financial condition. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to address the needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially and adversely affect
the Company's ability to sell additional licenses and maintenance and support
renewals on terms favorable to the Company. Further, competitive pressures could
require the Company to reduce the price of Forte licenses and related products
and services, which could materially and adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition.

    The principal competitive factors affecting the market for Forte are ease of
application development, deployment and management functionality and features,
product architecture, product performance, reliability and scaleability, product
quality, price and customer support. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able to
compete successfully against current and future competitors and the failure to
do so successfully will have a material adverse effect upon the Company's
business, operating results and financial condition.

                                       25
<PAGE>
    NEW ACCOUNTING STANDARDS.  Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," as amended by Statements of Position 98-4 and 98-9, was
issued in October 1997 and addresses software revenue recognition matters. The
SOP supersedes SOP 91-1 and is effective for transactions entered into for
fiscal years beginning after December 15, 1997. The Company adopted SOP 97-2 in
its first quarter of fiscal year 1999 and restatement of prior financial
statements was prohibited. Based upon interpretation of SOP 97-2, the Company
believes its current revenue recognition policies and practices are materially
consistent with the SOP.

    In December 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No. 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP
98-9 amends paragraphs 11 and 12 of SOP 97-2 to require recognition of revenue
using the "residual method" when (1) there is evidence of vendor-specific
objective evidence ("VSOE") of fair value for all undelivered elements in a
multiple-element arrangement that is not accounted for using long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements in the arrangement and (3) all revenue recognition criteria
in SOP 97-2 other than the requirement for VSOE of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
(1) the fair market value is applied to all the undelivered items based on their
previously determined VSOE of fair values and is deferred until earned based on
other sections of SOP 97-2, and (2) the difference between the total contract
value and the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements. The provisions of SOP 98-9 will be
applied to all transactions in the Company's fiscal year ending March 31, 2000.

    Such implementation guidance may necessitate substantial changes in the
Company's business practices in order for the Company to continue to recognize a
substantial portion of its license fee revenue upon delivery of its software
products. Such changes may reduce demand, extend sales cycles, increase
administrative costs and otherwise adversely affect operations. In addition, the
Company may be put at a competitive disadvantage relative to foreign based
competitors not subject to U.S. generally accepted accounting principles.

    LENGTHY SALES CYCLE.  The Company's products are typically used to develop
applications that are critical to a customer's business and the purchase of the
Company's products is often part of a customer's larger business process
reengineering initiative or implementation of distributed computing. As a
result, the license and implementation of the Company's software products
generally involves a significant commitment of management attention and
resources by prospective customers. Accordingly, the Company's sales process is
often subject to delays associated with a long approval process that typically
accompanies significant initiatives or capital expenditures. In addition, there
are a large number of alternative methods or technologies to develop
applications which can require significant time for potential customers to
evaluate, and implementation of a favorable decision to license the Company's
products may be subject to delay due to higher priority projects such as Year
2000 compliance. For these and other reasons, the sales cycle associated with
the license of the Company's products is often lengthy and subject to a number
of significant delays over which the Company has little or no control. There can
be no assurance that the Company will not experience these and additional delays
in the future. Therefore, the Company believes that its quarterly operating
results are likely to vary significantly in the future.

    RISK ASSOCIATED WITH NEW VERSIONS AND NEW PRODUCTS; RAPID TECHNOLOGICAL
CHANGE.  The software market in which the Company competes is characterized by
rapid technological change, frequent introductions of new products, changes in
customer demands and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. For example, the Company's
customers have adopted a wide variety of hardware, software, database,
networking and Internet-based platforms, and as a result, to gain broad market
acceptance, the Company has had to support Forte on many of such platforms. The
Company's customers use the Company's proprietary development language to
develop applications using the Company's products, and customers may desire to
utilize other widely-used programming languages to

                                       26
<PAGE>
develop Internet-based and other distributed applications. The Company's future
success will depend upon its ability to address the increasingly sophisticated
needs of its customers by supporting existing and emerging hardware, software,
programming language, database, networking and Internet-based platforms and by
developing and introducing enhancements to Forte, related products and new
products on a timely basis that keep pace with such technological developments
and emerging industry standards and changing customer requirements. There can be
no assurance that the Company will be successful in developing and marketing
enhancements to Forte and related products that respond to technological change,
evolving industry standards or changing customer requirements, that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and sale of such enhancements or that such
enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. The Company has in the past
experienced delays in the release dates of enhancements to Forte. If release
dates of any future Forte enhancements or new products are delayed or if when
released they fail to achieve market acceptance, the Company's business,
operating results and financial condition would be materially and adversely
affected. In addition, the introduction or announcement of new product offerings
or enhancements by the Company or the Company's competitors may cause customers
to defer or forgo purchases of current versions of Forte and related products,
which could have a material adverse effect on the Company's business, operating
results and financial condition.

    LIMITED DEPLOYMENT; DEPENDENCE ON SYSTEM INTEGRATORS AND VALUE ADDED
RESELLERS.  The Company first shipped Forte in August 1994. To date, only a
limited number of the Company's customers have completed the development and
deployment of distributed applications using Forte and related products. If any
of the Company's customers are not able to successfully develop and deploy
distributed applications with Forte and related products, the Company's
reputation could be damaged, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Company expects that a significant percentage of its future revenues will be
derived from sales to existing customers. If existing customers have difficulty
deploying applications built with Forte and related products or for any other
reason are not satisfied with Forte products, the Company's business, operating
results and financial condition would be materially and adversely affected. The
Company's customers and potential customers often rely on third-party system
integrators and value added resellers to develop and deploy distributed
applications. If the Company is unable to adequately train a sufficient number
of system integrators and value added resellers or if, for any reason, a large
number of such integrators and value added resellers adopt a product or
technology other than Forte, the Company's business, operating results and
financial condition would be materially and adversely affected.

    RISK OF SOFTWARE DEFECTS.  Software products as internally complex as Forte
and related products frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Despite extensive
product testing by the Company, the Company has discovered software errors in
its releases after their introduction. Although the Company has not experienced
material adverse effects resulting from any such defects or errors to date,
there can be no assurance that, despite testing by the Company and by current
and potential customers, defects and errors will not be found in current
versions, new versions, new product or enhancements to existing products after
commencement of commercial shipments, resulting in loss of revenues or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.

    PRODUCT LIABILITY.  The Company markets Forte to customers for the
development, deployment and management of distributed applications. The
Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be effective as a result of existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions. Although the Company has not experienced any product liability claims
to date, the sale and support of Forte by the Company may entail the risk of
such claims, which are likely to be substantial in light of the use of Forte in
business-critical applications. A successful product liability

                                       27
<PAGE>
claim brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.

    RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.  Revenues from foreign
subsidiaries and export sales accounted for 43 percent, 45 percent and 36
percent of the Company's total revenues in fiscal years 1999, 1998 and 1997,
respectively. The Company currently has international sales offices located in
Australia, Belgium, Canada, France, Germany, Holland, Switzerland, and the
United Kingdom which have generated substantially all direct international
revenues recognized by the Company to date. The Company believes that in order
to increase sales opportunities and regain profitability, it will be required to
continue to expand its international operations. The Company has committed and
continues to commit significant management time and financial resources to
developing direct and indirect international sales and support channels. There
can be no assurance, however, that the Company will be able to maintain or
increase international market demand for Forte and related products. To the
extent that the Company is unable to do so in a timely manner, the Company's
international sales will be limited, and the Company's business, operating
results and financial condition would be materially and adversely affected.

    International operations are subject to inherent risks, including the impact
of possible recessionary environments in economies outside the United States,
costs of localizing products for foreign markets, longer accounts receivable
collection periods and greater difficulty in accounts receivable collection,
unexpected changes in regulatory requirements, difficulties and costs of
staffing and managing foreign operations, reduced protection for intellectual
property rights in some countries, potentially adverse tax consequences,
political and economic instability, the introduction of the Euro, and the
difficulty in maintaining effective communications due to distance, language and
cultural barriers. There can be no assurance that the Company or its
distributors or resellers will be able to sustain or increase international
revenue from licenses or from maintenance and services, or that some or all of
the foregoing factors will not have a material adverse effect on the Company's
future international revenue and, consequently, on the Company's business,
operating results and financial condition. The Company's direct international
revenues are generally denominated in local currencies. The Company does not
currently engage in hedging activities. Revenues generated by the Company's
distributors and resellers are generally paid to the Company in United States
dollars. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency exchange
rates in the future will not have a material adverse impact on revenues from
international sales and thus the Company's business, operating results and
financial condition.

    PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE.  The
Company relies primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company also believes that factors such as
the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a technology
leadership position. The Company seeks to protect its software documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company currently has one issued United States patent
that expires in 2012 and corresponding patent applications pending in Canada,
Australia, Japan and several member countries within the European Patent
Organization. There can be no assurance that the Company's patent will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications, whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of
the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology or design around the patents owned by the Company.
The Company has obtained registration of the FORTE trademark in seven countries
and has trademark registration applications pending in numerous additional
countries. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy

                                       28
<PAGE>
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. There can be no assurance that the Company's means of protecting
its proprietary rights in the United States or abroad will be adequate or that
competition will not independently develop similar technology. The Company has
entered into source code escrow agreements with a limited number of its
customers and resellers requiring release of source code in certain
circumstances. Such agreements generally provide that such parties will have a
limited, non-exclusive right to use such code in the event that there is a
bankruptcy proceeding by or against the Company, if the Company ceases to do
business or if the Company fails to meet its support obligations. In addition,
Compaq and Mitsubishi each currently possesses copies of Forte source code for
certain limited purposes, subject to the terms of separate written agreements
each company has entered into with the Company. Compaq has an option to purchase
a non-exclusive, fully-paid license of the Forte source code. Compaq's option
becomes exercisable if the Company is acquired and the acquiror fails to agree
to assume the Company's contractual obligations to Compaq. The provision of
source code may increase the likelihood of misappropriation by third parties.

    The Company is not aware that it is infringing any proprietary rights of
third-parties. There can be no assurance, however, that third-parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially and adversely affected.

    The Company relies upon certain software that it licenses from
third-parties, including software that is integrated with the Company's
internally developed software and used in Forte to perform key functions. There
can be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which would materially and adversely affect the
Company's business, operating results and financial condition.

    VOLATILITY OF STOCK PRICE.  The Company's Common Stock has experienced
significant price volatility and such volatility may occur in the future.
Factors, such as announcements of the introduction of new products by the
Company or its competitors and quarter-to-quarter variations in the Company's
operating results, as well as market conditions in the technology and emerging
growth company sectors, may have a significant impact on the market price of the
Company's Common Stock. Further, the stock market has experienced extreme
volatility that has particularly affected the market prices of equity securities
of many high technology companies and that often has been unrelated or
disproportionate to the operating performance of such companies. These market
fluctuations may adversely affect the price of the Common Stock.

    EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF RIGHTS PLAN,
CERTIFICATE OF INCORPORATION, DELAWARE LAW AND CERTAIN AGREEMENTS. The Company's
Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting and conversion rights of such shares, without any
further vote or action by the Company's stockholders. The rights of the holders
of Common Stock will be subject to, and may be

                                       29
<PAGE>
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock could have the effect
of making it more difficult for a third-party to acquire a majority of the
outstanding voting stock of the Company. The Company has no current plans to
issue shares of Preferred stock. Further, the Company has adopted a stockholder
rights plan that, in conjunction with certain provisions of the Company's
Certificate of Incorporation and of Delaware law, could delay or make more
difficult a merger, tender offer, or proxy contest involving the Company.

ITEM 2. PROPERTIES

    The Company's principal administrative, sales, marketing, and product
development facility occupies approximately 68,800 square feet in Oakland,
California pursuant to a lease and sublease which expires June 2000. The Company
previously subleased an additional 60,800 square feet in Oakland, which the
Company does not plan to occupy and has subleased to a third-party through June
2000. The Company also leases sales and support offices in Phoenix, AZ, Los
Angeles, CA, Roseville, CA, San Diego, CA, Englewood, CO, Shelton, CT, Kennesaw,
GA, Rosemont, IL, Rockville, MD, Wakefield, MA, Southfield, MI, Iselin, NJ,
NewYork, NY, Dallas, TX, Houston, TX and Bellevue, WA. The Company also
maintains international offices in Australia, Belgium, Canada, France, Germany,
Holland, Italy, Switzerland, and the United Kingdom. The Company believes that
its existing facilities are adequate for its current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.

