COLORBUS INC, S-1, 1997-03-04

COLORBUS INC
S-1, 1997-03-04

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1997.
REGISTRATION NO. 333-

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COLORBUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 7372 33-064538
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION
OR
ORGANIZATION)
</TABLE>
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18261 MCDURMOTT WEST
IRVINE, CALIFORNIA 92614
(714) 852-1850
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL R. PEFFER
CHIEF EXECUTIVE OFFICER
18261 MCDURMOTT WEST
IRVINE, CALIFORNIA 92614
(714) 852-1850
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT OF SERVICE)
----------------
COPIES TO:
<TABLE>
<S> <C>
PATRICK ARRINGTON, ESQ. DENNIS R. DEBROECK, ESQ.
ELLEN S. BANCROFT, ESQ. EILEEN DUFFY ROBINETT, ESQ.
NEEL GROVER, ESQ. MICHAEL J. PATRICK, ESQ.
BROBECK, PHLEGER & HARRISON LLP FENWICK & WEST LLP
4675 MACARTHUR COURT TWO PALO ALTO SQUARE
SUITE 1000 SUITE 700
NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 92121
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE

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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par
value(3)............... shares $ $46,000,000 $13,939
</TABLE>
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(1) Includes shares of Common Stock ($6,000,000 aggregate offering
price) which may be purchased by the Underwriters to cover over-
allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating
the registration fee.
(3) The Registrant intends to reincorporate in Delaware prior to the
consummation of this Offering and change the par value of the Common Stock
to $.0001 per share.

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

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION--DATED MARCH 4, 1997

PROSPECTUS
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Shares

[Logo] COLORBUS, INC.

Common Stock

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Of the shares of common stock, par value $.0001 per share (the
"Common Stock") offered hereby, shares are being sold by COLORBUS,
Inc. ("COLORBUS" or the "Company") and shares are being sold by
certain stockholders of the Company (the "Selling Stockholders"). The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."

Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently anticipated that the initial
public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.

The Company has applied to The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") for quotation of the Common Stock under the proposed
symbol "CBUS."

SEE "RISK FACTORS" ON PAGES 6 TO 14 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
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Total(3)..................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Company and the Selling Stockholders have granted the several
Underwriters 30 day over-allotment options to purchase, in the aggregate,
up to additional shares of Common Stock on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public will be $ , the
total Underwriting Discounts and Commissions will be $ , the total
Proceeds to Company will be $ , and the total Proceeds to Selling
Stockholders will be $ . See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is
expected to be made at the office of Prudential Securities Incorporated, One
New York Plaza, New York, New York, on or about , 1997.

PRUDENTIAL SECURITIES INCORPORATED HAMBRECHT & QUIST

, 1997
<PAGE>

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."

2
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus (i) assumes that the Underwriters' over-allotment options will
not be exercised, (ii) assumes no exercise of outstanding options to purchase
113,878 shares of Common Stock as of February 15, 1997, and (iii) assumes the
reincorporation of the Company in Delaware in March 1997. See "Management--1997
Stock Incentive Plan" and "Underwriting."

THE COMPANY

COLORBUS develops and markets network print servers which enable the printing
of high resolution color images from various digital color copiers and large
format printers (printers which produce output larger than 11" by 17"). The
Company's principal product, the COLORBUS Cyclone Imaging System(R)
("Cyclone"), incorporates proprietary software which manages the simultaneous
print requests of multiple users on a computer network, processes color images
and outputs documents on multiple connected output devices. In cooperation with
Xerox, the Company is nearing completion of a new network print server, the
Network Server Plus 3.0 ("NS Plus 3.0"), which is designed to provide
simultaneous support for the Xerox DocuTech Production Publisher 135, a high
volume black and white production publishing system ("DocuTech 135"), and the
Xerox DocuColor 40 Digital Color Production System ("DocuColor 40"). The
NS Plus 3.0 will address the production publishing market and will enable the
cost effective, high volume production of documents with integrated color and
black and white pages.

The Cyclone is designed for the rapidly growing market for high quality, on
demand color printing (which includes graphic arts and professional color
publishing, commercial and short run printing, prepress services, office
printing and print-for-pay). The Company believes that a significant factor in
the growth of the on demand color printing market has been the increased
acceptance and use of digital color copiers connected to color print servers.
Dataquest estimates that the domestic market for digital color laser copiers
has grown at an annual rate of approximately 30% from 1993 to 1995. According
to Dataquest, approximately 14,400 digital color laser copiers were sold in the
United States in 1995. Dataquest forecasts that domestic sales of digital color
laser copiers will increase approximately 21% annually to 37,000 units in 2000.
In addition, the percentage of digital color laser copiers connected to print
servers is continuing to increase. Dataquest estimates that approximately 58%
of the digital color laser copiers sold in the United States in 1995 were
connected to color print servers. The Company believes that the installed base
of digital color laser copiers in international markets is larger than that in
the United States, and that connectivity rates are generally lower in
international markets than in the United States.

The Cyclone enables users to print high resolution color images from digital
color laser copiers manufactured by Canon, Kodak, RICOH, Savin, Sharp and
Xerox, as well as large format printers from ENCAD, Hewlett-Packard, Raster
Graphics and Xerox. The Cyclone incorporates an open, upgradeable, scaleable
architecture which the Company believes (i) extends product life by reducing
the risk of obsolescence, (ii) enables the cost effective and timely
introduction of new software based features, functionality and applications,
and (iii) provides users with the flexibility to change or add output devices
without the need for a new print server. End users of the Cyclone include large
and small businesses which operate in a variety of industries and include
Daimler Benz AG, Ford Motor Company, Heineken N.V., Kinko's, Inc., Lucent
Technologies, Inc., Microsoft Corporation, Time Warner, Inc. and The Walt
Disney Company. The Company is currently developing a Windows NT color print
server which management believes will be introduced in 1997.

The Company believes that the NS Plus 3.0, which is scheduled to be
introduced by Xerox in mid 1997, will provide a unique color solution for the
high volume production publishing market. The NS Plus 3.0 will provide an
integrated front end and network connection for new placements of the DocuTech
135 and the

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DocuColor 40, as well as for the existing worldwide installed base of more than
10,000 DocuTech 135 units. By providing simultaneous support for the DocuTech
135 and the DocuColor 40, the NS Plus 3.0 will enable users to control the
production publishing process from the print server and facilitate the
generation of integrated black and white and color documents.

The Company sells the Cyclone primarily through Canon and Xerox branch sales
offices or subsidiaries and office equipment distributors such as IKON Office
Solutions and Danka Business Systems PLC. Pursuant to Xerox's distribution and
development agreement with the Company, Xerox will sell the NS Plus 3.0 as a
Xerox product. The Company intends to continue to expand and develop strategic
relationships with key partners in its distribution channels to strengthen its
presence in existing markets and to expand into new markets.

COLORBUS operates in the United States and Canada, and operates in Europe
through its wholly owned subsidiary, CDS International B.V. ("CDS"), which the
Company acquired in December 1996. The Company's principal executive offices
are located at 18261 McDurmott West, Irvine, California, 92614, and its
telephone number is (714) 852-1850.

THE OFFERING

<TABLE>
<C> <S>
Common Stock Offered by the Company............... shares
Common Stock Offered by the Selling Stockholders.. shares
Common Stock to be Outstanding after the Offering. shares(1)
Use of Proceeds by the Company.................... For repayment of
indebtedness, for general
corporate and working
capital purposes and for
potential acquisitions of
related technologies and
businesses.
Proposed Nasdaq National Market Symbol............ CBUS
</TABLE>
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(1) Excludes 113,878 shares of Common Stock issuable upon exercise of
outstanding options as of February 15, 1997 at a weighted average exercise
price of $10.43 per share. See "Management--Other Stock Options."

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues............................ $2,129 $7,891 $26,959 $37,220 $42,264
Cost of revenues........................ 1,123 5,230 17,194 22,320 23,692
------ ------ ------- ------- -------
Gross profit............................ 1,006 2,661 9,765 14,900 18,572
Operating expenses:
Research and development.............. 204 379 894 1,495 2,006
Sales and marketing................... 614 1,546 5,298 9,731 11,907
General and administrative............ 239 616 1,861 2,412 2,918
Other costs and expenses.............. -- -- -- 181 397
------ ------ ------- ------- -------
Total operating expenses................ 1,057 2,541 8,053 13,819 17,228
------ ------ ------- ------- -------
Operating income (loss)................. (51) 120 1,712 1,081 1,344
Net income (loss)....................... $ (120) $ 123 $ 963 $ 537 $ 628
====== ====== ======= ======= =======
Net income (loss) per share............. $ $ $ $ $
====== ====== ======= ======= =======
Weighted average common and common
equivalent shares......................
====== ====== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 2,461 $
Total assets............................................. 12,879
Long term obligations, excluding current portion......... 378
Stockholders' equity..................................... 3,931
</TABLE>
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(1) Adjusted to give effect to the sale of shares of Common Stock
by the Company at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and estimated
offering expenses and the application of the net proceeds therefrom. See
"Use of Proceeds."

5
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this
Prospectus, in connection with an investment in the shares of Common Stock
offered hereby. This Prospectus contains forward looking statements.
Discussions containing such forward looking statements may be found under the
captions "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as in the
Prospectus generally. Prospective investors are cautioned that any such
forward looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual events or results may differ
materially from those discussed in the forward looking statements as a result
of various factors, including, without limitation, the risk factors set forth
below and the matters set forth in this Prospectus generally.