ITEM 3. LEGAL PROCEEDINGS

    The Company is not aware of any pending or threatened litigation that could
have a material adverse effect upon the Company's business, operating results or
financial condition.

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

    No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.

                                       30
<PAGE>
                                    PART II

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

    The Company's Common Stock is traded over-the-counter on the Nasdaq National
Market under the symbol "FRTE." The Company commenced its initial public
offering of Common Stock on March 11, 1996 at a price of $21 per share. The
following table sets forth the high and low closing sale prices for last two
years as reported on the Nasdaq National Market. Such prices represent prices
between dealers and do not include retail mark-ups, mark-downs or commissions
and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                                               HIGH        LOW
                                                                             ---------  ---------
<S>                                                                          <C>        <C>
First Quarter of fiscal year 1998..........................................  $   23.38  $    8.25
Second Quarter of fiscal year 1998.........................................  $   16.00  $   10.69
Third Quarter of fiscal year 1998..........................................  $   14.63  $    7.13
Fourth Quarter of fiscal year 1998.........................................  $    7.50  $    5.03
First Quarter of fiscal year 1999..........................................  $    8.06  $    4.00
Second Quarter of fiscal year 1999.........................................  $    6.69  $    2.94
Third Quarter of fiscal year 1999..........................................  $    6.00  $    2.75
Fourth Quarter of fiscal year 1999.........................................  $    8.56  $    4.13
</TABLE>

    At June 1, 1999, there were 387 stockholders of record, representing
approximately 9,600 stockholder accounts, of the Company's Common Stock, as
shown in the records of the Company's transfer agent. The Company has not paid
any cash dividends on its capital stock since its inception, and does not expect
to pay cash dividends on its Common Stock in the foreseeable future.

                                       31
<PAGE>
ITEM 6. CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7. The consolidated statement of
operations data for each of the three years in the period ended March 31, 1999
and the consolidated balance sheet data at March 31, 1999 and 1998 are derived
from the audited consolidated financial statements included elsewhere in Item 8.
The consolidated statement of operations data for each of the two years in the
period ended March 31, 1996 and the consolidated balance sheet data at March 31,
1995, 1996 and 1997 are derived from audited consolidated financial statements
not included in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED MARCH 31,
                                                -----------------------------------------------------
                                                  1999       1998       1997       1996       1995
                                                ---------  ---------  ---------  ---------  ---------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>        <C>        <C>        <C>        <C>
Consolidated Statement of Operations Data:
Revenue:
  License fees................................  $  40,479  $  39,825  $  43,595  $  21,357  $   7,974
  Maintenance and services....................     39,042     31,503     19,456      8,688      2,033
                                                ---------  ---------  ---------  ---------  ---------
    Total revenues............................     79,521     71,328     63,051     30,045     10,007

Cost of revenues:
  License fees................................        590        892        665        456        142
  Maintenance and service.....................     21,511     18,844     11,796      5,452      2,000
                                                ---------  ---------  ---------  ---------  ---------
    Total cost of revenues....................     22,101     19,736     12,461      5,908      2,142
                                                ---------  ---------  ---------  ---------  ---------
Gross profit..................................     57,420     51,592     50,590     24,137      7,865
                                                ---------  ---------  ---------  ---------  ---------

Operating expenses:
  Sales and marketing.........................     36,935     44,862     28,560     15,060      7,869
  Product development and engineering.........     17,678     14,983     10,611      8,069      5,515
  General and administrative..................      5,291      7,585      5,119      3,168      1,874
                                                ---------  ---------  ---------  ---------  ---------
    Total operating expenses..................     59,904     67,430     44,290     26,297     15,258
                                                ---------  ---------  ---------  ---------  ---------
Income (loss) from operations.................     (2,484)   (15,838)     6,300     (2,160)    (7,393)
Other income, net.............................      1,376      2,006      1,988        286        147
                                                ---------  ---------  ---------  ---------  ---------
Operating income (loss).......................     (1,108)   (13,832)     8,288     (1,874)    (7,246)
Provision for income taxes....................        250        345      1,039        114        104
                                                ---------  ---------  ---------  ---------  ---------
Net income (loss).............................  $  (1,358) $ (14,177) $   7,249  $  (1,988) $  (7,350)
                                                ---------  ---------  ---------  ---------  ---------
Net income (loss) per share Basic.............  $   (0.07) $   (0.73) $    0.39  $   (0.12) $   (0.50)
                                                ---------  ---------  ---------  ---------  ---------
Net income (loss) per share Diluted...........  $   (0.07) $   (0.73) $    0.34  $   (0.12) $   (0.50)
                                                ---------  ---------  ---------  ---------  ---------
Shares used in net income (loss) Per share:
  Basic.......................................     19,918     19,334     18,458     16,904     14,562
                                                ---------  ---------  ---------  ---------  ---------
  Diluted.....................................     19,918     19,334     21,110     16,904     14,562
                                                ---------  ---------  ---------  ---------  ---------

<CAPTION>

                                                  1999       1998       1997       1996       1995
                                                ---------  ---------  ---------  ---------  ---------
<S>                                             <C>        <C>        <C>        <C>        <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
  investments.................................  $  26,669  $  34,160  $  48,257  $  41,317  $  12,775
Working capital...............................     31,730     30,032     43,655     39,714     10,070
Total assets..................................     59,222     63,738     73,749     57,291     18,142
Capital lease obligations, due after one
  year........................................         --        123        849      1,714        834
Total stockholders' equity....................     37,871     37,310     48,674     40,044      7,449
</TABLE>

                                       32
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

    THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH REFLECT THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE.
IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVES," "EXPECTS," "INTENDS,"
"FUTURE," AND OTHER SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED BELOW AND IN "BUSINESS RISKS," THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED.

OVERVIEW

    The Company was founded in February 1991 to design, develop and market a
distributed client/server application integration, development, deployment and
management environment. To date, all of the Company's revenues have been derived
from licenses of the Company's primary product, Forte and related products as
well as maintenance, training and consulting revenues. The Company began
shipping Release 1.0 of Forte in August 1994, Release 2.0 in November 1995 and
release 3.0 in August 1997. The Company has developed and currently ships four
related products for use with Forte, (1) Forte Conductor, a production workflow
environment for automating mission-critical business processes; (2) Forte
WebEnterprise, which enables the creation, manipulation and reuse of Internet
components with Forte applications; (3) Forte Express, a visual application
generator; and (4) Forte Fusion EAI Product Suite, which enables organizations
to integrate and extend application packages, legacy systems and custom
components in a standards-based environment. The Company currently expects that
revenues from Forte and related products and services will continue to account
for substantially all of the Company's revenues for fiscal year 2000. As a
result, factors adversely affecting the pricing of or demand for Forte and
related products and services could have a material adverse effect on the
Company's business, operating results and financial condition.

    After achieving profitability from December 1995 through March 31, 1997, the
Company incurred net losses for each quarter in fiscal year 1998 and the first
quarter of fiscal year 1999. The Company has reported a modest profit for each
of the final three quarters of fiscal year 1999. At March 31, 1999 the Company
had an accumulated deficit of $31.0 million. A substantial portion of the
accumulated deficit is due to the significant commitment of resources to the
Company's product development, sales and marketing organizations. The Company
expects to continue to devote substantial resources in these areas and as a
result will need to significantly increase revenues to return to profitability.
There can be no assurance that any of the Company's business strategies will be
successful or that the Company will be profitable in any future quarter or
period.

    The Company's total headcount was 408, 445 and 351 at March 31, 1999, 1998
and 1997, respectively. The growth in headcount from fiscal 1997 to fiscal 1998
was attributable to the Company's expansion of its direct sales organization and
its product development organization, and the reduction in headcount from fiscal
1998 to fiscal 1999 was the result of a re-organization of the Company's U.S.
sales organization. The direct sales organization was reduced to reflect the
Company's anticipated medium-term revenue opportunities, and the partner channel
organization is being emphasized to leverage this distribution channel. The
Company anticipates that there will be modest growth in headcount levels in
fiscal year 2000.

    Forte licenses its software through its direct sales force, distributors,
system integrators, and value added resellers. The Company's ability to achieve
significant revenue growth in the future will depend in large part on its
success in recruiting and training sufficient direct sales personnel and
establishing additional relationships with distributors, resellers and system
integrators.

                                       33
<PAGE>
RESULTS OF OPERATIONS

    REVENUES.  The Company's total revenue consists of license fees for its
Forte Application Environment and related products as well as associated
maintenance and services revenue. The Company licenses software under
non-cancelable license agreements and provides services including maintenance,
training and consulting. License fees revenue is recognized when a
non-cancelable license agreement has been signed, the product has been shipped,
the fees are fixed and determinable and collectibility is reasonably assured.
License revenue from distributors is generally recognized as sales to end users
are reported, the product is shipped and collectibility is assured. Fees for
services are charged separately from the license of the Company's software
products. Maintenance revenues consist of fees for ongoing support and product
updates and are recognized ratably over the term of the contract, which is
typically twelve months. Revenue from training is recognized upon completion of
the related training class. Consulting revenue is recognized as the services are
performed. Allowances for credit risks and for estimated future returns are
provided for upon product shipment. Returns to date have not been material.
Actual credit losses and returns may differ from the Company's estimates and
such differences could be material to the consolidated financial statements.

    The Company's license agreements typically require the payment of a
nonrefundable, one-time license fee for a license of perpetual term. Customers
make separate payments for annual maintenance and other services. Customers can
terminate the license at any time but do not have a right to a refund of the
fees for licenses or for services that have been performed. The Company can
terminate the license agreement only upon a material breach by the other party,
provided that the breach is not cured within a specified cure period.

    The Company's fiscal year 1999 total revenue increased by 11 percent to
$79.5 million from $71.3 million in fiscal year 1998. Fiscal year 1999 United
States total revenue increased by 16 percent to $45.1 million from $38.9 million
in fiscal year 1998. Fiscal year 1999 international revenue increased by 6
percent to $34.4 million from $32.4 million in fiscal year 1998. The increase in
United States revenue in fiscal year 1999, as compared to fiscal year 1998, was
primarily the result of significant growth in domestic maintenance and services
revenue and additionally due to an increase in license fees revenue. License
fees revenue increased primarily as a result of a strong contribution from the
Company's VAR channel, as well as by the progress realized in the realignment of
its United States sales organization which resulted in improved productivity per
salesman. Additionally, license fees revenue was positively impacted by the
availability in the last quarter of fiscal year 1999 of the Company's EAI
products. The increase in international revenue in fiscal year 1999, as compared
to fiscal year 1998, was primarily due to the growth in maintenance and services
revenue resulting from a larger installed base plus related increases in demand
for support services. This increase was partially offset by a decrease in
international license fees revenue attributable to the softness of software
sales in Europe in the Company's fourth quarter of fiscal year 1999. Certain
deals anticipated to close did not close within that quarter.

    The Company's fiscal year 1998 total revenue increased by 13 percent to
$71.3 million from $63.1 million in fiscal year 1997. Fiscal year 1998 United
States total revenue decreased by 3 percent to $38.9 million from $40.2 million
in fiscal year 1997. Fiscal year 1998 international revenue increased by 42
percent to $32.4 million from $22.9 million in fiscal year 1997. The fiscal year
1998 decrease in the United States revenue was primarily due to a decrease in
license revenue partially offset by an increase in maintenance and services
revenue. Additionally, fiscal year 1997 United States revenue included an
unusually large follow-on sale to an existing customer of $5.5 million. The
fiscal year 1998 total international revenue increase was due to increases in
licenses, maintenance and services revenue as the Company continued to expand
its International sales organizations.

    The Company's fiscal year 1999 license fees revenue increased by 2 percent
to $40.5 million from $39.8 million in fiscal 1998. License fees revenue
increased in the United States by 7 percent to $22.0 million in fiscal 1999 from
$20.5 million in fiscal 1998 primarily as a result of improved productivity

                                       34
<PAGE>
within the domestic sales force. License fees revenue in the United States was
also positively impacted by the initial availability in the fourth quarter of
fiscal year 1999 of the Company's EAI products. The license deals in the United
States were widely distributed and were not concentrated in any one geographic
area or region. International license fees revenue decreased by 4 percent to
$18.5 million in fiscal 1999 from $19.3 million in fiscal 1998. This decrease
was primarily attributable to a reduction of new license fees revenue generated
in Europe as a number of deals expected to close in the last quarter of fiscal
1999 did not close. Further, there were not yet any sales of the Company's EAI
products in the international arena.