LIMITED OPERATING HISTORY AND FLUCTUATIONS IN OPERATING RESULTS. The Company
commenced operations in 1990 and began shipping the initial version of its
principal product, the Cyclone, in June 1993. In three of the most recent
eight quarters, the Company generated net losses and may incur net losses in
the future. The Company's operating results have fluctuated in the past and
will likely continue to fluctuate in the future on a quarterly and annual
basis based on a number of factors, many of which are not within the Company's
control. These factors include, without limitation, purchasing patterns in its
distribution channels; the demand for the Company's products; the timing of
the introduction of new products and price reductions by the Company and its
competitors; the performance of third party manufacturers; inventory levels;
level of investment in research and development and sales and marketing; the
availability and price of key components for the Company's products, including
DRAMs; the Company's relationships with key distributors, manufacturers and
licensors, including, among others, Adobe Systems Incorporated ("Adobe"),
Canon, Inc. and its affiliated entities ("Canon"), Danka Business Systems, PLC
("Danka"), IKON Office Solutions ("IKON"), Silicon Graphics, Inc. ("SGI") and
Xerox Corporation ("Xerox") and its affiliated entities including Rank Xerox
Limited ("Rank Xerox"); the Company's ability to develop and market new
products and enhancements to existing products; changes and advancements in
digital color copier and digital document product technology; currency
fluctuations; deferrals of customer orders in anticipation of new products by
the Company or its competitors; the Company's ability to integrate the
operations of CDS; and general economic and market conditions. The Company's
customers generally order on an as needed basis and, accordingly, the Company
operates with minimal backlog. As a result, quarterly revenues and operating
results depend largely upon the volume and timing of orders received during
the quarter, which are difficult to estimate and could lead to further
fluctuations in the Company's results of operations. There can be no assurance
that the Company will be able to predict accurately production and inventory
requirements. The Company also anticipates that its business will be affected
by seasonal purchasing patterns, particularly during the third quarter when
sales in Europe are generally lower. In addition, the Company often
experiences higher net revenues in its fourth quarter, resulting primarily
from sales to Xerox and its subsidiary, Rank Xerox, which sales typically
generate a large percentage of the Company's net revenues in that quarter.
This higher sales volume is generally followed by lower sales in the
subsequent first quarter. In the event the Company's future operating results
fail to meet the expectations of analysts and investors, the price of the
Company's Common Stock would be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

RISKS ASSOCIATED WITH EMERGING MARKETS. The Company's network print servers
and related proprietary software address new and rapidly evolving markets for
on demand color printing and production publishing. Because the markets for
digital color copiers, large format color printers and other digital document
products are relatively new, it is difficult to predict the rate at which
these markets will continue to grow, if at all. If these markets fail to grow,
or grow more slowly than the Company currently anticipates, the Company's
business, operating results and financial condition will likely be adversely
affected. Although the Company intends to continue to utilize resources to
educate potential end users about network print servers and digital document
products, there can be no assurance that such expenditures will enable the
Company's products to achieve any additional degree of market acceptance. In
addition, the Company is completing development of the NS Plus 3.0,

6
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which is its first product targeted to the production publishing market and
also represents the Company's first product to support a high speed black and
white publishing system. Although the Company expects Xerox to introduce the
NS Plus 3.0 in mid 1997, the timing of this product introduction is not within
the Company's control, and there can be no assurance that this server will be
introduced in a timely manner, if at all, or that it will achieve any degree
of market acceptance. There can be no assurance that the Company will be able
to maintain or increase its presence in its existing market segments or to
penetrate any additional market segments successfully. See "Business--Market
Overview."

DEPENDENCE ON SINGLE PRODUCT LINE. To date, substantially all of the
Company's revenues have been derived from sales of the Cyclone and related
products. While the Company's strategy is to expand into other network digital
document products such as the NS Plus 3.0, the Company anticipates that sales
of current or future versions of the Cyclone or similar color print server
products will continue to represent the majority of its revenues for the
foreseeable future. A decline in the price of or demand for the Cyclone or
color print servers generally as a result of technological changes,
competition, the introduction of new products by the Company or any
competitor, or the failure to manage product transitions successfully, would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "--Dependence on Silicon Graphics, Inc.;
Changes in Workstation Platforms" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "--Results of
Operations."

DEPENDENCE ON XEROX CORPORATION. Net revenues derived from sales of the
Company's products to Xerox, and its affiliated entities including Rank Xerox,
in the years ended December 31, 1994, 1995 and 1996 represented approximately
10.2%, 16.4% and 33.9%, respectively, of the Company's net revenues. In 1995
and 1996, a substantial majority of such sales represented sales in Europe to
Rank Xerox. Sales of the Cyclone in Europe have been and will continue to be
heavily dependent upon the Company's relationship with Rank Xerox. The Company
does not have an OEM agreement with Rank Xerox with respect to the Cyclone and
has operated and expects to continue to operate on a purchase order basis. If
Rank Xerox were to reduce its purchases of the Cyclone, the Company's
business, financial condition and results of operations would be materially
and adversely affected.

The Company's net revenues from the Xerox distribution channel in the United
States have been significantly less than those in Europe, where CDS has
benefited from a well established relationship with Rank Xerox. Sales of the
Cyclone to Xerox in the United States declined slightly during the period from
1994 to 1996, which the Company believes was attributable to a series of
changes in the method of distribution of the Cyclone by Xerox domestic branch
sales offices. In 1994 and 1995, the Cyclone was distributed to Xerox and its
resellers through a third party distributor. In April 1996, the Company and
Xerox entered into a distribution agreement pursuant to which Xerox's domestic
branch sales offices and resellers can purchase the Cyclone directly through
Xerox's order administration system. This distribution agreement does not
require minimum purchase commitments and is less comprehensive in scope than
Xerox's OEM arrangements with certain of the Company's competitors. To date
the Company has not experienced significant growth in domestic Cyclone sales
to Xerox as a result of this agreement, and there can be no assurance that
domestic Cyclone sales to Xerox will not decline in future periods.

The Company is nearing completion of the development with Xerox of the NS
Plus 3.0, which is designed to support the Xerox DocuTech 135 and DocuColor
40. This product will be marketed exclusively by Xerox, and the Company will
have very little influence concerning the manner and timing of the
introduction of the product, its marketing or any other aspect of product
strategy. The Company's agreement with Xerox precludes the Company from
developing a competing network print server to support any other cutsheet
black and white copier or printer with a rated speed of 70 pages per minute or
more for a specified time period. The Company is therefore disabled for a
limited time from developing or introducing products which address a
significant part of the production publishing market. In the event the product
fails to achieve market acceptance, such failure would have a material adverse
effect upon the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--Network Print Server Products" and "--
Distribution, Sales and Marketing."

7
<PAGE>

DEPENDENCE ON MANUFACTURERS OF COLOR COPIERS, LARGE FORMAT PRINTERS AND
OTHER OUTPUT DEVICES. The Company's network print server products provide
connectivity to digital color copiers, large format printers and certain other
digital document products. As a result, sales of the Company's products have
been and will continue to be heavily influenced by the demand for and market
acceptance of the color output devices and other digital document products
with which the Company's products operate. For the past three years, the
Company has derived a substantial majority of its net revenues from the sale
of the Cyclone systems designed for use with certain Canon, Xerox and RICOH
Corporation ("RICOH") digital color copiers. There are only a limited number
of manufacturers of digital color copiers and large format printers, and there
can be no assurance that the Company will succeed in developing new products
compatible with products developed by other manufacturers, or that it will be
able to retain or enter into favorable relationships with other manufacturers.
In addition, if those manufacturers introduce or support products that compete
with the Company's products, sales of the Company's products with such copiers
or other digital document products could substantially decline.

The Company currently relies heavily on technical information from Xerox in
order to assist the Company in the development of network print servers with
connectivity to Xerox's digital color copiers and production publishing
systems. There can be no assurance that this level of technical information
will continue to be available to the Company. To date, the Company has not
generally received similar technical information from other manufacturers.
Accordingly, the Company must independently design connectivity solutions for
those devices. Copier manufacturers could also introduce new copiers which are
not compatible with the Company's products. There can be no assurance that the
Company will be able to modify its products successfully to accommodate any
new products on a timely basis, if at all. See "Business--Distribution, Sales
and Marketing" and "--Manufacturing, Suppliers and Licensors."

RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS. The Company generally sells
its products indirectly through branch sales offices or subsidiaries of color
copier manufacturers, office equipment distributors and other independent
distributors and dealers. The Company's net revenues derived from sales to
Xerox and its affiliated entities, IKON and Canon accounted for approximately
33.9%, 23.0% and 12.2%, respectively, of the Company's net revenues for the
year ended December 31, 1996. The Company relies heavily upon its
relationships with these and other distributors, and the Company intends to
continue to invest significant resources to develop these relationships. These
expenditures could adversely affect operating margins unless the Company is
able to achieve commensurate growth in sales through these indirect channels
of distribution. Unlike certain of the Company's competitors who have entered
into OEM relationships with copier manufacturers, the Company's relationships
with its distributors typically do not include minimum purchase requirements
and are generally cancelable by either party with only minimal notice
requirements and no termination penalties. Not all of such relationships are
evidenced by written contracts. See "Business--Distribution, Sales and
Marketing" and "--Competition."