    The Company's fiscal year 1998 total license fees revenue decreased by 9
percent to $39.8 million from $43.6 million in fiscal year 1997. Fiscal year
1998 United States license fees revenue decreased by 26 percent to $20.5 million
from $27.6 million in fiscal year 1997; included in fiscal year 1997 license
fees revenue was an unusually large follow-on sale to an existing customer of
$5.2 million. Fiscal year 1998 international license fees revenue increased by
21 percent to $19.3 million from $16.0 million in fiscal year 1997. The Company
believes that the fiscal year 1998 United States license fees revenue decrease
was primarily due to a slowdown in the overall market for enterprise application
development software, and the extended sales productivity ramp up needed for the
Company's new sales representatives. The Company believes the market slowdown
resulted from several factors, including but not limited to (1) a diversion of
customer resources from enterprise application development to the Year 2000
Issue, (2) a general shortage of qualified programmers and a shift of available
programming resources from corporate users to systems integrators, (3) market
confusion caused by the complex and rapidly changing mix of alternative
technologies for enterprise application development, and (4) the increased
availability and popularity of packaged software applications. The Company
believes market factors have resulted in progressively longer and more complex
sales cycles for the Company's products. The Company also experienced
significant turnover in its United States sales organization during fiscal year
1998, while the overall sales organization headcount grew substantially during
fiscal year 1997. In the United States, the Company experienced lower
productivity per sales representative during fiscal year 1998 as compared to
fiscal year 1997. The Company believes that this reduction in productivity
resulted from market factors and lengthening sales cycles as discussed above,
and the overall reduction in Forte-related experience of the Company's United
States sales organization. International license fees revenue increased as the
Company expanded its international sales organization into additional markets
and developed strong relationships with Strategic Partners.

    The Company believes that companies in its target market have significantly
shifted from building internal enterprise applications to using system
integrators to develop and deploy their enterprise applications. Also see
"Product Concentration; Impact of Market Factors" in the section entitled
"Business Risks."

    The Company's fiscal year 1999 maintenance and services revenue increased by
24 percent to $39.0 million in fiscal year 1999 from $31.5 million in fiscal
year 1998. United States maintenance and services revenue increased by 26
percent to $23.1 million in fiscal 1999 from $18.4 million in fiscal 1998 and
international maintenance and services revenue increased by 21 percent to $15.9
million in fiscal 1999 from $13.1 million in fiscal 1998.

    The Company's fiscal year 1998 maintenance and services revenue increased by
62 percent to $31.5 million from $19.5 million in fiscal year 1997. Fiscal year
1998 United States maintenance and services revenue increased by 47 percent to
$18.4 million from $12.5 million in fiscal year 1997. Fiscal year 1998
international maintenance and services revenue increased by 90 percent to $13.1
million from $6.9 million in fiscal year 1997.

    These increases in total maintenance and services revenue were primarily a
result of the growing installed base in the Company's software products and the
associated increase in demand for maintenance, training and consulting services.
In addition, there was an increased emphasis placed on sales of support

                                       35
<PAGE>
services in fiscal year 1999. Services revenue as a percentage of total revenue
may vary between periods due to changes in demand for the Company's services and
changes in the rate of growth of license revenue.

    International revenue includes all revenue other than from the United
States. International revenue includes sales from the Company's direct sales
organizations in Europe, Canada and Australia and export sales through
distributors and resellers in Europe, Asia and other areas of the world.
International sales accounted for 43 percent, 45 percent and 36 percent of total
revenues in fiscal years 1999, 1998 and 1997, respectively. Direct sales through
the Company's European, Canadian and Australian subsidiaries totaled $26.0
million, $21.0 million and $13.0 million for the fiscal years ended March 31,
1999, 1998 and 1997, respectively. The table below sets forth the Company's
export sales data from the U.S. for the fiscal years ended March 31, 1999, 1998
and 1997. See Note 1 of Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                  YEARS ENDED MARCH 31
                                          -------------------------------------
                                             1999         1998         1997
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Total Export Revenues...................  $ 8,455,000  $11,417,000  $ 9,911,000
Total Direct Revenues...................  $25,970,000  $20,997,000  $12,968,000
                                          -----------  -----------  -----------
Total International.....................  $34,425,000  $32,414,000  $22,879,000
                                          -----------  -----------  -----------
                                          -----------  -----------  -----------
</TABLE>

    The increase in international revenues reflects growing direct sales
presence in Europe through the Company's foreign direct sale organization,
partially offset by lower revenues in Asia and Latin America. The economic
crises in Asia has not had a material impact on the Company's revenues. Revenues
from Asian markets have been less then five percent of total revenues for each
of the three years presented. The Company expects that international license and
related maintenance and services revenue will continue to account for a
significant portion of its total revenue in the future. The Company believes
that in order to increase sales opportunities and market share, it will be
required to continue expanding its international sales organizations. The
Company has committed and continues to commit significant management time and
financial resources to developing direct and indirect international sales and
support channels. There can be no assurance, however, that the Company will be
able to maintain or increase international market demand for Forte and related
products. To the extent that the Company is unable to do so in a timely manner,
the Company's international sales will be limited, and the Company's business,
operating results and financial condition would be materially and adversely
affected.

COST OF REVENUE

    COST OF LICENSE FEES.  Cost of license fees revenue consists primarily of
royalties paid to third-party vendors, product packaging, documentation and
production and shipping costs. Cost of license fees revenue was $590,000,
$892,000 and $665,000 in fiscal years 1999, 1998 and 1997, respectively,
representing approximately 1 percent of license fees revenue in fiscal year 1999
and 2 percent of license fees revenue for both fiscal years 1998 and 1997. Cost
of license fees revenue may vary as a percentage of license fees revenue due to
changes in the Company's royalty obligations to third-party technology providers
and the number of new products and product releases in a given period.

    COST OF MAINTENANCE AND SERVICES.  Cost of maintenance and services revenue
consists primarily of personnel-related and facilities costs incurred in
providing customer support, training and consulting services, as well as
third-party costs incurred in providing training and consulting services. Cost
of maintenance and services revenue was $21.5 million, $18.8 million and $11.8
million in fiscal years 1999, 1998 and 1997, respectively, representing 55
percent, 61 percent, and 63 percent of maintenance and services revenue in the
respective periods. The decrease in cost of maintenance and services revenue for
fiscal years 1999 and 1998 as a percentage of maintenance and services revenue
was primarily due to improved economies of scale of the technical support center
and increased productivity from training, support and consulting personnel. The
Company does not expect its cost of maintenance and service revenues to continue
to decrease materially as a percentage of maintenance and services revenue. The
cost

                                       36
<PAGE>
of services as a percentage of services revenue may vary between periods due to
the mix of services provided by the Company and the extent to which external
contractors are used to provide those services.

OPERATING EXPENSES

    SALES AND MARKETING.  Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses and travel, entertainment and promotional expenses. Sales and
marketing expenses decreased in fiscal year 1999 by 18 percent to $36.9 million
from $44.9 million in fiscal year 1998. This decrease was the result of a
re-organization of the Company's North American sales organization. The direct
sales organization was reduced to reflect the Company's anticipated medium-term
revenue opportunities, and the partner channel organization is being emphasized
to leverage this distribution channel. The re-organization did not result in a
significant charge to expense for severance and other costs associated with the
re-organization. Sales and marketing expenses increased by 57 percent to $44.9
million in fiscal year 1998 from $28.6 million in fiscal year 1997. This
increase reflects the hiring of additional sales and marketing personnel, and
their related costs, as well as increased costs associated with expanded
promotional activities. Sales and marketing expenses represented 46 percent, 63
percent and 45 percent of total revenues in fiscal years 1999, 1998 and 1997,
respectively. The decrease in sales and marketing expenses as a percentage of
total revenues for fiscal year 1999 compared to fiscal year 1998 was primarily
due to the aforementioned re-organization within the Company's sales
organization. The fiscal year 1998 increase in sales and marketing expenses as a
percentage of total revenues was primarily due to heavy investment in marketing,
pipeline development, sales organization headcount and training coupled with
slower revenue growth in the United States during fiscal year 1998 compared to
fiscal year 1997. The Company has experienced improved productivity in its
direct sales organization in fiscal year 1999 and will continue to focus on
further productivity improvements in fiscal year 2000. The Company anticipates a
moderate reduction in sales and marketing expenses as a percentage of total
revenue in fiscal year 2000 from fiscal year 1999.

    PRODUCT DEVELOPMENT.  The Company believes that a significant level of
investment for product development is required to remain competitive in today's
business environment. Product development expenses increased by 18 percent to
$17.7 million in fiscal 1999 from $15.0 million in fiscal year 1998, which
represented a 41 percent increase from $10.6 million in fiscal year 1997. The
fiscal 1999 increase was partially attributable to the fourth quarter expense of
$1.5 million of acquired technology. The remaining increase in fiscal year 1999
from fiscal year 1998, and the increase in fiscal year 1998 from fiscal year
1997, was primarily attributable to the hiring of additional product development
personnel. Product development expenses represented 22 percent, 21 percent and
17 percent of total revenue in fiscal years 1999, 1998 and 1997, respectively.
The fiscal year 1999 increase in research and development expenses as a
percentage of total revenue was primarily due to the aforementioned acquired
technology write-off, partially offset by revenue growth. The fiscal year 1998
increase in product development expenses as a percentage of total revenues was
primarily due to the Company's continued investment on significant Internet,
Java and mainframe development activities, the increase in the number of product
development personnel, and the outsourcing of certain development work, coupled
with slower revenue growth compared to fiscal year 1997. The Company anticipates
that it will continue to devote substantial resources to product development and
that product development expenses will increase in dollar amount in the future.
All costs incurred in the research and development of software products and
enhancements to existing software products have been expensed as incurred;
accordingly, cost of license revenues includes no amortization of capitalized
software development costs.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses decreased
in fiscal year 1999 by 30 percent to $5.3 million from $7.6 million in fiscal
year 1998 and increased by 48 percent from $5.1 million in fiscal year 1997. The
decrease in fiscal year 1999, as compared to fiscal year 1998, was primarily the
result of a reduction in the number of employees, a decrease in bad debt
expense, a reduction in rent expense primarily as a result of the sublet of
excess office space and a reduction in other

                                       37
<PAGE>
administrative expenses. The increase in fiscal year 1998, as compared to fiscal
year 1997, was primarily due to increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations.
General and administrative expenses represented 7 percent, 11 percent and 8
percent of total revenue in fiscal years 1999, 1998 and 1997, respectively. The
fiscal year 1999 decrease in general and administrative expenses as a percentage
of total revenue was primarily due to revenue growth and improved economies of
scale. The fiscal year 1998 increase in general and administration expenses as a
percentage of total revenue was primarily due to slower revenue growth compared
to fiscal year 1997, coupled with expansion of the Company's administrative
infrastructure. The Company believes that its general and administrative
expenses will increase in dollar amount in the future as a result of the
additions to the Company's administrative staff to support its anticipated
growth in operations.

    OTHER INCOME, NET.  Other income, net, represents interest earned by the
Company on its cash and cash equivalents and short-term investments offset by
interest expense on capitalized leases. See Note 9 of Notes to Consolidated
Financial Statements.

    PROVISION FOR INCOME TAXES.  There was no provision for federal or state
income taxes for fiscal year 1999 as the Company incurred net operating losses,
and there can be no assurance that the Company will realize the benefit of the
net operating loss carryforwards. The Company recorded foreign income tax
withholdings on certain license fees paid to the Company by foreign licensees.

    At March 31, 1999, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $27,234,000 which expires in tax
years 2007 through 2018, a federal research and development tax credit
carryforward of approximately $2,071,000 which expires in tax years 2005 through
2018 and a foreign tax credit carryforward of approximately $1,329,000 which
begins to expire in tax years 1999 through 2002.

    RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE.  The Year 2000 Issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

    The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. At present,
the Company has completed its assessment of all systems that could be
significantly affected by the Year 2000, including the Company's products, its
internal Information Technology, supplier and service provider compliance and
operating equipment with embedded chips or software (e.g. laptop computers). The
Company has also completed the remediation phase and is currently in the testing
and implementation phases of the process. The Company is approximately 75
percent complete with regards to the testing of its operating systems, firmware,
software and business applications and is approximately 25 percent complete with
the resulting required implementation. It is anticipated that these last two
phases will be substantially completed by the end of the Company's second fiscal
quarter ending September 30, 1999. The Company has established a Year 2000 Issue
Team which is representative across operating departments and is coordinating
the completion of Year 2000 implementation (via a Year 2000 laboratory used for
testing key environments) and testing across all platforms. Periodic follow-up
meetings are held whereby the current status is updated and documented, and
assignments are prescribed for the following week.

    The costs incurred in addressing the Year 2000 Issue are being expensed as
incurred in compliance with generally accepted accounting principles. To date,
such costs only include the salary expenses of Forte employees associated with
the project. None of these costs are expected to materially impact the results
of operations in any one period. Funding of these costs will come from the
Company's normal working capital.

                                       38
<PAGE>
    The Company believes that its products are fully Year 2000 compliant. All
Forte products use four digit years for all internal manipulations and
representations. In addition, for customers who require the storage and
manipulation of two digit years, the Company's current products provide the
ability to specify a range of years for comparison and calculation. For example,
the customer may specify that the years 0-39 are interpreted as 2000-2039 and
the years 40-99 are interpreted as 1940-1999. Using this feature, a customer can
save on the amount of data stored and manipulated by the Company. The Company
regularly runs regression tests on its software, including tests for the above
functionality at the rollover to the Year 2000. Based on the above, it is not
expected that the Company's products will be adversely affected by date changes
in the Year 2000. However, there can be no assurance that the Company's products
contain, or will contain all features and functionality considered necessary by
customers, distributors, resellers and system integrators to be Year 2000
compliant.

    The Company believes that Year 2000 issues may affect the purchasing
patterns of customers and potential customers in a variety of ways. Many
companies are expending significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase enterprise application software products
such as those offered by the Company. Conversely, Year 2000 issues may cause
other companies to accelerate purchases of application development and
deployment software to replace non-Year 2000 compliant applications, causing a
short-term increase in demand for the Company's products. There is no assurance
that such an increase in demand will be realized, or that companies will resume
application development if and when they resolve their Year 2000 issues. Either
of the foregoing could have a material adverse effect upon the Company's
business, operating results and financial condition. Further, the Company
believes that, as the second half of calendar year 1999 approaches, some of its
current and potential customers may reduce or suspend a significant amount of
their development, deployment and integration projects in favor of an intense
focus and increased efforts on their Year 2000 Issue compliance projects. This
would have a material adverse effect on the Company's business, financial
performance and cash resources.

    The Company has queried its significant suppliers and service providers that
do not share information systems with the Company. To date, the Company is not
aware of any supplier or service provider with a Year 2000 Issue that would
materially impact the Company's business, operating results or financial
condition. However, the Company has no means of ensuring that suppliers and
service providers will be Year 2000 ready. The inability of suppliers and
service providers to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by any
of the Company's suppliers or service providers is not determinable.

    The Company has identified certain critical applications and has classified
potential disasters. The Company has provided a list of requirements and
priorities including, for example, customer service, billing and invoicing, and
engineering.

    Although the Company is not aware of any material operational issues or
costs associated with preparing its internal systems for the Year 2000, there
can be no assurance that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in its internal systems, which include
third-party software and hardware technology. Management of the Company believes
it has an effective program in place to resolve the Year 2000 Issue in a timely
manner. However, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company. The Company could be
subject to litigation for computer systems product failure, for example,
equipment shutdown or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated.

LIQUIDITY AND CAPITAL RESOURCES

    The Company has funded its operations and investments in furniture and
equipment through an initial public offering of common stock on March 11, 1996
with net proceeds of $34.3 million, the private

                                       39
<PAGE>
sale of equity securities totaling approximately $28.3 million, furniture and
equipment leases of approximately $4.1 million and cash advances from
development partners. Net cash used in operating activities was $6.4 million and
$10.9 million in fiscal years 1999 and 1998, respectively, and net cash
generated by operating activities was $11.5 million in fiscal year 1997. For
fiscal year 1999, net cash used in operating activities resulted primarily from
the year's net loss, increases in accounts receivable, and prepaid expenses and
other assets, and decreases in deferred revenues and accrued expenses and other
liabilities. Accounts receivables increased as a result of the increase in
revenues, primarily near the end of the fiscal year, and prepaid expenses
increased primarily as a result of a technology acquisition during the year.
Deferred revenues decreased as a result of the timing of revenue recognized
based on contract terms, and accrued expenses and other liabilities decreased as
a result of the timing of invoice or contract payments made during fiscal year
1999. For fiscal year 1998, net cash used in operating activities resulted
primarily from the year's net loss, an increase in accounts receivable
associated with increases in revenues, and a decrease in accounts payable,
partially offset by increases in deferred revenues, accrued expenses and other
liabilities. Net cash generated in fiscal year 1997 resulted primarily from net
income, depreciation and amortization adjustments, increases in short term
liabilities, somewhat offset by an increase in accounts receivable. At March 31,
1999, Company's accounts receivable days sales outstanding ("DSO") increased by
9 percent to 93 days from 85 days at March 31, 1998. This increase reflects the
pre-selling of consulting and training services along with the normal large
renewal of maintenance contracts at year end. DSO's were negatively impacted by
the increase in deferred revenues by $2.0 million at March 31, 1999 from March
31, 1998. The Company's DSO could vary significantly on a quarterly or yearly
basis.

    In fiscal years 1999, 1998 and 1997, the Company's investing activities
consisted primarily of purchases of furniture and equipment and short-term
investments. Capital expenditures, including those under capital leases, totaled
$1.6 million, $4.9 million and $5.0 million for fiscal years 1999, 1998 and
1997, respectively. At March 31, 1999 the Company did not have any material
commitments for capital expenditures.

    At March 31, 1999, the Company had $26.7 million in cash and cash
equivalents and short term investments and $31.7 million in working capital. The
Company believes that its existing cash, cash equivalents and short-term
investments will be adequate to meet its cash needs for at least the next 12
months. Thereafter, the Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financings or from other
sources. However, there can be no assurance that additional financing will be
available at all or that, if available, such financing will be obtainable on
terms favorable to the Company and would not be dilutive.

                                       40
<PAGE>
QUARTERLY RESULTS

    The following tables set forth certain unaudited consolidated statement of
operations data for the eight most recent quarters, as well as such data
expressed as a percentage of the Company's total revenue for the periods
indicated. This data has been derived from unaudited condensed consolidated
financial statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. Such statement of operations data should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto. See the section entitled "Business Risks" in Item 1 for risk
factors. The operating results for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
                                                                           QUARTER ENDED
                                     -----------------------------------------------------------------------------------------
                                     MARCH 31,   DEC. 31,   SEPT. 30,   JUNE 30,   MARCH 31,   DEC. 31,   SEPT. 30,   JUNE 30,
                                       1999        1998       1998        1998       1998        1997       1997        1997
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
Consolidated Statement of
  Operations Data:
Revenue:
  License fees.....................   $12,675    $10,741     $ 8,732    $ 8,331     $12,366    $ 9,575     $ 9,919    $ 7,965
  Maintenance and services.........     9,812      9,625       9,780      9,825       9,455      7,770       7,569      6,709
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
    Total revenues.................    22,487     20,366      18,512     18,156      21,821     17,345      17,488     14,674
Cost of revenue:
  License fees.....................        50        194         112        234         432        220         171         69
  Maintenance and services.........     5,863      5,546       5,168      4,934       5,332      4,874       4,509      4,129
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
    Total cost of revenues.........     5,913      5,740       5,280      5,168       5,764      5,094       4,680      4,198
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Gross profit.......................    16,574     14,626      13,232     12,988      16,057     12,251      12,808     10,476
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------

Operating expenses:
  Sales and marketing..............     9,500      9,371       8,035     10,029      12,488     12,365      10,752      9,257
  Product development and
    engineering....................     5,789      3,872       3,872      4,145       4,196      4,074       3,667      3,046
  General and administrative.......     1,450      1,152       1,272      1,417       2,198      1,933       1,907      1,547
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
    Total operating expenses.......    16,739     14,395      13,179     15,591      18,882     18,372      16,326     13,850
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Income (loss) from operations......      (165)       231          53     (2,603)     (2,825)    (6,121)     (3,518)    (3,374)
Other income, net..................       303        328         360        385         476        462         515        553
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Income (loss) before income
  taxes............................       138        559         413     (2,218)     (2,349)    (5,659)     (3,003)    (2,821)
Provision for income taxes.........        16         25          81        128         310        630         (20)      (575)
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Net income (loss)..................   $   122    $   534     $   332    $(2,346)    $(2,659)   $(6,289)    $(2,983)   $(2,246)
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Net income (loss) per share-- basic   $  0.01    $  0.03     $  0.02    $ (0.12)    $ (0.14)   $ (0.32)    $ (0.15)   $ (0.12)
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Net income (loss) per share-
  diluted..........................   $  0.01    $  0.03     $  0.02    $ (0.12)    $ (0.14)   $ (0.32)    $ (0.15)   $ (0.12)
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Shares used in per share
  calculation
  Basic............................    20,124     19,962      19,870     19,686      19,512     19,424      19,296     19,105
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
  Diluted..........................    21,880     21,009      20,864     19,686      19,512     19,424      19,296     19,105
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
</TABLE>

                                       41
<PAGE>
<TABLE>
<CAPTION>
                                                                 AS A PERCENTAGE OF TOTAL REVENUE

                                                                           QUARTER ENDED
                                     -----------------------------------------------------------------------------------------
                                     MARCH 31,   DEC. 31,   SEPT. 30,   JUNE 30,   MARCH 31,   DEC. 31,   SEPT. 30,   JUNE 30,
                                       1999        1998       1998        1998       1998        1997       1997        1997
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>

Revenue:
  License fees.....................      56.4%      52.7%       47.2%      45.9%       56.7%      55.2%       56.7%      54.3%
  Maintenance and services.........      43.6       47.3        52.8       54.1        43.3       44.8        43.3       45.7
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
    Total revenue..................     100.0      100.0       100.0      100.0       100.0      100.0       100.0      100.0

Cost of revenue:
  License fees.....................       0.2        1.0         0.6        1.3         2.0        1.3         1.0        0.5
  Maintenance and services.........      26.1       27.2        27.9       27.2        24.4       28.1        25.8       28.1
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
    Total cost of revenue..........      26.3       28.2        28.5       28.5        26.4       29.4        26.8       28.6
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Gross profit.......................      73.7       71.8        71.5       71.5        73.6       70.6        73.2       71.4
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------

Operating expenses:
  Sales and marketing..............      42.2       46.0        43.4       55.2        57.2       71.3        61.5       63.1
  Product development and
    engineering....................      25.7       19.0        20.9       22.8        19.2       23.5        20.9       20.8
  General and administrative.......       6.5        5.7         6.9        7.8        10.1       11.1        10.9       10.5
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
    Total operating expenses.......      74.4       70.7        71.2       85.8        86.5      105.9        93.3       94.4
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Income (loss) from operations......      (0.7)       1.1         0.3      (14.3)      (12.9)     (35.3)      (20.1)     (23.0)
Other income, net..................       1.3        1.6         1.9        2.1         2.2        2.7         2.9        3.8
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Income (loss) before income
  taxes............................       0.6        2.7         2.2      (12.2)      (10.8)     (32.6)      (17.2)     (19.2)
Provision (benefit) for income
  taxes............................       0.1        0.1         0.4        0.7         1.4        3.6        (0.1)      (3.9)
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
Net income (loss)..................       0.5%       2.6%        1.8%     (12.9)%     (12.2)%    (36.2)%     (17.1)%    (15.3)%
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                     ---------   --------   ---------   --------   ---------   --------   ---------   --------
</TABLE>

    Revenue for the quarter ended March 31, 1999 increased 3 percent to $22.5
million from $21.8 million in the quarter ended March 31, 1998. The increase was
primarily due to first customer shipments of the Company's EAI products, sales
force productivity gains in North America and an increase in maintenance and
services revenue as a result of a larger installed base of users. License fees
revenue in the fourth quarter of fiscal year 1999 increased by 2 percent to
$12.7 million from $12.4 million in the fourth quarter of fiscal year 1998
primarily as a result of the aforementioned sales force productivity
improvements. Maintenance and services revenue increased by 4 percent to $9.8
million in the fourth quarter of fiscal year 1999 from $9.5 million in the
fourth quarter of fiscal year 1998. The increase was primarily a result of the
growing installed base in the Company's software products and the associated
increase in demand for maintenance, training and consulting services.
International revenue decreased to $7.4 million, or by approximately 25 percent,
in the fourth quarter of fiscal year 1999 from $9.9 million in the fourth
quarter of fiscal year 1998, primarily as a result of the softness of sales
within Europe. Certain deals in Europe that were expected to close in the fourth
quarter of fiscal year 1999 did not close.