COMPETITION. The markets for the Company's products are relatively new and
evolving, and are characterized by intense competition and rapid technological
change. The Company primarily competes with several manufacturers of color
print servers, including Electronics for Imaging, Inc. ("EFI") and Splash
Technology Holdings, Inc. ("Splash"), as well as manufacturers of digital
color copiers and color laser printers. These competitors are expected to
expand the functionality and performance of their products which may render
such technologies more competitive than the Company's products. Xerox and
Canon have entered into OEM arrangements with certain of the Company's
competitors which have made it more difficult for the Company to market its
products through such manufacturers' branches and dealers. The Company
believes the principal competitive factors in its markets are product
features, functionality, performance and price as well as strategic
relationships with key partners in existing distribution channels. The Company
believes that the ability to incorporate platforms manufactured by various
workstation manufacturers and adapt to the Windows NT operating system may
also be an important competitive factor in the future.

8
<PAGE>

functionality of copiers and laser printers increases, manufacturers of such
output devices will continue to add color server functionality to their
systems which could reduce the market for the Company's existing products.
Certain competitors have developed embedded color printer controllers that
reside inside the copier or printer. To the extent copier manufacturers
incorporate color server technology with their copiers as an integrated color
solution, the Company's ability to sell its products through such
manufacturers will likely be materially and adversely affected.

The Company also competes indirectly with companies engaged in the
electronic prepress market which offer color separation software, color
editors and page layout software. While this software is typically
complementary to the Company's products, it may also become increasingly
competitive to the extent that providers of such software extend the
functionality of their products in future releases. Many of the Company's
competitors have significantly greater financial, technical, manufacturing,
marketing and other resources than the Company, and there can be no assurance
that the Company will be able to compete successfully with these companies.
See "Business--Competition."

DEPENDENCE ON SILICON GRAPHICS, INC.; CHANGES IN WORKSTATION PLATFORMS. The
Cyclone currently operates on the Indy workstation manufactured by a single
supplier, SGI. The Company operates under an agreement with SGI, pursuant to
which SGI granted the Company a nonexclusive license to incorporate the
Company's software and components into the Indy workstation and certain
successor products. This agreement expires in February 1998 and may be renewed
for subsequent one year terms upon the mutual prior written agreement of the
Company and SGI. There can be no assurance that the Company's agreement with
SGI will be renewed or extended on favorable terms, if at all. SGI recently
introduced a new workstation, the O/2/, which the Company anticipates will
replace the Indy workstation in mid 1997. The O/2/ does not currently
accommodate two internal interface boards and, accordingly, the Company may
not be able to provide dual copier support on this platform, which could
adversely affect the marketability of the Cyclone. While the Company is
currently developing interface boards and making revisions to its Cyclone
software to adapt to the O/2/ and is investigating alternative methods to
continue to provide dual copier support, such development is only partially
completed. There can be no assurance that such development will be fully
completed on a timely basis, if at all, or that the Company will be able to
continue to provide dual copier support, or that the new line of SGI
workstations will achieve market acceptance. Sales of the Indy based Cyclone
may decline pending the introduction of the new workstation. If SGI were to
discontinue production of the Indy before the Company is able to adapt to the
new platform, or if SGI were unable to provide or otherwise ceases to provide
an acceptable level of end user customer support for the Indy workstation, the
Company's business, financial condition and results of operations would be
materially and adversely affected. The Company is also evaluating other
workstation platforms for its products, but there can be no assurance that
such development efforts will be successful in a timely manner, if at all, or
that network print servers utilizing alternative workstations from other
manufacturers will be accepted in the market. See "Business--Manufacturing,
Suppliers and Licensors."

RAPID TECHNOLOGICAL CHANGE. The Company believes its future success will
depend upon its ability, in a timely manner, to develop and introduce new
products and product enhancements which incorporate evolving technologies and
emerging industry standards. The on demand color printing and production
publishing markets are characterized by rapid and ongoing technological
changes and advancements, frequent new product introductions, evolving end
user requirements and significant price competition, resulting in short
product life cycles and reductions in unit selling prices over the life of a
specific product. As a result, the Company must take advantage of
technological advancements in digital document products and continue to
develop innovative products that provide increasingly higher levels of
performance and reliability and achieve cost reductions for its existing
products. Such advancements may render obsolete all or some of the Company's
existing product inventories. There can be no assurance that the Company will
be successful in developing and marketing new products or enhancements to the
Company's existing products, in a timely manner, if at all, or that its
products will adequately address the changing needs of the market.
Furthermore, output device manufacturers may introduce new products which are
not compatible with the Company's products. In addition, the introduction or
market expectation of new products based on new or enhanced technologies, the
emergence of new industry

9
<PAGE>

standards or operating systems or significant price reductions in competitors'
products could adversely affect the Company's results of operations. The
Company is expanding its product line to include a network print server for
the production publishing market, the NS Plus 3.0, which will support the
Xerox DocuTech 135 and DocuColor 40, and which the Company expects Xerox will
commence marketing in mid 1997. There can be no assurance that this product
will be introduced on a timely basis, if at all, or that it will be able to
achieve any degree of market acceptance. See "--Dependence on Silicon
Graphics, Inc.; Changes in Workstation Platforms" and "Business--Business
Strategy" and "--Research and Development."

DEPENDENCE ON ADOBE SYSTEMS INCORPORATED. The Company's products utilize the
Adobe Configurable PostScript Interpreter ("PostScript"). PostScript
interprets page description (text, graphics and images) and generates raster
image output. The Company's nonexclusive license agreement with Adobe expires
in November 1997 and is subject to renewal upon mutual consent. Pursuant to
this agreement, the Company pays royalties to Adobe for each copy of
PostScript incorporated in the Cyclone, which royalties constitute a
significant portion of the cost of the Cyclone. The Company participates in
Adobe's quality assurance program which requires Adobe's approval each time
the Company develops a new product that includes PostScript, or incorporates a
new version of PostScript into its products (such as Adobe's Level 3
PostScript which is scheduled to be released in 1997), or if the Company
significantly changes an existing product that incorporates PostScript. Any
delay in the release of future versions of PostScript or any material defects
in such software could have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
to date has been able to obtain licenses for PostScript as requested, there
can be no assurance that the Company will be able to extend or renew this
license or obtain new licenses for future versions of PostScript, on favorable
terms, in a timely manner, if at all. If the Adobe license agreement is
terminated for any reason or if the Company's relationship with Adobe is
impaired, the Company could be required to adopt an alternative software which
would require the expenditure of significant resources and time. Although the
Company believes it would be able to incorporate similar software from another
supplier, such incorporation could disrupt sales and deliveries and may reduce
the marketability and functionality of the Company's products. See "Business--
Manufacturing, Suppliers and Licensors" and "--Competition."

INTEGRATION OF RECENT ACQUISITION; MANAGEMENT OF RECENT GROWTH. The Company
completed its acquisition of its European distributor, CDS, in December 1996.
The acquisition was accounted for as a pooling of interests and, accordingly,
the consolidated financial position and results of operations of the Company
have been restated to include the results of CDS for all periods presented.
Although CDS has distributed the Company's products since 1993, the Company
has had only limited experience operating as a combined entity. Management
faces a number of issues in connection with the operation of the combined
entity, including the integration of each company's information systems, sales
and marketing efforts and employees, including executive officers of CDS who
have become executive officers and directors of the Company. Prior to the
acquisition, the Company did not operate on a large scale outside the United
States or Canada. The acquisition of CDS requires the integration of CDS'
international operations which entails the merger of geographically disparate
operations in different regulatory environments, cultures and time zones.
There can be no assurance that additional revenues will be generated or that
operating efficiencies will be achieved as a result of this acquisition. See
"--International Business" and Note 2 of Notes to Consolidated Financial
Statements.

The CDS acquisition, as well as the Company's recent growth in net revenues,
has placed, and is expected to continue to place, a significant strain on the
Company's management and its administrative, sales and marketing, financial,
information systems and operational resources. The Company's future operating
results will depend on its ability to broaden the Company's senior management
group, to attract, hire and retain skilled employees and to continue to
improve the Company's operational and financial control systems. During 1996,
the size of the Company's staff increased from 47 to 112 employees, primarily
resulting from the acquisition of CDS and, to a lesser extent, the hiring of
additional research and development personnel. The Company intends to add
additional personnel in 1997 to expand its sales and marketing capabilities.
The Company believes its success will depend, in part, on its ability to
integrate these and additional employees into the Company. The Company's
inability to manage growth effectively and efficiently could have a material
adverse effect on the

10
<PAGE>

Company's business, financial condition and results of operations. In
addition, during 1997, the Company plans to relocate its corporate
headquarters and manufacturing facilities to expanded facilities in Orange
County, California. This relocation could have a disruptive effect upon the
Company's operations, and the Company's inability to manage the relocation
effectively and efficiently would have a material adverse affect on the
Company's results of operations for that period. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Facilities."

DEPENDENCE ON SOLE SOURCE SUPPLIERS. The Company is dependent upon sole
suppliers for its workstations, interface boards, DRAMs and densitometers.
While the Company has only experienced infrequent and insignificant shortages
of such components to date, future shortages may limit the Company's ability
to produce and ship its products in a timely manner and could have an adverse
effect on the Company's results of operations. Because the purchase of certain
key components involves long lead times, in the event of unanticipated
increases in demand for the Company's products, the Company could be unable to
manufacture products in sufficient quantity to meet end user demand.

All of the Company's interface boards are manufactured by Concept
Development, Inc. ("CDI"). Although the Company believes that the boards could
be manufactured by a number of alternative suppliers, a disruption in the
supply of the boards could have an adverse effect on the Company's ability to
fulfill orders on a short term basis. The Company's domestic and European
operations each purchase DRAMs from a single supplier. Although other sources
are readily available, a change in the Company's DRAM suppliers could cause
delays in the Company's ability to obtain these components, which could limit
production of the Company's products. Such delays could be exacerbated in
times of memory shortages. Any inability to obtain adequate deliveries of any
of the components used in the Company's products, including workstations,
DRAMs, interface boards and densitometers, could damage relationships with
current and prospective customers and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Manufacturing, Suppliers and Licensors."

INTERNATIONAL BUSINESS. The Company's international sales, which include
sales to Asia, Australia, Canada and Europe, accounted for approximately
28.2%, 36.4% and 44.4%, respectively, of the Company's net revenues for the
years ended December 31, 1994, 1995 and 1996. International sales are subject
to certain significant risks, including currency fluctuations, barriers to
trade, the imposition of governmental controls, compliance with a variety of
foreign and United States export laws, political and economic instability,
trade restrictions, changes in tariffs and taxes, longer payment cycles,
greater difficulty of administering business and general economic conditions.
In 1995, CDS incurred exchange losses of $417,000 on foreign exchange
contracts used as a hedge against its commitment to purchase components in
U.S. dollars. While CDS experienced gains on such contracts in 1996, future
losses are possible and are not completely within the Company's control. CDS'
European sales are denominated in Dutch guilders and other European
currencies, which may result in foreign currency translation adjustments in
the Company's consolidated financial statements. In addition, the laws of
certain foreign countries may not protect the Company's intellectual property
to the same extent as the laws of the United States. The Company's inability
to manage its operations in foreign countries effectively could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Distribution, Sales and Marketing."

RISK OF PRODUCT DEFECTS. The Company's products consist of hardware and
software developed by the Company and others. The Company's products may
contain undetected hardware or software defects when first introduced or when
new versions are released, and the Company has in the past discovered such
defects in certain of its new products after their introduction. Although the
Company has not experienced any material adverse effects resulting from any
defects to date, there can be no assurance that defects would not be found in
new versions of the Company's products after commencement of commercial
shipments, or that any such defects would not result in a loss of or delay in
market acceptance which could cause a material adverse effect on the Company's
business, financial condition and results of operations. In addition, defects
in the Company's products (including defects in licensed third party software)
detected prior to the Company's release of new products could result in a
delay in or the cancellation of the introduction of such new products causing
the Company to incur significant additional expenses.

11
<PAGE>

The Company generally extends to its customers a warranty that corresponds
to the warranty provided to the Company by its suppliers. The failure of a
supplier to meet its warranty obligations may require the Company to assume
such warranty obligations, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Customer Service and Support" and --Manufacturing, Suppliers and
Licensors."

DEPENDENCE ON KEY PERSONNEL. The Company's success depends on the continued
service of key management, sales and technical personnel, and on its
continuing ability to attract and retain qualified personnel. The Company also
relies heavily on its software development group which consists of 14 persons,
including Cameron C. Altenhof-Long. The competition for such personnel is
intense, particularly in the computer industry, and there is no assurance that
the Company will be able to retain its key personnel or attract other highly
qualified personnel in the future. The Company has not entered into employment
agreements with any of its executive officers, except with Messrs. Barry
Broere and Kees Mulder. The Company maintains key person life insurance in the
amount of $3.0 million and $500,000 on the lives of Messrs. Worth T. Probst
and Cameron C. Altenhof-Long, respectively, and accidental death coverage in
the amount of NLG 2,000,000 on the lives of each of Messrs. Broere and Mulder
and NLG 1,000,000 on the life of Mr. Paul de Roij. See "Management."

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company relies heavily on
proprietary technology which it protects primarily through copyright,
trademark and trade secret laws, exclusive licensing arrangements, employee
nondisclosure agreements and other security measures. Due to rapid
advancements in color printing and image processing technology and in order to
avoid disclosure of the Company's software and components, the Company has
decided to rely on these protections instead of pursuing patents. Despite
these precautions, there can be no assurance that the Company will be
successful in protecting its proprietary technology, or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies. Intellectual property
rights have been the subject of substantial litigation in the computer
software and hardware industry. Although no known infringement claims or
lawsuits are currently pending against the Company, there can be no assurance
that infringement claims by third parties, or claims for indemnification
resulting from infringement claims, will not be asserted in the future. All
claims, regardless of merit, could be time consuming, result in costly
litigation, 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,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. Litigation may be necessary in
the future to protect the Company's intellectual property owned by or licensed
to the Company, to defend the Company against infringement claims or to
determine the scope and validity of the proprietary rights of others.
Litigation to determine the validity of any claims could result in significant
expense to the Company and could divert the efforts of the Company's
management and technical personnel from productive tasks, which by itself
could have a material adverse effect on the Company's business. In addition,
the Company may lack sufficient resources to initiate a meritorious claim. In
the event of an adverse ruling in any litigation regarding intellectual
property, the Company may be required to pay substantial damages, discontinue
the use and sale of infringing products, expend significant resources to
develop noninfringing technology or obtain licenses to infringing or
substituted technology. The failure of the Company to develop or license, if
required, a substitute technology on acceptable terms could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Intellectual Property and Proprietary Rights."

PENETRATION OF ASIAN MARKETs. The Company believes that the increased
penetration of Asian markets, particularly Japan, will be important to the
Company's future financial performance. Asian markets represent a significant
portion of the color copier market and traditionally have been difficult to
penetrate for companies without a local presence. Although the Company
currently uses independent distributors to market and sell the Company's
products in Asia, sales in these geographic markets have been insignificant to
date. While the Company intends to open an office in Japan in 1997, which will
result in increased sales and marketing expenses, there can be no assurance
that such office will result in increased market penetration or lead to the
successful marketing of the Company's products in Asia. See "Business--
Business Strategy" and "--Distribution, Sales and Marketing."

12
<PAGE>

BROAD DISCRETION OVER USE OF PROCEEDS. The Company has not allocated a
significant portion of the net proceeds of this Offering for any particular
purpose. Accordingly, management will have broad discretion in allocating the
net proceeds, and stockholder approval may not be required for such
allocations. These unallocated proceeds may be used for, among other things,
the acquisition of businesses or product lines which have not yet been
identified. The Company's stockholders may not have an opportunity to review
or vote upon the terms of these acquisitions. See "Use of Proceeds."

CONTROL BY EXISTING STOCKHOLDERS. Following this Offering, the Company's
existing stockholders will beneficially own approximately % of the
outstanding shares of Common Stock (approximately % if the Underwriters'
over-allotment options are exercised in full). As a result, such persons will
have the ability to elect the Company's directors and to determine the outcome
of corporate actions requiring stockholder approval, regardless of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Management" and "Principal and Selling Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this Offering, the
Company will have a total of shares of Common Stock outstanding
( shares if the Underwriters' over-allotment options are exercised
in full), of which 3,014,118 shares will be restricted securities within the
meaning of Rule 144 under the Securities Act of 1933. The Company and all its
officers and directors and the Selling Stockholders have agreed with the
Underwriters that they will not, directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) any
shares of Common Stock or other capital stock or any securities convertible
into or exercisable or exchangeable for, or any rights to purchase or acquire
any shares of Common Stock or other capital stock of the Company for a period
of 180 days after the date of this Prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters
(the "180 Day Lockup"). Prudential Securities Incorporated may, in its sole
discretion, at any time and without notice, release all or any portion of the
shares of Common Stock subject to such agreement. Subject to Rule 144 and Rule
701, shares not subject to the 180 Day Lockup will become eligible
for sale in the public market 90 days after the effective date of this
Prospectus. The remaining shares of Common Stock are subject to the
180 Day Lockup. Upon the expiration of the 180 Day Lockup, these
shares (plus shares issuable upon exercise of then vested outstanding options)
will become eligible for sale subject to the restrictions and volume
limitations of Rule 144. Sales of substantial amounts of such shares in the
public market or the availability of such shares for future sale could
adversely affect the market price of the Common Stock and adversely affect the
Company's ability to raise additional capital through an offering of its
equity securities. See "Shares Eligible for Future Sale" and "Underwriting."

POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK. The Board of Directors
has authority to issue up to 1,000,000 shares of Preferred Stock and to fix
the rights, preferences, privileges and restrictions, including voting rights,
of those shares without any further vote or action by the stockholders. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, 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 present plans to issue shares of Preferred Stock.
In addition, the Company is subject to the antitakeover provisions of Section
203 of the Delaware General Corporation Law, which will prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The application of Section 203 also could have the
effect of delaying or preventing a change of control of the Company. Further,
certain provisions of the Company's Certificate of Incorporation and Bylaws
and of Delaware law could delay or make more difficult a merger, tender offer
or proxy contest involving the Company, which could adversely affect the
market price of the Company's Common Stock. See "Description of Capital
Stock."

13
<PAGE>

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this
Offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active market will develop or be
sustained after this Offering, or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined through negotiations among the Company, the
Selling Stockholders and the Representatives of the Underwriters, and may not
be indicative of future market prices. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The market price of the Common Stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, changes in
earnings estimates by analysts, announcements of technical innovations or new
products by the Company or its competitors, general conditions in the high
technology industry and other events or factors. In addition, the securities
of many technology companies have experienced extreme price and volume
fluctuations, which have often been unrelated to the operating performance of
such companies. These conditions may adversely affect the market price of the
Common Stock.

IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price of the
Common Stock is substantially higher than the net tangible book value per
share of the Common Stock. Investors participating in this Offering will
therefore incur an immediate and substantial book value dilution and may incur
additional dilution upon the exercise of outstanding stock options. See
"Dilution."