    Cost of revenue for the fourth quarter of fiscal year 1999 increased by 3
percent to $5.9 million from $5.8 million in the fourth quarter of fiscal year
1998. The increase was primarily related to maintenance and services revenue
being a higher percentage of total revenue. As a result, there were increases in
cost of services attributable to the hiring of additional consulting, customer
service and training personnel during fiscal year 1999.

    Sales and marketing expenses decreased by 24 percent to $9.5 million for the
fourth quarter of fiscal year 1999 from $12.5 million in the fourth quarter of
fiscal year 1998 as a result of a re-organization of the Company's North
American sales organization early in fiscal year 1999. Product development and
engineering increased by 38 percent to $5.8 million in the fourth quarter of
fiscal year 1999 from

                                       42
<PAGE>
$4.2 million in the fourth quarter of fiscal year 1998 as a result of the $1.5
million write-off of acquired technology. General and administrative expenses
decreased by 34 percent to $1.5 million from $2.2 million primarily as a result
of the sublet of excess office space and the reduction in the number of
employees in this functional area.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    See Item 14(a) for an index to the financial statements and supplementary
financial information which are attached hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

    Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information regarding directors is incorporated herein by reference from the
section entitled "Election of Directors" of the Company's proxy statement to be
filed pursuant to Regulation 14A for its Annual Stockholders Meeting to be held
August 18, 1999.

ITEM 11. EXECUTIVE COMPENSATION

    Information regarding directors is incorporated herein by reference from the
section entitled "Executive Compensation" of the Company's proxy statement to be
filed pursuant to Regulation 14A for its Annual Stockholders Meeting to be held
August 18, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information regarding directors is incorporated herein by reference from the
section entitled "Stock Ownership of Certain Beneficial Owners and Management"
of the Company's proxy statement to be filed pursuant to Regulation 14A for its
Annual Stockholders Meeting to be held August 18, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information regarding directors is incorporated herein by reference from the
section entitled "Stock Ownership of Certain Beneficial Owners and Management,"
"Executive Compensation," and "Transactions with Management" of the Company's
proxy statement to be filed pursuant to Regulation 14A for its Annual
Stockholders Meeting to be held August 18, 1999.

                                       43
<PAGE>
                                    PART IV

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

(a) The following documents are filed as part of this Annual Report on Form
    10-K:

<TABLE>
<CAPTION>
1. CONSOLIDATED FINANCIAL STATEMENTS                                        PAGE NUMBER
                                                                         -----------------
<S>                                                                      <C>

Report of Ernst & Young, LLP, Independent Auditors.....................             47

Consolidated Balance Sheet as of March 31, 1999 and 1998...............             48

Consolidated Statement of Operations for each of the three years in the
  period ended March 31, 1999..........................................             49

Consolidated Statement of Stockholders' Equity for each of the three
  years in the period ended March 31, 1999.............................             50

Consolidated Statement of Cash Flow for each of the three years in the
  period ended March 31, 1999..........................................             51

Notes to Consolidated Financial Statements.............................             52

2. Financial Statement Schedule:
</TABLE>

       Schedule I--Valuation and Qualifying Accounts

       Schedules not listed above have been omitted because the information
       required to be set forth therein is not applicable or is shown in the
       consolidated financial statements or notes thereto.

       3. Exhibits--See Item 14(c) below

(b) REPORTS ON FORM 8-K

    No reports on Form 8-K have been filed during the quarter ended March 31,
    1999.

(c) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO.                                   DESCRIPTION
------ --------------------------------------------------------------------------
<C>    <S>
  2.1  Agreement and Plan of Merger dated January 22, 1996, for the
         reincorporation merger of Forte Software, Inc., a California
         corporation, into Forte Software, Inc., a Delaware corporation (the
         "Registrant").(1)

  3.1  Certificate of Incorporation of Registrant, as amended to date.(1)

  3.2  Bylaws of Registrant.(1)

  4.1  Specimen Common Stock certificate.(1)

  4.3  Amended and Restated Investors' Rights Agreement among Registrant and the
         Founders and Investors specified therein dated as of October 6, 1994.
         (1)

  4.4  Rights Agreement dated as of May 16, 1997 between the Company and
         BankBoston, N.A, including the Certificate of Designation of Series A
         Junior Participating Preferred Stock, Form of Right Certificate and
         Summary of Rights to Purchase Preferred Shares attached thereto as
         Exhibits A, B and C, respectively.(4)

  4.5  1997 Stock Plan.

 10.1  Form of Indemnification Agreement entered into by and between Registrant
         and its officers and directors.(1)

 10.2  Registrant's 1991 Equity Incentive Plan.(1)

 10.3  Registrant's 1996 Stock Option Plan.(1)

 10.4  Registrant's Employee Stock Purchase Plan.(1)
</TABLE>

                                       44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.                                   DESCRIPTION
------ --------------------------------------------------------------------------
<C>    <S>
 10.5  Loan and Security Agreement by and between Registrant and Silicon Valley
         Bank dated as of September 20, 1994, as modified August 1, 1994.(1)
 10.6  Real property lease by and between Registrant and State of California
         Public Employee's Retirement System dated December 1, 1994.(1)
 10.7  Master Lease Agreement and Warrant Agreement by and between Registrant and
         Comdisco, Inc. dated as of December 28, 1992, as modified by subsequent
         Equipment Schedules and Warrant Agreements dated May 9, 1994 and
         February 15, 1995, and Equipment Schedule Dated January 17, 1996.(1)
 10.8  Software Agreement between Digital Equipment Corporation and Registrant
         dated July 21, 1992, as amended.(1)(2)
 10.9  Source Code License and Master Distributor Agreement between Registrant
         and Mitsubishi Corporation dated September 26, 1994.(1)(2)
 10.10 Strategic Software Development and Distribution Agreement between Sequent
         Computer Systems, Inc. and Registrant dated August 6, 1992, as
         amended.(1)(2)
 10.11 Amendment to Real property lease by and between Registrant and State of
         California Public Employee's Retirement System dated December 1, 1994
         and amended on January 16, 1997.(5)
 10.12 Real property sublease by and between Registrant and ICF Kaiser Engineers,
         Inc. dated January 16, 1997.(5)
 10.13 Stock Option Grant to Thomas A. Jermoluk.(6)
 10.14 Stock Option Grant to Christos M. Cotsakos.(6)
 10.15 Form of Severance Agreement entered into by and between Registrant and its
         executive officers.(7)
 10.16 Full-recourse Promissory Note with Martin J. Sprinzen.(8)
 10.17 Stock Pledge Agreement with Martin J. Sprinzen.(8)
 10.18 Separation and Release Agreement with James Wambach.(8)
 10.19 Severance Agreement with Jay Shiveley.(8)
 16.1  Letter regarding change in certifying accountant(3)
 21.1  Subsidiaries of Registrant.(3)
 23.1  Consent of Ernst & Young, LLP, Independent Auditors.(3)
 23.2  Consent of Counsel. Reference is made to Exhibit 5.1(1)
 24.1  Power of Attorney.(See Signature Page)
 27.1  Financial data schedule
</TABLE>

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

(1) Incorporated by reference to the exhibit of the same number filed with
    Registrant's Form S-1 Registration Statement (File No. 333-598).

(2) Confidential treatment has been requested with respect to certain portions
    of this exhibit. Omitted portions have been filed separately with the
    Securities and Exchange Commission.

(3) Previously filed in the Company's 1996 Report on Form 10-K and has either no
    change from the prior year or is no longer required.

(4) Incorporated by reference to the Registrant Form 8-A dated May 1997.

(5) Incorporated by reference to the Registrant Form 10-K dated June 1997.

(6) Incorporated by reference to the Registrant Form 10-Q dated November 1997.

(7) Incorporated by reference to the Registrant Form 10-K dated June 1998.

(8) Incorporated by reference to the Registrant Form 10-Q dated November 1998.

                                       45
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1934, as amended, the
Registrant has duly caused this Report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Oakland, State of
California, on this 25th day of June, 1999.

<TABLE>
<S>                             <C>  <C>
                                FORTE SOFTWARE, INC.

                                By:               /s/ BOB L. COREY
                                     -----------------------------------------
                                                    Bob L. Corey
                                       SENIOR VICE PRESIDENT, CHIEF FINANCIAL
                                          OFFICER, SECRETARY AND DIRECTOR
</TABLE>

    KNOW BY ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Martin J. Sprinzen and Bob L. Corey, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and to
file the same, with all exhibits thereto and all documents connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Act of 1934, as amended, this
report has been signed by the following persons in the capacities and on the
date indicated.

<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------

<C>                             <S>                         <C>
                                President, Chief Executive
    /s/ MARTIN J. SPRINZEN        Officer and Director
------------------------------    (Principal Executive         June 25, 1999
      Martin J. Sprinzen          Officer)

                                Senior Vice President,
       /s/ BOB L. COREY           Chief Financial Officer,
------------------------------    Secretary and Director       June 25, 1999
         Bob L. Corey             (Principal Financial and
                                  Accounting Officer)

      /s/ ALSTON GARDNER
------------------------------  Director                       June 25, 1999
        Alston Gardner

    /s/ THOMAS A. JERMOLUK
------------------------------  Director                       June 25, 1999
      Thomas A. Jermoluk

 /s/ WILLIAM H. YOUNGER, JR.
------------------------------  Director                       June 25, 1999
   William H. Younger, Jr.
</TABLE>

                                       46
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Forte Software, Inc.

    We have audited the accompanying consolidated balance sheets of Forte
Software, Inc. as of March 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1999. Our audits also include the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Forte Software, Inc. at March 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

/s/ ERNST & YOUNG LLP
Walnut Creek, California
April 22, 1999

                                       47
<PAGE>
                              FORTE SOFTWARE, INC.

                           CONSOLIDATED BALANCE SHEET

               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                     ASSETS

<TABLE>
<CAPTION>
                                                                               MARCH 31,
                                                                          --------------------
                                                                            1999       1998
                                                                          ---------  ---------
<S>                                                                       <C>        <C>
Current assets:
  Cash and cash equivalents.............................................  $  11,789  $  13,358
  Short-term investments................................................     14,880     20,802
  Accounts receivable, net of allowances of $1,053 and $1,151 at March
    31, 1999 and 1998, respectively.....................................     23,231     20,277
  Prepaid expenses and other current assets.............................      3,115      1,635
                                                                          ---------  ---------
Total current assets....................................................     53,015     56,072
Equipment and leasehold improvements, net...............................      4,707      7,416
Other assets............................................................      1,500        250
                                                                          ---------  ---------
Total assets............................................................  $  59,222  $  63,738
                                                                          ---------  ---------
                                                                          ---------  ---------
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................................................  $   1,959  $   1,530
  Accrued expenses and other liabilities................................      8,989     12,198
  Deferred revenue......................................................     10,337     12,312
                                                                          ---------  ---------
Total current liabilities...............................................     21,285     26,040
Other long-term liabilities.............................................         --        123
Deferred revenue........................................................         66        265
Commitments.............................................................
Stockholders' equity:
  Convertible preferred stock, $0.01 par value; 5,000,000 shares
    authorized, no shares issued and outstanding........................         --         --
  Common Stock, $0.01 par value; 45,000,000 shares authorized;
    20,266,425 and 19,533,124 shares issued and outstanding at March 31,
    1999 and 1998, respectively.........................................        203        195
  Additional paid-in capital............................................     68,621     66,851
  Accumulated deficit...................................................    (31,021)   (29,663)
  Accumulated other comprehensive income (loss).........................         68        (73)
                                                                          ---------  ---------
Total stockholders' equity..............................................     37,871     37,310
                                                                          ---------  ---------
Total liabilities and stockholders' equity..............................  $  59,222  $  63,738
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>

                            See accompanying notes.