14
<PAGE>

THE COMPANY

The Company was incorporated in California in 1987, commenced operations in
1990 and will be reincorporated in Delaware in March 1997. All references to
the "Company" contained herein include COLORBUS, Inc., CDS International B.V.,
Colorbus Europe Holdings, Inc., Colorbus Foreign Holdings, Inc., Colorbus
International B.V., Colorbus France SARL, Colorbus Nederland B.V., Colorbus UK
Ltd., Color & Document Systems Bolderheij GmbH, Color Services B.V., Imagix
International GmbH (Austria) and Imagix International GmbH (Germany). The
Company's principal executive offices are located at 18261 McDurmott West,
Irvine, California, 92614 and its telephone number is (714) 852-1850.

COLORBUS, COLORBUS Cyclone Color Imaging System(R), Cyclone, Opticolor and
Storm Front are trademarks of the Company. This Prospectus also includes
trademarks and trade names of companies other than the Company.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be $ , assuming an
initial public offering price of $ per share after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.

The Company intends to use a portion of the net proceeds from this Offering
to repay all outstanding borrowings including the Company's bank term loan
(approximately $563,000 was outstanding as of December 31, 1996), the proceeds
of which were used to purchase certain equipment. This loan accrues interest
at the bank's prime rate plus one half percent (8.75% as of December 31, 1996)
and is payable in monthly installments through June 1998. The Company also
intends to repay any amounts outstanding under its working capital bank lines
of credit in the United States and the Netherlands, which lines of credit had
no outstanding balances as of December 31, 1996. The balance of the net
proceeds will be used for general corporate and working capital purposes,
including the addition of sales and marketing personnel, increased research
and development, expansion of international sales and marketing activities and
promotion of recently introduced products. Pending such uses, the Company
intends to invest the net proceeds of this Offering in short term, investment
grade, interest-bearing instruments, including government obligations and
money market instruments.

The Company may also use a portion of the net proceeds to fund potential
acquisitions of related technologies and businesses. The Company currently
does not have any agreements, commitments, arrangements or understandings with
respect to any such acquisition. The Company anticipates that the net proceeds
of this Offering, together with cash from operations and available credit
under the Company's bank lines of credit, will provide sufficient funds for
the Company's operations for at least the next twelve months.

DIVIDEND POLICY

The Company has never declared or paid dividends on its Common Stock and
currently intends to retain all future earnings for use in the Company's
business. Accordingly, the Company does not anticipate declaring or paying
dividends on the Common Stock in the foreseeable future. Any future
determination relating to the Company's dividend policy will be made at the
discretion of the Board of Directors subject to the approval of the Company's
principal lenders. Such decisions will depend upon a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company, the principal lenders' approval for the
payment of any dividends and such other factors as the Board of Directors may
deem relevant.

15
<PAGE>

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of December 31, 1996, and as adjusted to give effect to the sale of
shares of Common Stock by the Company in this Offering (after deducting
underwriting discounts and commissions and estimated offering expenses) and
the application of the net proceeds therefrom:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long term obligations, excluding current portion........... $ 378 $
Stockholders' equity:
Preferred Stock, $.0001 par value, 1,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common Stock, $.0001 par value, 50,000,000 shares
authorized; 3,014,118 shares issued and outstanding; and
shares issued and outstanding, as
adjusted(1)............................................. 1,942
Retained earnings........................................ 2,059
Cumulative translation adjustment........................ (70)
------ ------
Total stockholders' equity............................. 3,931
------ ------
Total capitalization................................. $4,309 $
====== ======
</TABLE>
- --------
(1) Excludes 113,878 shares of Common Stock issuable upon exercise of stock
options outstanding as of February 15, 1997 at a weighted average price of
$10.43 per share. See "Management--Other Stock Options."

16
<PAGE>

DILUTION

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of the Common Stock
from the assumed initial public offering price. The net tangible book value of
the Company as of December 31, 1996 was $3,931,000, or $1.30 per share. "Net
tangible book value per share" is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) by the
total number of shares of Common Stock outstanding as of December 31, 1996.
After giving effect to the sale by the Company of the shares of Common
Stock offered hereby at an assumed initial public offering price of $ per
share (after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) and the application of the estimated
net proceeds therefrom, the Company's adjusted net tangible book value as of
December 31, 1996 would have been $ , or $ per share of Common
Stock. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of $
per share to new investors purchasing shares in this Offering. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price.......................... $
Net tangible book value before the Offering.................. $1.30
Increase attributable to new investors.......................
-----
Adjusted net tangible book value after the Offering............
------
Dilution in net tangible book value to new investors........... $
======
</TABLE>

The following table summarizes on a pro forma basis, as of December 31,
1996, the relative investments of all existing stockholders and new investors,
giving pro forma effect to the sale of the shares offered by the Company
hereby (at an assumed initial public offering price of $ per share) to new
investors in this Offering.

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------- -------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)......... % $ % $
New investors.......................
--- ----- ------ -----
Total............................. 100.0% $ 100.0%
=== ===== ====== =====
</TABLE>
- --------
(1) Excludes 113,878 shares of Common Stock issuable at a weighted average
exercise price of $10.43 per share, upon exercise of options outstanding
as of February 15 , 1997. See "Management--Other Stock Options."
(2) Sales by the Selling Stockholders in this Offering will cause the number
of shares held by existing stockholders to be reduced to
shares, or approximately % of the total number of shares to be
outstanding after this Offering. If the Underwriters' over-allotment
options are exercised in full, the number of shares held by existing
stockholders will be further reduced to shares, or approximately
% of the total number of shares to be outstanding after this Offering.
See "Principal and Selling Stockholders."

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated statement of operations data for each of the
three fiscal years ended December 31, 1994, 1995 and 1996, and the
consolidated balance sheet data as of December 31, 1995 and 1996, have been
derived from, and are qualified by reference to, the consolidated financial
statements of the Company audited by KPMG Peat Marwick LLP, independent
certified public accountants, which are included elsewhere in this Prospectus.
The consolidated statements of operations data for the years ended December
31, 1992 and 1993 and the consolidated balance sheet data at December 31,
1992, 1993 and 1994 have been derived from the Company's unaudited
consolidated financial statements not included herein. The Company acquired
CDS in December 1996 in a business combination accounted for as a pooling of
interests and, accordingly, the consolidated financial position and results of
operations of the Company have been restated to include the results of CDS for
all periods presented. The following information should be read in conjunction
with the consolidated financial statements of the Company and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues........................... $2,129 $7,891 $26,959 $37,220 $42,264
Cost of revenues....................... 1,123 5,230 17,194 22,320 23,692
------ ------ ------- ------- -------
Gross profit........................... 1,006 2,661 9,765 14,900 18,572
Operating expenses:
Research and development............. 204 379 894 1,495 2,006
Sales and marketing.................. 614 1,546 5,298 9,731 11,907
General and administrative........... 239 616 1,861 2,412 2,918
Other costs and expenses............. -- -- -- 181 397
------ ------ ------- ------- -------
Total operating expenses............... 1,057 2,541 8,053 13,819 17,228
------ ------ ------- ------- -------
Operating income (loss)................ (51) 120 1,712 1,081 1,344
Interest expense, net.................. 3 28 121 257 336
------ ------ ------- ------- -------
Income (loss) before income taxes...... (54) 92 1,591 824 1,008
Provision (benefit) for income taxes... 66 (31) 628 287 380
------ ------ ------- ------- -------
Net income (loss)...................... $ (120) $ 123 $ 963 $ 537 $ 628
====== ====== ======= ======= =======
Net income (loss) per share............ $ $ $ $ $
====== ====== ======= ======= =======
Weighted average common and common
equivalent shares.....................
====== ====== ======= ======= =======
<CAPTION>
DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficiency)........... $ (82) $ 693 $ 2,062 $ 1,803 $ 2,461
Total assets........................... 1,762 4,294 10,326 13,556 12,879
Long term obligations, excluding
current portion....................... 37 108 882 1,139 378
Stockholders' equity................... 41 907 1,953 2,657 3,931
</TABLE>

18
<PAGE>

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

OVERVIEW

The Company commenced operations in 1990 as a developer of software products
to provide digital connectivity for color output devices. The Company's
revenues from inception through the first quarter of 1993 consisted primarily
of sales of connectivity software for Canon color copiers. The first version
of the Company's principal product, the Cyclone, which provided connectivity
to Canon color copiers only and operated on SGI's Indigo workstation, began
shipping domestically in 1993. The Company introduced the Cyclone with
connectivity to Xerox color copiers in 1994 and RICOH color copiers in 1995.
Also in 1995, the Company introduced Cyclone software to provide connectivity
to large format color printers from ENCAD, Hewlett-Packard and Xerox. In 1996,
the Company introduced version 2.0 of its Cyclone software which includes
improved functionality through the introduction of several new features.

Substantially all of the Company's revenues to date are attributable to
sales of the Cyclone and related products. While the Company's strategy is to
expand into other network digital document products such as the NS Plus 3.0,
the Company anticipates that sales of current or future versions of the
Cyclone or similar color print server products will continue to represent the
majority of the Company's revenues for the foreseeable future. The suggested
list price of the Cyclone ranges from approximately $25,000 to $55,000
depending on configuration. The Company offers optional hardware and software
upgrades and accessories, and extended hardware and software support
contracts.