                                       48
<PAGE>
                              FORTE SOFTWARE, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                       YEARS ENDED MARCH 31,
                                                                  -------------------------------
                                                                    1999       1998       1997
                                                                  ---------  ---------  ---------
<S>                                                               <C>        <C>        <C>
Revenue:
  License fees..................................................  $  40,479  $  39,825  $  43,595
  Maintenance and services......................................     39,042     31,503     19,456
                                                                  ---------  ---------  ---------
  Total revenue.................................................     79,521     71,328     63,051
                                                                  ---------  ---------  ---------

Cost of revenue
  Cost of license fees..........................................        590        892        665
  Cost of maintenance and services..............................     21,511     18,844     11,796
                                                                  ---------  ---------  ---------
  Total cost of revenue.........................................     22,101     19,736     12,461
                                                                  ---------  ---------  ---------
  Gross profit..................................................     57,420     51,592     50,590

Operating expenses:
  Sales and marketing...........................................     36,935     44,862     28,560
  Product development and engineering...........................     17,678     14,983     10,611
  General and administrative....................................      5,291      7,585      5,119
                                                                  ---------  ---------  ---------
  Total operating expenses......................................     59,904     67,430     44,290
                                                                  ---------  ---------  ---------
Operating (loss) income.........................................     (2,484)   (15,838)     6,300
Interest income.................................................      1,425      2,199      2,232
Interest expense and other, net.................................        (49)      (193)      (244)
                                                                  ---------  ---------  ---------
(Loss) income before income taxes...............................     (1,108)   (13,832)     8,288
Provision for income taxes......................................        250        345      1,039
                                                                  ---------  ---------  ---------

Net (loss) income...............................................  $  (1,358) $ (14,177) $   7,249
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------

Net (loss) income per share--basic..............................  $   (0.07) $   (0.73) $    0.39
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------

Net (loss) income per share--diluted............................  $   (0.07) $   (0.73) $    0.34
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------

Shares used in per share calculation
  Basic.........................................................     19,918     19,334     18,458
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
  Diluted.......................................................     19,918     19,334     21,110
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
</TABLE>

                            See accompanying notes.

                                       49
<PAGE>
                              FORTE SOFTWARE, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                               CONVERTIBLE
                                             PREFERRED STOCK
                                                                        COMMON STOCK       ADDITIONAL
                                         ------------------------  ----------------------    PAID-IN    ACCUMULATED
                                           SHARES       AMOUNT      SHARES      AMOUNT       CAPITAL      DEFICIT
                                         -----------  -----------  ---------  -----------  -----------  ------------
<S>                                      <C>          <C>          <C>        <C>          <C>          <C>
Balances at March 31, 1996.............          --           --      18,284   $     183    $  62,618    $  (22,735)
  Issuance of common stock.............          --           --         514           5        1,551            --
  Foreign currency translation
    adjustments........................          --           --          --          --           --            --
  Net income...........................          --           --          --          --           --         7,249
  Comprehensive income.................          --           --          --          --           --            --
                                                ---          ---   ---------       -----   -----------  ------------

Balances at March 31, 1997.............          --           --      18,798         188       64,169       (15,486)
  Issuance of common stock.............          --           --         735           7        2,682            --
  Foreign currency translation
    adjustments........................          --           --          --          --           --            --
  Net loss.............................          --           --          --          --           --       (14,177)
  Comprehensive loss...................          --           --          --          --           --            --
                                                ---          ---   ---------       -----   -----------  ------------

Balances at March 31, 1998.............          --           --      19,533         195       66,851       (29,663)
  Issuance of common stock.............          --           --         733           8        1,770            --
  Foreign currency translation
    adjustments........................          --           --          --          --           --            --
  Net loss.............................          --           --          --          --           --        (1,358)
  Comprehensive loss...................          --           --          --          --           --            --
                                                ---          ---   ---------       -----   -----------  ------------

Balances at March 31, 1999.............   $      --    $      --      20,266   $     203    $  68,621    $  (31,021)
                                                ---          ---   ---------       -----   -----------  ------------
                                                ---          ---   ---------       -----   -----------  ------------

<CAPTION>

                                           ACCUMULATED
                                              OTHER
                                          COMPREHENSIVE
                                          INCOME (LOSS)     TOTAL
                                         ---------------  ----------
<S>                                      <C>              <C>
Balances at March 31, 1996.............     $     (22)    $   40,044
  Issuance of common stock.............            --          1,556
  Foreign currency translation
    adjustments........................          (175)          (175)
  Net income...........................            --          7,249
                                                          ----------
  Comprehensive income.................            --          7,074
                                                -----     ----------
Balances at March 31, 1997.............          (197)        48,674
  Issuance of common stock.............            --          2,689
  Foreign currency translation
    adjustments........................           124            124
  Net loss.............................                      (14,177)
                                                          ----------
  Comprehensive loss...................            --        (14,053)
                                                -----     ----------
Balances at March 31, 1998.............           (73)        37,310
  Issuance of common stock.............            --          1,778
  Foreign currency translation
    adjustments........................           141            141
  Net loss.............................                       (1,358)
                                                          ----------
  Comprehensive loss...................            --         (1,217)
                                                -----     ----------
Balances at March 31, 1999.............     $      68     $   37,871
                                                -----     ----------
                                                -----     ----------
</TABLE>

                            See accompanying notes.

                                       50
<PAGE>
                              FORTE SOFTWARE, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOW

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED MARCH 31,
                                                                 -------------------------------
                                                                   1999       1998       1997
                                                                 ---------  ---------  ---------
<S>                                                              <C>        <C>        <C>
OPERATING ACTIVITIES
Net (loss) income..............................................  $  (1,358) $ (14,177) $   7,249
Adjustments to reconcile net (loss) income to net cash used in
  operating activities:
  Depreciation and amortization................................      4,290      4,026      2,476
  Changes in operating assets and liabilities:
    Accounts receivable........................................     (2,918)    (2,466)    (6,777)
    Prepaid expenses and other assets..........................     (2,085)      (632)      (241)
    Accounts payable...........................................        465     (1,412)     1,851
    Deferred revenue...........................................     (2,138)     2,459      2,145
    Accrued expenses and other liabilities.....................     (2,610)     1,315      4,780
                                                                 ---------  ---------  ---------
Net cash (used in) provided by operating activities............     (6,354)   (10,887)    11,483

INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements..............     (1,581)    (4,864)    (4,972)
Purchases of short-term investments............................    (12,188)   (18,497)   (16,539)
Maturities of short-term investments...........................     18,143     10,850      9,618
Loan to officer................................................     (1,595)        --         --
Repayments on loan to officer..................................        950         --         --
                                                                 ---------  ---------  ---------
Net cash provided by (used in) investing activities............      3,729    (12,511)   (11,893)

FINANCING ACTIVITIES
Reduction of capital lease obligations.........................       (722)    (1,036)    (1,124)
Proceeds from issuance of common stock.........................      1,778      2,689      1,556
                                                                 ---------  ---------  ---------
Net cash provided by financing activities......................      1,056      1,653        432
                                                                 ---------  ---------  ---------
Net (decrease) increase in cash and cash equivalents...........     (1,569)   (21,745)        22
Cash and cash equivalents at beginning of year.................     13,358     35,103     35,081
                                                                 ---------  ---------  ---------
Cash and cash equivalents at end of year.......................  $  11,789  $  13,358  $  35,103
                                                                 ---------  ---------  ---------
                                                                 ---------  ---------  ---------

Supplemental disclosures:
  Interest paid................................................  $      55  $     151  $     244
                                                                 ---------  ---------  ---------
                                                                 ---------  ---------  ---------
  Income taxes paid............................................  $     457  $     590  $     432
                                                                 ---------  ---------  ---------
                                                                 ---------  ---------  ---------

Supplemental disclosures of noncash investing and Financing
  activities:
Capital lease obligations incurred.............................  $      --  $      --  $      90
                                                                 ---------  ---------  ---------
                                                                 ---------  ---------  ---------
</TABLE>

                                       51
<PAGE>
                              FORTE SOFTWARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

    Forte Software, Inc. ("Forte" or the "Company") develops and markets an
industry leading family of application integration and development products for
enterprise computing. Forte products greatly simplify the creation and delivery
of scalable production systems for internet environments. Forte products were
designed to enable organizations to create applications with powerful
functionality that support up to hundreds or thousands of concurrent users with
high levels of reliability, performance and manageability.

    Forte products are marketed and sold through the Company's direct sales
force, distributors, system integrators and value added resellers in all major
markets. Forte products have been adopted by customers in a wide variety of
industries, including banking, consumer, retail, education, energy, finance,
government, healthcare/pharmaceuticals, insurance, manufacturing, media,
technology and telecommunications.

BASIS OF PRESENTATION

    The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned foreign subsidiaries. The Company translates
the accounts of its foreign subsidiaries using the local foreign currency as the
functional currency. The assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars using exchange rates at the balance sheet date,
revenues and expenses are translated using the weighted average exchange rate
for the period, and gains and losses from this translation process are credited
or charged to the "accumulated other comprehensive income (loss)" account
included in stockholders' equity. To date, foreign currency transaction gains
and losses have not been material and are included in interest expense and
other, net in the Consolidated Statement of Operations. All significant
intercompany accounts and transactions have been eliminated in consolidation.

    Certain financial statement items, in prior periods, have been reclassified
to conform to the current year's presentation.

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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

    Cash equivalents are highly liquid investments with insignificant interest
rate risk and maturities of three months or less at the date of purchase and are
stated at amounts that approximate fair value, based on quoted market prices.
Cash equivalents consist principally of investments in taxable, short-term money
market instruments and commercial paper.

    Short-term investments consist principally of short-term corporate
securities and commercial paper with maturities greater than 90 days and are
stated at amounts that approximate fair value.

    The Company accounts for its cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. At March 31, 1999
and 1998, the

                                       52
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company has classified all of its debt securities as available-for-sale, the
components of which are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 MARCH 31,
                                                            --------------------
                                                              1999       1998
                                                            ---------  ---------
<S>                                                         <C>        <C>
Commercial paper..........................................  $   6,489  $  17,324
Corporate securities......................................     11,495     13,146
Treasury notes............................................      1,598         --
Money market funds........................................         20         --
State and local municipalities............................         --        800
                                                            ---------  ---------
Total investments.........................................  $  19,602  $  31,270
                                                            ---------  ---------
                                                            ---------  ---------

Cash equivalents..........................................  $   4,722  $  10,468
Short-term investments....................................     14,880     20,802
                                                            ---------  ---------
Total investments.........................................     19,602     31,270
                                                            ---------  ---------

Cash......................................................      7,067      2,890
                                                            ---------  ---------
Total cash, cash equivalents and short-term investments...  $  26,669  $  34,160
                                                            ---------  ---------
                                                            ---------  ---------
</TABLE>

    Unrealized gains and losses at March 31, 1999, 1998 and 1997 and realized
gains and losses for the years then ended were not material. The cost of
securities sold is based on the specific identification method.

    At March 31, 1999 and 1998, $1,483,000 and $9,669,000 of debt securities
were included in cash equivalents, and $12,978,000 and $20,802,000 were included
in short-term investments, respectively.

CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS

    Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
including short-term obligations of the U.S. Government and its agencies,
corporate securities, money market funds and commercial paper. The Company
places its temporary cash investments primarily with two financial institutions.

    The Company licenses its products primarily to companies in North America,
Europe and Japan. The Company performs ongoing credit evaluations of these
customers and generally does not require collateral. Reserves are maintained for
potential credit losses.

MAJOR CUSTOMER

    No customer accounted for more than ten percent of the Company's total
revenues for the fiscal years ended March 31, 1999 or 1998. However, revenues
from one customer accounted for approximately twelve percent of total revenues
for the fiscal year ended March 31, 1997.

REVENUE RECOGNITION

    The Company licenses software under noncancelable license agreements and
provides services, including maintenance, training and consulting. License fee
revenue is recognized when a noncancelable

                                       53
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
license agreement has been signed, the product has been shipped, the fees are
fixed and determinable and collectibility is probable. Fees for services are
charged separately from the license of the Company's software products.
Maintenance revenue consists of fees for ongoing support and product updates and
are recognized ratably over the term of the contract, which is typically twelve
months. Training revenue is recognized upon completion of the related training
class. Consulting revenue is recognized as the services are performed.

    Allowances for credit risks and for estimated future returns are provided
for upon shipment. Returns to date have not been material. Actual credit losses
and returns may differ from the Company's estimates and such differences could
be material to the financial statements.

    Deferred revenue includes deferred maintenance revenue, prepaid consulting
and training fees and prepaid license fees from third-party resellers.

    Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as
amended by Statement of Position 98-4, was issued in October 1997 and addresses
software revenue recognition matters. The SOP supersedes SOP 91-1 and is
effective for transactions entered into for fiscal years beginning after
December 15, 1997. The Company adopted this SOP in its first quarter of fiscal
year 1999 and restatement of prior financial statements was prohibited. Based
upon its reading and interpretation of SOP 97-2, the Company believes its
current revenue recognition policies and practices are materially consistent
with the SOP.