In December 1996, the Company issued 1,054,943 shares of its Common Stock in
exchange for all the issued and outstanding capital stock of CDS, its
exclusive distribution and marketing agent in Europe, in a business
combination accounted for as a pooling of interests. Net revenues of CDS were
$8.8 million, $14.2 million and $19.1 million, respectively, during the years
ended December 31, 1994, 1995 and 1996. CDS was formed in 1992 as a
distributor of analog color copiers and related products and services, and
became the exclusive distributor for the Cyclone in Europe in January 1994.
During the period from its inception through 1995, CDS also distributed other
desktop publishing equipment; during 1996, however, CDS concentrated its
efforts almost exclusively on sales of the Cyclone and related products and
services. CDS' intent is to continue devoting its efforts to sales of the
Cyclone and future products developed by the Company. The functional currency
of CDS is the Dutch guilder, and the functional currency of each CDS
subsidiary is its local currency. The Company's results of operations in
future periods will therefore be affected by fluctuations in the exchange rate
of Dutch guilders and other European currencies to U.S. dollars. See Notes 1
and 2 of Notes to Consolidated Financial Statements.

The Company generally sells the Cyclone and related products in the United
States and Canada indirectly through branch sales offices or subsidiaries of
color copier manufacturers (Canon, Ricoh and Xerox), office equipment
distributors (including IKON and Danka) and other independent distributors and
dealers. CDS distributes the Cyclone and related products in Europe primarily
to Rank Xerox branch sales offices, as well as to Canon branch sales offices
in Germany and IKON in France and the United Kingdom. CDS maintains sales and
service offices in Austria, France, Germany, the Netherlands and the United
Kingdom, supporting sales and service throughout Western Europe. The Company's
internal sales force in the United States, Canada and Europe assists its
distributors in the demonstration, order and delivery of the Cyclone to their
customers.

The Company also distributes its products in Australia and Asia through four
independent distributors who obtain the Cyclone software license, interface
boards and Adobe software license from the Company, and then assemble the
Cyclone utilizing workstations and other component hardware purchased locally.
Net revenues to such distributors were $470,000, $1.1 million and $1.9 million
for the years ended December 31, 1994, 1995 and 1996, respectively. See
"Business--Distribution, Sales and Marketing." Total international revenues
for the years ended December 31, 1994, 1995 and 1996 were $7.6 million, $13.5
million and $18.8 million, respectively, which included net revenues from
Australia, Asia and Canada as well as revenues from the Company's European
operations.

19
<PAGE>

The Company recognizes revenue upon shipment, except with respect to sales
of the Cyclone to Xerox in the United States where revenue is recorded upon
installation of the system at the end user site. The Company complies with
Statement of Financial Accounting Standards No. 86 which provides for the
capitalization of certain software development costs once technological
feasibility is established. The Company has not capitalized any software
development costs to date as the amounts have been immaterial.

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of net revenues, results of
operations data for each of the years in the three year period ended December
31, 1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0%
Cost of revenues................................... 63.8 60.0 56.1
------- ------- -------
Gross margin....................................... 36.2 40.0 43.9
Operating expenses:
Research and development......................... 3.3 4.0 4.7
Sales and marketing.............................. 19.6 26.1 28.2
General and administrative....................... 6.9 6.5 6.9
Other costs and expenses......................... -- 0.5 0.9
------- ------- -------
Total operating expenses........................... 29.8 37.1 40.7
------- ------- -------
Operating income................................... 6.4 2.9 3.2
Interest expense, net.............................. 0.5 0.7 0.8
------- ------- -------
Income before income taxes......................... 5.9 2.2 2.4
Provision for income taxes......................... 2.3 0.8 0.9
------- ------- -------
Net income......................................... 3.6% 1.4% 1.5%
======= ======= =======
</TABLE>

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

Net Revenues. Net revenues for the years ended December 31, 1994, 1995 and
1996 were $27.0 million, $37.2 million and $42.3 million, respectively,
representing increases of 38.1% from 1994 to 1995 and 13.6% from 1995 to 1996.
The increase in net revenues from 1994 to 1995 was attributable to higher unit
sales of the Cyclone and related products in both the Company's North American
and European operations, offset in part by reductions in the average selling
price of the Cyclone. North American sales consist of sales generated by the
Company's North American operations, including export sales to Asia, Australia
and Canada. The increase in net revenues from 1995 to 1996 is primarily
attributable to higher Cyclone unit sales in Europe, offset in part by lower
average selling prices and declines in sales to Kinko's, Inc. in North
America. Sales of the Cyclone in the United States declined slightly from 1994
to 1995 and in 1996 from 1995 which the Company believes was attributable to a
series of changes in the method of distribution of the Cyclone by Xerox branch
sales offices and by the introduction in the second quarter of 1995 of the
ColorPASS, Canon's branded color print server manufactured by EFI. Gains in
European unit sales in each of 1994, 1995 and 1996 resulted from increasing
sales to Rank Xerox in Europe as the Company began marketing the Cyclone in
additional European markets. In addition, European unit sales in the fourth
quarter of 1996 were favorably affected by the European introduction of
Cyclone connectivity for the Xerox DocuColor 40. The Company anticipates that
its net revenues will continue to be affected by its ability to develop new
products, maintain and expand its current distribution channels, and by
various competitive factors, including advancements in technology and changes
in pricing within the industry. Since price erosion over the life of a product
is typical for products in the computer and related industries, further
reductions in the unit sales price of the Cyclone may be necessary in the
future.

Gross Margin. Cost of revenues typically includes the cost of the
workstation, DRAMs and other hardware components, software license fees
(primarily the PostScript license), and labor and overhead costs associated

20
<PAGE>

with the assembly, testing and shipment of the completed Cyclone system. Cost
of revenues for 1994, 1995 and 1996 was $17.2 million, $22.3 million and $23.7
million, respectively. Gross margin for 1994, 1995 and 1996 was 36.2%, 40.0%
and 43.9%, respectively. The increase in gross margin from 1994 to 1995 and
1995 to 1996 was primarily a result of declining costs for hardware
components, particularly DRAM memory components which have historically
represented a significant portion of the costs of the Cyclone and due to a
larger proportion of sales in Europe where the mix of Cyclone configurations
sold generally resulted in higher margins. Increases in the price of DRAMs,
which have fluctuated significantly in recent years, or other hardware
components could adversely affect the Company's financial condition and
results of operations. In addition, in 1994 and 1995, CDS incurred exchange
losses of $54,000 and $417,000, respectively, on foreign exchange contracts
utilized by CDS as a hedge against its commitment to purchase Cyclone
components in U.S. dollars. In 1996, CDS experienced exchange gains of
$155,000 on such contracts. The Company has hedge contracts in place for the
first quarter of 1997, but has not extended its hedging activity beyond that
date, although the Company may continue to do so in the future. Accordingly,
the Company's results of operations could be materially and adversely affected
by a strengthening of the U.S. dollar against the Dutch guilder.

Research and Development. Research and development expenses consist
primarily of the compensation and related expenses of the Company's software
development efforts and the costs associated with third party design and
development of the Company's interface boards. Research and development
expenses for 1994, 1995 and 1996 were $894,000, $1.5 million and $2.0 million,
respectively, or 3.3%, 4.0% and 4.7%, respectively, of net revenues. Research
and development expenses increased 67.2% from 1994 to 1995 and 34.2% from 1995
to 1996. The increase in these expenses in 1995 was primarily attributable to
increased staffing and outside engineering fees required to extend Cyclone
connectivity to RICOH color copiers and large format color printers as well as
higher depreciation costs associated with additional purchased research and
development equipment. The increased research and development expenses in 1996
were primarily due to increased outside engineering fees to provide
connectivity for the DocuColor 40 as well as costs associated with development
of the NS Plus 3.0. The Company believes that its research and development
activities are critical to the Company's success and its ability to further
expand its product line and develop new sources of revenues. The Company
therefore believes that research and development expenses will increase as a
percentage of revenues in future periods.

Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and related expenses for the Company's direct sales, marketing
and technical support personnel, as well as expenses associated with
promotional activities, trade shows and dealer incentives. Sales and marketing
expenses for 1994, 1995 and 1996 were $5.3 million, $9.7 million and $11.9
million, respectively, or 19.6%, 26.1% and 28.2%, respectively, of net
revenues. Sales and marketing expenses increased 83.7% from 1994 to 1995 and
22.4% from 1995 to 1996. The increases from 1994 to 1996 were due primarily to
increases in the number and compensation of sales and technical support
personnel to increase the Company's level of support for the Canon and Xerox
distribution channels, higher dealer incentives and increased participation in
trade shows and other promotional activities. The Company intends to expand
the scope of its sales and marketing activities to new geographic markets not
currently served by the Company, including Japan. Such expansion may
necessitate incurring costs to retain sales and technical support personnel
and establish sales offices in each new market the Company enters, which costs
are generally incurred prior to generating significant revenues in such
markets.

General and Administrative. General and administrative expenses consisted
primarily of compensation and related expenses for the Company's
administrative personnel, outside professional services and provisions for
doubtful accounts. General and administrative expenses for 1994, 1995 and 1996
were $1.9 million, $2.4 million and $2.9 million, respectively, or 6.9%, 6.5%
and 6.9%, respectively, of net revenues. General and administrative expenses
increased 29.6% from 1994 to 1995 and 21.0% from 1995 to 1996. The increases
from 1994 to 1996 reflected increases in the number and compensation of
administrative and finance personnel, increased administrative expense
attributable to expansion in additional European countries as well as higher
provisions for doubtful accounts. The Company expects that general and
administrative expenses will increase in dollar amount as the Company expands
geographically and begins to incur additional costs related to being a public
company.

21
<PAGE>

Other Costs and Expenses. Other costs and expenses in 1995 represented
amounts expensed upon abandonment of the Company's proposed initial public
offering, and in 1996 represented legal and other administrative expenses
associated with the Company's business combination with CDS. Other costs and
expenses were $181,000, or 0.5% of net revenues, in 1995 and $397,000, or 0.9%
of net revenues, in 1996.