    In December 1998, SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," was issued. SOP 98-9 amends
paragraphs 11 and 12 of SOP 97-2 to require recognition of revenue using the
"residual method" when (1) there is evidence of "vendor specific objective
evidence" ("VSOE") of fair value for all undelivered elements in a
multiple-element arrangement that is not accounted for using long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements in the arrangement and (3) all revenue recognition criteria
in SOP 97-2 other than the requirement for VSOE of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
(1) the fair market value is applied to all the undelivered items based on their
previously determined VSOE of fair values and is deferred until earned based on
other sections of SOP 97-2, and (2) the difference between the total contract
value and the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements. The provisions of SOP 98-9 will be
applied to all transactions in the Company's fiscal year ending March 31, 2000.

SOFTWARE DEVELOPMENT COSTS

    Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Under the standard,
capitalization of internally derived software development costs begins upon the
establishment of technological feasibility, subject to net realizable value
considerations. The Company begins capitalization upon completion of a working
model. To date, such capitalizable costs have not been material. Accordingly,
the Company has charged all such internally derived software development costs
to research and development expense. The cost of purchased computer software to
be sold, leased or otherwise marketed that has no alternative future use has
been accounted for similar to internally developed software, as discussed above.
Purchased software that has an alternative future use has been capitalized and
accounted for according to its use. Resulting capitalized costs will be
amortized

                                       54
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on a straight-line basis over the estimated life of the products or the ratio of
current revenue to the total of current and anticipated future revenue,
whichever expense is greater. Such amortization shall start when the product is
available for general release to customers.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

    Equipment and leasehold improvements are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the related
assets, which range from three to four years. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method over
the lesser of the lease term or the estimated useful lives.

INCOME TAXES

    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the use of the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.

ACCOUNTING FOR STOCK-BASED COMPENSATION

    The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the "disclosure only" alternative
described in Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").

NET INCOME (LOSS) PER SHARE

    Shares used in computing basic and diluted net income (loss) per share are
based on the weighted average shares outstanding in each period, excluding
shares subject to repurchase. Basic net income (loss) per share excludes any
dilutive effects of stock options. Diluted net income (loss) per share includes
the dilutive effect of the assumed exercise of stock options and warrants using
the treasury stock method. However, the effect of outstanding stock option and
warrant exercises has been excluded from the calculation of diluted net loss per
share, as their inclusion would be antidilutive.

COMPREHENSIVE INCOME (LOSS)

    Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130").
SFAS 130 requires certain revenues, expenses, gains or losses that, prior to
adoption, were reported separately in stockholders' equity and excluded from net
income (loss) to be included in other comprehensive income (loss). The Company's
components of comprehensive income (loss) consist of net income (loss) and
foreign currency translation adjustments. The Company adopted SFAS 130 effective
April 1, 1998.

                                       55
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE

    In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") which establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. In addition, SFAS 131 establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company has adopted SFAS 131 effective March 31, 1999.

2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

    Equipment and leasehold improvements consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                            MARCH 31,
                                                       --------------------      ESTIMATED
                                                         1999       1998       USEFUL LIVES
                                                       ---------  ---------  -----------------
<S>                                                    <C>        <C>        <C>
Equipment under capital leases.......................  $   4,168  $   4,182     36 - 42 months
Equipment............................................     12,139      9,788     36 - 42 months
Leasehold improvements...............................      1,350      2,096          36 months
                                                       ---------  ---------
                                                          17,657     16,076
Less accumulated depreciation and amortization.......    (12,950)    (8,660)
                                                       ---------  ---------
Equipment and leasehold improvements, net............  $   4,707  $   7,416
                                                       ---------  ---------
                                                       ---------  ---------
</TABLE>

    Accumulated amortization related to assets under capital leases at March 31,
1999 and 1998 totaled $4,178,000 and $3,532,000, respectively.

3. STOCKHOLDERS' EQUITY

    Certain common shares are subject to repurchase rights by the Company in the
event of termination of employment at the price originally paid by the
stockholder.

    At March 31, 1999, common stock was reserved for issuance as follows:

<TABLE>
<S>                                                                <C>
Stock option plans...............................................  5,752,394
Warrants.........................................................     44,321
Employee stock purchase plan.....................................    243,295
                                                                   ---------
                                                                   6,040,010
</TABLE>

    On May 16, 1997, the Board of directors of the Company declared a dividend
distribution of one Preferred Share Purchase Right (the "Right") on each
outstanding share of its common stock. Each Right will entitle stockholders to
buy one one-thousandth of a share of newly created Series A Junior Participating
Preferred Stock of the Company at an exercise price of $125.00. The Rights will
be exercisable if a person or group hereafter becomes the beneficial owner of
15% or more of the common stock of the Company or announces a tender or exchange
offer for 15% or more of the common stock. The Board of

                                       56
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. STOCKHOLDERS' EQUITY (CONTINUED)
Directors will be entitled to redeem the Rights at one cent per Right at any
time before any such person hereafter becomes the beneficial owner of 15% or
more of the outstanding common stock.

WARRANTS

    In March 1999, a total of 51,673 of previously outstanding warrants were
exercised on a net issuance basis at prices ranging from $2.30 to $4.00 per
share resulting in a total of 24,834 shares of the Company's common stock being
issued.

    As of March 31, 1999, warrants to purchase common stock were outstanding in
connection with an equipment lease agreement as follows: 13,500 shares at an
exercise price of $6.67 per share, and 2,250 shares at an exercise price of
$6.67 per share. These warrants are exercisable through 2005.

EMPLOYEE STOCK PURCHASE PLAN

    The Employee Stock Purchase Plan (the "Purchase Plan") was adopted in
January 1996. The Company initially authorized 400,000 shares of common stock
under the Purchase Plan of which 218,658 and 238,047 shares were issued during
the years March 31, 1999 and 1998, respectively. At the Company's annual meeting
in August 1997, an additional 300,000 shares were approved and authorized for
issuance under the Plan. Eligible employees may purchase common stock through
payroll deductions, which may not exceed 10% of an employee's compensation. The
price of stock purchased under the Purchase Plan will be 85% of the lower of the
fair market value of the common stock at the beginning of the 24-month offering
period or on the applicable semiannual purchase date. Unless sooner terminated
by the Board, the Purchase Plan shall terminate upon the earliest of (i) the
last business day in October 2006, (ii) the date on which all shares available
for issuance under the Purchase Plan shall have been sold pursuant to purchase
rights exercised under the Purchase Plan or (iii) the date on which all purchase
rights are exercised in connection with certain corporate transactions. The
weighted-average fair value of shares issued under the Purchase Plan during 1999
and 1998 was $5.37 and $5.47 per share, respectively.

STOCK OPTION PLANS

    Under the terms of the 1991 Stock Option Plan (the "1991 Plan") eligible key
employees, directors, and consultants can receive options to purchase shares of
the Company's common stock at a price not less than 100% and 85% of the fair
value on the date of the grant for incentive stock options and nonqualified
stock options, respectively. The options granted under the 1991 Plan are
exercisable over a maximum term of ten years from the date of grant and
generally vest over either a four or a five-year period. Shares sold under the
Plan are subject to various restrictions as to resale and right of repurchase by
the Company.

    In January 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") as the successor to the 1991 Plan. Under the 1996 Plan, eligible key
employees, directors, and consultants can receive options to purchase shares of
the Company's common stock at a price not less than 85% of the fair market value
on the grant date. The Company authorized 4,860,000 shares of common stock to be
issued under the 1996 Plan (including shares previously authorized under the
1991 Plan), of which 3,328,954 (including options incorporated from the 1991
Plan) are available for grant at March 31, 1999.

    In 1998 the Company's stockholders approved the adoption of 1997 Stock
Option Plan (the "1997 Plan"). The terms of the 1997 Plan are substantially the
same as the 1996 Plan. The number of shares of common stock initially reserved
for grants under this Plan was 845,914, In February 1998, the Company

                                       57
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. STOCKHOLDERS' EQUITY (CONTINUED)
approved an additional 700,000 shares for nonstatuatory stock options. At March
31, 1999, 2,243,440 shares were available for grant.

    In April 1997, the Company offered employees the option to exchange options
to purchase 612,397 shares of common stock which had a weighted average exercise
price of $23.55 for new options with an exercise price of $8.3125 per share. All
options that were exchanged continued to vest under the original terms of the
option grant, except that no options were exercisable for a period of one year
from the exchange date.

    In August 1998, the Company offered all employees the choice to exchange
options to purchase 2,399,120 shares of the Company's common stock which had a
weighted average exercise price of $7.67 per share for new options with an
exercise price of $4.125 per share. All options that were exchanged continued to
vest under the original terms of the option grant, except that no options were
exercisable for a period of nine months from the exchange date.

    A summary of the activity, combined, under the 1996 and 1997 Plans is set
forth below:

<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                                       AVERAGE
                                                                                      EXERCISE
                                                                         SHARES         PRICE
                                                                      -------------  -----------
<S>                                                                   <C>            <C>
Outstanding at March 31, 1996.......................................      3,073,058   $    2.73
  Granted...........................................................        486,200       31.06
  Exercised.........................................................       (439,278)       0.81
  Cancelled.........................................................       (257,708)       7.69
                                                                      -------------  -----------

Outstanding at March 31, 1997.......................................      2,862,272        7.35
  Granted...........................................................      3,041,797        8.00
  Exercised.........................................................       (517,172)       1.09
  Cancelled.........................................................     (1,097,180)      14.66
                                                                      -------------  -----------

Outstanding at March 31, 1998.......................................      4,289,717        6.13
  Granted...........................................................      4,537,870        4.39
  Exercised.........................................................       (495,238)       1.27
  Cancelled.........................................................     (3,552,664)       7.64
                                                                      -------------  -----------

Outstanding at March 31, 1999.......................................      4,779,685   $    4.09
                                                                      -------------  -----------
                                                                      -------------  -----------
Vested options at March 31, 1999....................................      1,475,025   $    3.66
                                                                      -------------  -----------
                                                                      -------------  -----------
</TABLE>

    At March 31, 1999, 17,224 shares of common stock issued through the exercise
of options were subject to repurchase by the Company. The weighted-average fair
value of options granted during fiscal years 1999, 1998 and 1997 was $3.28,
$5.05 and $18.17 per share, respectively.

                                       58
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. STOCKHOLDERS' EQUITY (CONTINUED)
    The following table summarizes information concerning currently outstanding
and exercisable options:

<TABLE>
<CAPTION>
                                                            OPTIONS OUTSTANDING           EXERCISABLE
                                                         --------------------------  ----------------------
                                                           WEIGHTED
                                                            AVERAGE      WEIGHTED     SHARES     WEIGHTED
                                                           REMAINING      AVERAGE    EXERCISABLE   AVERAGE
                                              SHARES      CONTRACTUAL    EXERCISE       AND      EXERCISE
RANGE OF EXERCISE PRICES                    OUTSTANDING  LIFE (YEARS)      PRICE      VESTED       PRICE
------------------------------------------  -----------  -------------  -----------  ---------  -----------
<S>                                         <C>          <C>            <C>          <C>        <C>
$ 0.67 - $ 0.67...........................     558,234          5.56     $    0.55     374,508   $    0.50
$ 1.33 - $ 4.00...........................     552,134          8.57          3.39     102,237        3.00
$ 4.06 - $ 4.06...........................       9,000          9.41          4.06       2,625        4.06
$ 4.13 - $ 4.13...........................   2,189,959          8.24          4.13     861,402        4.13
$ 4.16 - $ 4.75...........................     548,500          9.28          4.32      30,235        4.16
$ 4.81 - $ 5.19...........................      41,863          8.80          5.02       9,338        5.00
$ 5.25 - $ 5.25...........................     568,000          9.91          5.25      10,533        5.25
$ 5.31 - $28.75...........................     290,995          9.01          6.84      69,084        8.17
$33.00 - $33.00...........................       6,000          7.37         33.00       6,000       33.00
$38.75 - $38.75...........................      15,000          7.54         38.75       9,063       38.75
                                            -----------                              ---------
                                             4,779,685                               1,475,025
                                            -----------                              ---------
                                            -----------                              ---------
</TABLE>

STOCK-BASED COMPENSATION

    As permitted under SFAS 123, the Company has elected to continue to follow
APB 25 in accounting for stock-based awards to employees. Under APB 25, the
Company has not recognized any compensation expense with respect to such awards,
since the exercise price of the stock options awarded are equal to the fair
market value of the underlying security on the grant date.