Interest Expense. Net interest expense for 1994, 1995 and 1996 was $121,000,
$257,000 and $336,000, respectively. The increase from 1994 to 1995 reflected
increased borrowings under the Company's bank lines of credit in the United
States and Europe, increased interest expense on capitalized leases following
the expansion of the Company's facilities in the first quarter of 1995, and
interest expense related to certain loans to CDS from its stockholders in
1994. The increase from 1995 to 1996 reflected increased borrowings under the
Company's bank lines of credit in the United States and Europe and borrowings
under a term loan utilized for the purchase of certain equipment. The Company
anticipates substantial reductions in interest expense in future periods upon
use of the proceeds of this Offering to reduce or eliminate its interest
bearing obligations.

Income Taxes. The Company's effective tax rate in 1994, 1995 and 1996 was
39.5%, 34.8% and 37.7%, respectively. The Company's effective tax rates in all
periods were higher than the Federal statutory rate of 34% due to applicable
state and foreign taxes which were partially offset by research and
experimentation credits, and in 1995 and 1996 by tax benefits associated with
the establishment in 1995 of the Company's foreign sales corporation.
Additionally, in 1996 the effective tax rate was increased by nondeductible
merger costs. The Company's operating results are characterized by
transactions that give rise to temporary differences in the recognition of
income for income tax and financial reporting purposes, creating deferred tax
assets. The Company has not reduced the deferred tax assets by recording a
valuation allowance as management believes it is more likely than not that the
deferred tax assets will be realized in the future. See Note 8 of Notes to
Consolidated Financial Statements.

22
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited quarterly consolidated
financial information for the two year period ended December 31, 1996. The
quarterly financial information has been prepared on the same basis as the
audited financial information appearing elsewhere herein and, in the opinion
of management, includes all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the information for the periods
presented when read in conjunction with the Consolidated Financial Statements
and Notes to Consolidated Financial Statements contained elsewhere herein. The
quarterly operating results set forth below are not necessarily indicative of
the results for any future periods.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTERLY RESULTS:
Net revenues........... $10,755 $8,899 $7,010 $10,556 $9,184 $10,116 $9,135 $13,829
Cost of revenues....... 5,958 5,218 4,388 6,756 5,426 5,762 5,241 7,263
------- ------ ------ ------- ------ ------- ------ -------
Gross profit........... 4,797 3,681 2,622 3,800 3,758 4,354 3,894 6,566
Operating expenses:
Research and
development........... 334 321 419 421 384 455 526 641
Sales and marketing... 2,370 2,465 2,164 2,732 2,587 2,894 2,828 3,598
General and
administrative....... 688 656 561 507 624 776 730 788
Other costs and
expenses............. -- -- -- 181 33 86 83 195
------- ------ ------ ------- ------ ------- ------ -------
Total operating
expenses.............. 3,392 3,442 3,144 3,841 3,628 4,211 4,167 5,222
------- ------ ------ ------- ------ ------- ------ -------
Operating income
(loss)................ 1,405 239 (522) (41) 130 143 (273) 1,344
Interest expense, net.. 48 62 84 63 68 80 124 64
------- ------ ------ ------- ------ ------- ------ -------
Income (loss) before
income taxes.......... 1,357 177 (606) (104) 62 63 (397) 1,280
Provision (benefit) for
income taxes.......... 473 61 (211) (36) 23 24 (150) 483
------- ------ ------ ------- ------ ------- ------ -------
Net income (loss)...... $ 884 $ 116 $ (395) $ (68) $ 39 $ 39 $ (247) $ 797
======= ====== ====== ======= ====== ======= ====== =======
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF NET
REVENUES:
Net revenues........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....... 55.4 58.6 62.6 64.0 59.1 57.0 57.4 52.5
------- ------ ------ ------- ------ ------- ------ -------
Gross margin........... 44.6 41.4 37.4 36.0 40.9 43.0 42.6 47.5
Operating expenses:
Research and
development.......... 3.1 3.6 6.0 4.0 4.2 4.5 5.8 4.6
Sales and marketing... 22.0 27.7 30.9 25.9 28.2 28.6 30.9 26.1
General and
administrative....... 6.4 7.4 8.0 4.8 6.8 7.7 8.0 5.7
Other costs and
expenses............. -- -- -- 1.7 0.3 0.8 0.9 1.4
------- ------ ------ ------- ------ ------- ------ -------
Total operating
expenses.............. 31.5 38.7 44.9 36.4 39.5 41.6 45.6 37.8
------- ------ ------ ------- ------ ------- ------ -------
Operating income
(loss)................ 13.1 2.7 (7.5) (0.4) 1.4 1.4 (3.0) 9.7
Interest expense, net.. 0.5 0.7 1.2 0.6 0.7 0.8 1.3 0.4
------- ------ ------ ------- ------ ------- ------ -------
Income (loss) before
income taxes.......... 12.6 2.0 (8.7) (1.0) 0.7 0.6 (4.3) 9.3
Provision (benefit) for
income taxes.......... 4.4 0.7 (3.0) (0.3) 0.3 0.2 (1.6) 3.5
------- ------ ------ ------- ------ ------- ------ -------
Net income (loss)...... 8.2% 1.3% (5.7)% (0.7)% 0.4% 0.4% (2.7)% 5.8%
======= ====== ====== ======= ====== ======= ====== =======
</TABLE>

23
<PAGE>

Net revenues for the quarter ended December 31, 1996 were $13.8 million,
representing a 51.4% increase from the quarter ended September 30, 1996. This
increase was primarily attributed to the European introduction of Cyclone
connectivity for the DocuColor 40 and normal seasonal sales patterns. Gross
margin improved over the year reflecting declines in DRAM prices throughout
the year. In addition, gross margin for the quarter ended December 31, 1996
increased to 47.5% due primarily to a larger proportion of sales in Europe
where the mix of Cyclones sold generally resulted in higher margins.

The Company's operating results have fluctuated and will likely continue to
fluctuate in the future on a quarterly and annual basis as a result of a
number of factors, many of which are not within the Company's control. These
factors include, without limitation, purchasing patterns of the Company's
customers; the demand for the Company's products; the timing of new products
and price reductions by the Company and its competitors; the performance of
third party manufacturers; inventory levels; level of investment in research
and development and sales and marketing; the availability and price of key
components for the Company's products, including DRAMs; the Company's
relationship with key distributors and manufacturers, among others, Adobe,
Canon, Danka, IKON, SGI and Xerox; the Company's ability to develop and market
new products and enhancements to existing products; changes and advancements
in digital color copier and digital document product technology; currency
fluctuations; deferrals of customer orders in anticipation of new products by
the Company or its competitors; the Company's ability to integrate the
operations of CDS; and general economic and market conditions. As a result,
the Company believes that period to period comparisons are not necessarily
meaningful and may not be indicative of future performance. In the event the
Company's financial performance fails to meet the expectations of analysts and
investors, the price of the Company's stock would be materially and adversely
affected.

SEASONALITY

The Company believes its net revenues are affected by seasonal factors,
reflecting a slowdown in the rate of business activity in Europe during the
summer months which adversely affects revenues in the third quarter. Higher
net revenues in the fourth quarter primarily results from sales to Xerox and
Rank Xerox which typically generate a large percentage of their net revenues
in that quarter, and are generally followed by lower net revenues in the
subsequent first quarter.

BACKLOG

The Company's customers generally order on an as-needed basis, and as a
result, the Company operates with minimal backlog. The Company has established
a relatively short manufacturing cycle which minimizes the need for advance
purchases. The absence of a substantial backlog also limits the Company's
ability to plan production and inventory levels which could lead to
fluctuations in operating results.

NEW ACCOUNTING STANDARDS

Stock Compensation. Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. SFAS No. 123 allows an entity to elect
to continue to measure compensation cost under Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," but
requires pro forma disclosures of net income and net income per share as if
the fair value based method of accounting had been applied. The Company
adopted SFAS No. 123 in 1996, and has elected to comply with the pro forma
disclosure requirements while continuing to measure compensation costs under
APB Opinion No. 25. The adoption of SFAS No. 123 did not have a material
impact on the Company's financial position, results of operations or
liquidity.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," issued in March 1995

24
<PAGE>

and effective for fiscal years beginning after December 15, 1995, establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles, and goodwill either to be
held or disposed of. The Company adopted SFAS No. 121 in 1996. The adoption of
SFAS No. 121 did not have a material impact on the Company's financial
position, results of operations or liquidity.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has funded its operations primarily from
cash flows generated from operations and from the sale of its Common Stock,
loans from stockholders, and borrowings under bank lines of credit and other
long term financings.

During the year ended December 31, 1994, cash and cash equivalents increased
$669,000 from $1.3 million as of December 31, 1993. This increase resulted
primarily from cash provided by operations of $478,000, net borrowings of
$872,000 and issuances of Common Stock of $45,000, offset by purchases of
property and equipment of $771,000.

During the year ended December 31, 1995, cash and cash equivalents decreased
$1.7 million to $335,000 as of December 31, 1995. This decrease resulted
primarily from cash used in operations of $1.6 million and purchases of
property and equipment of $1.3 million, offset by net borrowings of $1.2
million. Cash flow from operations in 1995 was affected by increases in
inventories of $2.4 million, resulting primarily from the timing of
workstation inventory purchases.

During the year ended December 31, 1996, cash and cash equivalents increased
by $2.0 million, primarily as a result of cash provided by operations of $4.3
million, offset by purchases of property and equipment of $838,000 and net
repayments on borrowings of $1.4 million. Cash flow from operations in 1996
benefitted from a net reduction in inventories of $2.4 million.