                                       59
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. STOCKHOLDERS' EQUITY (CONTINUED)

    Disclosure of information regarding net (loss) income and net (loss) income
per share is required by SFAS 123 for the Company's awards granted after March
31, 1995 as if the Company had accounted for its stock-based awards to employees
under the fair value method of SFAS 123. The fair value of the Company's
stock-based awards to employees was estimated as of the date of the grant using
a Black-Scholes option pricing model. Limitations on the effectiveness of the
Black-Scholes option valuation model are that it was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable and that the model requires the use of highly
subjective assumptions including expected stock price volatility. Because the
Company's stock-based awards to employees have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The Company
has plans which award employees stock including its stock option plans and the
Purchase Plan. Both of these plans are discussed in the note above. The fair
value of the Company's stock-based awards to employees was estimated assuming
the following assumptions for the years ended March 31,:

<TABLE>
<CAPTION>
                                                       STOCK OPTIONS                    PURCHASE PLAN
                                              -------------------------------  -------------------------------
                                                1999       1998       1997       1999       1998       1997
                                              ---------  ---------  ---------  ---------  ---------  ---------
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>
Expected life (in years)....................          4        4.5          5        0.5        0.5        0.5
Expected volatility.........................       0.85       0.77       0.62       0.85       0.74       0.75
Risk free interest rate.....................        5.8%  5.2%-5.4%  6.1%-6.7%      5.75%  5.2%-6.1%       6.4%
Expected dividend yield.....................       0.00%      0.00%      0.00%      0.00%      0.00%      0.00%
</TABLE>

    For disclosure purposes, the adjusted estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period for options
and the six-month purchase period for stock purchases under the Purchase Plan.

    The Company's adjusted information follows (in thousands, except for per
share information):

<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31,
                                                   -------------------------------
                                                     1999       1998       1997
                                                   ---------  ---------  ---------
<S>                                                <C>        <C>        <C>
Pro forma net (loss) income......................  $  (3,784) $ (16,305) $   5,258

Pro forma net (loss) income per share
  Basic..........................................  $   (0.19) $   (0.84) $    0.28
  Diluted........................................  $   (0.19) $   (0.84) $    0.25
</TABLE>

    The effects of applying FAS 123 for providing pro forma disclosures are not
likely to be representative of the effects on reported net income (loss) for
future years.

4. LOAN TO EXECUTIVE OFFICER

    During the fiscal year ended March 31, 1999, the Company loaned $1.6 million
to one of its executive officers. Of this amount, $1.0 million was repaid during
fiscal year 1999. This full-recourse note is collateralized at 140 percent of
the loan value in shares of the Company's common stock owned by this individual,
and is due and payable to the Company in August 2000. Amounts outstanding accrue
interest at an interest rate of seven and one-half percent per annum. As of
March 31, 1999, a total of $32,000 of interest was earned and accrued for by the
Company on this note. Notes receivable and related interest are

                                       60
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LOAN TO EXECUTIVE OFFICER (CONTINUED)
classified in other assets in the Company's consolidated balance sheet. In April
1999, an additional $0.3 million was loaned to this officer under this
promissory note.

5. INCOME TAXES

    The Company accounts for income taxes pursuant to Statement of Accounting
Standards No. 109, "Accounting for Income Taxes," which uses the liability
method to calculate deferred income taxes. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED MARCH 31,
                                                                 --------------------
                                                                   1999       1998
                                                                 ---------  ---------
<S>                                                              <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards.............................  $  10,023  $  11,030
  Deferred revenue.............................................        107        319
  Research and development credit carryforwards................      3,095      2,495
  Reserves and other accruals..................................      1,972      1,448
  Depreciation.................................................      2,013      2,099
  Foreign tax credit carryforwards.............................      1,328      1,272
  Other........................................................        723        128
                                                                 ---------  ---------
  Total deferred tax assets....................................     19,261     18,791
Valuation allowance............................................    (17,625)   (17,541)

Deferred tax liabilities.......................................     (1,636)    (1,250)
                                                                 ---------  ---------
Net deferred tax assets........................................         --         --
                                                                 ---------  ---------
                                                                 ---------  ---------
</TABLE>

    Due to uncertainty surrounding the realization of the deferred tax assets, a
valuation allowance has been established to fully offset net deferred tax assets
at year end. The valuation allowance increased $84,000 and $6,679,000 in the
years ending March 31, 1999 and 1998, respectively.

    Of the total deferred tax asset valuation allowance at March 31, 1999,
approximately $4,200,000 relates to the exercise of employee stock options for
which any subsequently recognized tax benefits will be credited directly to
stockholders' equity rather than a reduction in the income tax provision.

    The current income tax provisions are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    YEAR ENDED MARCH 31,
                                                               -------------------------------
                                                                 1999       1998       1997
                                                               ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>
Current:
Federal......................................................  $      12  $    (190) $     190
State........................................................         23         20        115
Foreign......................................................        215        515        734
                                                               ---------  ---------  ---------
                                                               $     250  $     345  $   1,039
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------
</TABLE>

                                       61
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES (CONTINUED)
    The provision for income taxes differed from the amount computed by applying
the statutory federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED MARCH 31,
                                                            -------------------------------
                                                              1999       1998       1997
                                                            ---------  ---------  ---------
<S>                                                         <C>        <C>        <C>
Tax (credit) at federal statutory rate....................  $    (377) $  (4,703) $   2,818
State taxes...............................................         23         20        115
Foreign taxes.............................................        215        515        734
Utilization of net operating losses.......................         --         --     (2,896)
Net operating losses not benefitted.......................        278      4,570         --
Other items...............................................        111        (57)       268
                                                            ---------  ---------  ---------
Income Tax Provision......................................  $     250  $     345  $   1,039
                                                            ---------  ---------  ---------
                                                            ---------  ---------  ---------
</TABLE>

    At March 31, 1999, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $27,234,000 which expires in tax
years 2007 through 2018, a federal research and development tax credit
carryforward of approximately $2,071,000 which expires in tax years 2005 through
2018 and a foreign tax credit carryforward of approximately $1,329,000 which
begins to expire in tax years 1999 through 2002.

    Utilization of net operating losses and credits may be subject to annual
limitations due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. As a result of the annual
limitation, a portion of these carryforwards may expire before ultimately
becoming available to reduce future income tax liabilities.

6. COMPUTATION OF NET (LOSS) INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                YEAR ENDED MARCH 31,
                                                                           -------------------------------
                                                                             1999       1998       1997
                                                                           ---------  ---------  ---------
                                                                                (IN THOUSANDS, EXCEPT
                                                                                   PER SHARE DATA)
<S>                                                                        <C>        <C>        <C>
Denominator:
Denominator for basic net (loss) income per share--weighted
Average common shares outstanding........................................     19,918     19,334     18,458
Effect of dilutive securities--
Stock options and warrants(1)............................................         --         --      2,652
                                                                           ---------  ---------  ---------
Denominator for diluted earnings per share--.............................     19,918     19,334     21,110
Net (loss) income........................................................  $  (1,358) $ (14,177) $   7,249
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
Net (loss) income per share--basic.......................................  $   (0.07) $   (0.73) $    0.39
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
Net (loss) income per share--diluted.....................................  $   (0.07) $   (0.73) $    0.34
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
</TABLE>

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

(1) Excluded as anti-dilutive in loss periods

                                       62
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. PROFIT SHARING PLAN

    The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its eligible employees. All employees, as
defined, are eligible to participate after completion of one month of employment
with the Company. Employee contributions to the Plan are subject to certain
statutory limitations. The pre-tax voluntary contributions are limited to 15% of
the aggregate compensation paid to the employee in all the years since
participation in the Plan. The Company's contribution to the 401(k) Plan is
discretionary. The Company has not contributed any amounts to the 401(k) Plan to
date.

8. SEGMENT AND GEOGRAPHICAL INFORMATION

    The Company has adopted SFAS 131 effective March 31, 1999. The new rules
established revised standards for public companies relating to the reporting of
financial information about operating segments.

SEGMENT INFORMATION

    The Company has identified two reportable operating segments based upon the
provisions of SFAS 131, license fees and services. License fees are derived from
sales of the Company's software products. Service fees include consulting,
training and support.

    The Company's Chief Operating Decision Maker ("CODM"), who is the President
and Chief Executive Officer, evaluates performance based on segment revenue. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. The Company does not report
the segment results below revenue, therefore, operating costs and expenses,
interest income, interest expense and other, net and the provision for income
taxes are not broken out by segment. The Company does not account for or report
to the CODM its assets or capital expenditures by segments.

    Based upon the above, the Company's statement of operations discloses the
available financial information of its reportable segments in accordance with
SFAS 131 for the years ended March 31, 1999, 1998 and 1997, respectively.

GEOGRAPHICAL INFORMATION

    The Company markets its products and services internationally through
foreign subsidiaries in Europe, Australia and Canada, and other distributors and
resellers located in the United States, Canada, Asia, Europe, South America,
South Africa and Israel. Export sales through distributors, resellers and the
domestic direct sales organization totaled $8,455,000, $11,417,000 and
$9,911,000 for the years ended March 31, 1999, 1998 and 1997, respectively.
Sales through the Company's foreign subsidiaries totaled $25,970,000,
$20,997,000, and $12,967,000. for the years ended March 31, 1999, 1998 and 1997,
respectively.

                                       63
<PAGE>
                              FORTE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
    The following table indicates revenue by region for the three fiscal years
ended:

<TABLE>
<CAPTION>
                                                             MARCH 31,
                                               -------------------------------------
                                                  1999         1998         1997
                                               -----------  -----------  -----------
<S>                                            <C>          <C>          <C>
Total Revenue
  United States..............................  $45,096,000  $38,914,000  $40,172,000
  International..............................   34,425,000   32,414,000   22,879,000
                                               -----------  -----------  -----------
  Total......................................  $79,521,000  $71,328,000  $63,051,000
                                               -----------  -----------  -----------
                                               -----------  -----------  -----------
</TABLE>

9. COMMITMENTS

    The Company has entered into operating lease for office space with original
terms ranging from twelve to forty-two months. The facility leases generally
contain renewal options and provisions adjusting the lease payments based upon
changes in operating costs of the building.

    Capital lease obligations represent the present value of future rental
payments under various lease agreements for equipment. The Company has options
to purchase the leased assets at the end of the lease terms for their fair
market value.

    The future minimum lease payments under all noncancelable leases having
initial terms longer than one year at March 31, 1999 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                              CAPITAL     OPERATING
                                                                              LEASES       LEASES
                                                                            -----------  -----------
<S>                                                                         <C>          <C>
Years ending March 31:
2000......................................................................   $     101    $   4,333
2001......................................................................          --        1,662
2002......................................................................          --          375
2003......................................................................          --           33
                                                                                 -----   -----------
Total minimum lease payments..............................................         101    $   6,403
                                                                                         -----------
                                                                                         -----------
Less amount representing interest.........................................           5
                                                                                 -----
Present value of minimum lease payments...................................          96
Less current portion......................................................          96
                                                                                 -----
Capital lease obligations, due after one year.............................   $      --
                                                                                 -----
                                                                                 -----
</TABLE>

    The Company subleased 60,800 square feet to a third-party. The sublease
expires in June 2000. The Company is scheduled to receive $1,276,000 for the
fiscal year ending March 31, 2000 and $319,000 for the fiscal year ending March
31, 2001.

    Rent expense for the years ended March 31, 1999, 1998 and 1997 was
$4,393,000, $3,926,000 and $2,305,000, respectively.

                                       64
<PAGE>
                                                                      SCHEDULE I

                              FORTE SOFTWARE, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                   YEARS ENDED MARCH 31, 1999, 1998 AND 1997
                   ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                       BALANCE AT   ADDITIONS CHARGED
                                                      BEGINNING OF    TO COSTS AND     DEDUCTIONS   BALANCE AT END
YEAR ENDED MARCH 31,                                      YEAR          EXPENSES       WRITE-OFFS      OF YEAR
----------------------------------------------------  ------------  -----------------  -----------  --------------
<S>                                                   <C>           <C>                <C>          <C>
1999................................................    1,151,000         183,000         281,000       1,053,000
1998................................................      941,000         846,000         636,000       1,151,000
1997................................................      531,000         494,000          84,000         941,000
</TABLE>

                                       65