In June 1996, the Company entered into a bank term loan in the amount of
$750,000 for the purchase of certain equipment. Principal payments of $31,250,
plus interest at the bank's prime rate plus one-half percent are payable
monthly over a period of two years from inception of the loan. As of December
31, 1996, the principal balance due under the term loan was $563,000. The
Company also has available a $3.0 million bank line of credit which bears
interest at the lender's prime rate. There were no borrowings outstanding
under this line of credit at December 31, 1996. Both the bank line and the
term loan are secured by all assets of the Company and are personally
guaranteed by two of the Company's stockholders who serve as executive
officers.

As of December 31, 1996, CDS had available a bank line of credit in the
Netherlands of NLG 3,300,000. In January 1997, the line was increased to
NLG 4,300,000 (approximately $2,500,000 as of December 31, 1996). Interest is
payable quarterly at the bank's base rate plus one and one-half percent (4.5%
as of December 31, 1996). There were no borrowings outstanding under the line
as of December 31, 1996. The line does not have a fixed expiration date, but
is subject to and conditioned upon periodic review by the bank.

The bank lines of credit contain certain restrictive covenants including
restrictions on the payment of dividends and effective limitations on the
balance of any intercompany amounts due from CDS. As of December 31, 1996, the
Company was in compliance with or had received waivers for all such covenants.
Borrowings under the bank lines of credit are limited based on eligible
receivables and inventories as defined in the agreements. The Company intends
to use a portion of the proceeds of this Offering to repay amounts outstanding
under the bank lines of credit and the term loan. See "Use of Proceeds."

The Company believes that funds from operations, together with the available
bank lines of credit and the net proceeds of this Offering, will be adequate
to support the Company's operating and capital needs for at least the next
twelve months. To the extent, however, that additional funds may be required
in the future to address working capital needs or to provide funding for the
expansion of the business, the Company will seek additional funds, as
appropriate, through public or private equity or debt financing or from other
sources. There can be no assurance that the Company will be able to obtain
additional financing on acceptable terms, if at all.

25
<PAGE>

BUSINESS

THE COMPANY

COLORBUS develops and markets network print servers which enable the
printing of high resolution color images from various digital color copiers
and large format color printers (printers which produce output larger than 11"
by 17"). The Company's principal product, the Cyclone, incorporates
proprietary software which manages the simultaneous print requests of multiple
users on a computer network, processes color images and outputs documents on
digital color copiers from Canon, Kodak, RICOH, Savin, Sharp and Xerox, and
large format printers from ENCAD, Hewlett-Packard, Raster Graphics and Xerox.
In cooperation with Xerox, the Company is nearing completion of the
development of a network print server, the NS Plus 3.0, which is designed to
provide simultaneous support for the Xerox DocuTech 135, a high volume black
and white production publishing system, and the Xerox DocuColor 40 digital
color production system. The NS Plus 3.0 will address the production
publishing market and will enable the cost effective, high volume production
of documents with integrated color and black and white pages.

MARKET OVERVIEW

The rapidly growing color digital printing market has been driven in large
part by advances in computer based graphics as well as printing and imaging
technologies which have enabled end users to more easily produce color
documents at a lower cost. The Company believes that an important factor in
the growth of this market was the introduction of digital color laser copiers
with digital interface ports. These ports allowed the scanner and printer
components of the copier to be accessed and controlled by a print server.
These print servers provide a bridge between a computer network and the output
device, enabling network users to control the color printing process while
utilizing the image processing capabilities and software based features of the
print server. These features include color calibration and management, network
print spooling and document management.

The Company believes the growth in digital color copier sales has been due
in large part to the increased acceptance and use of network color print
servers. Dataquest estimates that the domestic market for digital color laser
copiers has grown at an annual rate of approximately 30% from 1993 to 1995.
According to Dataquest, approximately 14,400 digital color laser copiers were
sold in the United States in 1995. Dataquest forecasts that domestic sales of
digital color laser copiers will increase by approximately 21% annually to
37,000 units in 2000. In addition, the percentage of digital color laser
copiers connected to print servers is continuing to increase. The Dataquest
survey indicates that approximately 58% of the digital color laser copiers
sold in the United States in 1995 were connected to color print servers. The
Company believes that the installed base of digital color laser copiers in
international markets is larger than that in the United States, and that
connectivity rates are generally lower in international markets than in the
United States.

Prior to the introduction of digital color copiers, high quality, color
printing was primarily done using offset color presses. The high fixed costs
and labor intensive process associated with offset color printing have made it
cost effective only for high volume applications. The availability and lower
acquisition costs of high quality, digital color copiers coupled with
developments in electronic publishing software have contributed to the
emergence of the on demand color printing market.

The on demand color printing market is comprised of several segments:
graphic arts and professional color publishing, commercial and short run
printing, prepress services, office color printing and print-for-pay. The
graphic arts and professional color publishing market includes in-house
creative staffs and advertising agencies and design firms. These end users
perform extensive color design and layout using software applications such as
Adobe PhotoShop, Adobe Illustrator, Quark Xpress and Adobe Pagemaker. These
end users are increasingly utilizing network computer and color print servers
with digital color copiers for production of color documents that include
designs and prepress proofing.

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<PAGE>

Commercial and short run printing businesses use color print servers with
digital color copiers to quickly produce less expensive prepress proofs of
color output and as an inexpensive alternative for printing color documents in
smaller quantities. The prepress market consists of service bureaus and trade
shops which handle complex color production for customers that intend to send
print jobs to commercial printing firms for high volume printing or to photo
labs for high end photographic services. The office color printing market
consists of networked office printing and central reproduction departments in
businesses and other organizations. These organizations are increasingly
migrating from standalone black and white and color desktop printers to higher
speed network printers and connected color copiers to produce a wide range of
materials such as product brochures, presentation materials, internal manuals
and other color documents.

Print-for-pay firms provide a broad range of walk-in services including
copying, desktop publishing and faxing. To capitalize on the growing demand
for color output, these businesses have increasingly installed connected color
copiers and offered expanded color printing and copier services. The on demand
color printing market continues to require improvements in the quality and
speed of output which is driven by a print server, as well as increased
functionality while achieving a declining cost of ownership.

Despite the general trend toward increased use of color in the on demand
printing market, other segments within the digital printing market have lacked
a color solution. For example, the production publishing segment has not had a
color solution that meets its cost, performance and print quality
requirements. End users in this segment typically employ digital black and
white printing systems capable of printing at speeds in excess of 80 pages per
minute. The production publishing systems are used in industrial, educational
and commercial organizations, as well as in commercial printing and print-for-
pay firms, all of which require traditional publishing capabilities combined
with quick turnaround time. Production publishing systems are generally able
to print, collate and assemble complete documents and are used for producing
on demand periodicals, journals, booklets, manuals and reports without the
delay and setup costs associated with traditional offset printing. According
to CAP Ventures, the typical high speed, black and white production publishing
system servicing this market produces approximately 975,000 pages per month.
With an installed base of more than 10,000 systems, the Company believes that
the Xerox DocuTech 135 has the dominant share in this market. The recent
introduction of the Xerox DocuColor 40 and the announcement of other high
speed color copiers has created the opportunity to address the substantial,
unfilled demand for color printing in the high speed, production publishing
market.

THE COLORBUS SOLUTION

The Company's network print servers are designed to address the needs of the
on demand color printing market by allowing users to print high resolution
color images from various digital color copiers and large format printers. The
Company's principal product, the Cyclone, incorporates proprietary software
which manages the simultaneous print requests of multiple users on a computer
network, processes color images and outputs color documents on multiple
connected output devices. The Cyclone incorporates an open, upgradeable,
scaleable architecture which the Company believes (i) extends product life by
reducing the risk of obsolescence, (ii) enables the cost effective and timely
introduction of new features, functionality and applications, and (iii)
provides users with the flexibility to change or add output devices without
the need for a new print server. Colorbus is nearing the completion of the
development of a new network print server, the NS Plus 3.0, which the Company
believes will provide a unique, integrated color solution for the high volume
production publishing market. The NS Plus 3.0 is designed to provide
simultaneous support for the Xerox DocuTech 135 and the Xerox DocuColor 40,
enabling users to control the production publishing process from the print
server and facilitating the generation of integrated black and white and color
documents.

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<PAGE>

BUSINESS STRATEGY

The Company's objective is to become the leading provider of network print
servers and software solutions for the on demand color printing and production
publishing markets. The key elements of the Company's strategy to achieve this
objective include the following:

.FOCUS ON NEW PRODUCTS. The Company intends to strengthen its competitive
position by expanding its product line and enhancing the capabilities of
its current products. The Company's new network print server, the NS Plus
3.0, which is scheduled to be introduced by Xerox in mid 1997, represents
an expansion of the Company's traditional product line by providing
integrated black and white and color output directed from a single network
print server operating in the production publishing environment. The
Company also plans to focus on the development of network print servers
which utilize Intel based platforms and additional operating systems such
as Windows NT and Solaris. The Company intends to leverage its
technological expertise to expand the breadth of color printing
applications and to develop new product offerings for its target markets.

.DEVELOP AND ENHANCE STRATEGIC RELATIONSHIPS WITH DISTRIBUTION PARTNERS.
The Company intends to continue to focus its efforts on expanding and
developing strategic relationships with key partners in its distribution
channels, including manufacturers of digital color copiers, large format
printers and production publishing systems. The Company believes such
relationships are necessary to expand product recognition in the print
server market, to increase the market share of the Company's products, and
to gain early access to new output devices and facilitate the Company's
development of new products or enhancements to existing products.

.LEVERAGE SOFTWARE AND COMPONENT DEVELOPMENT EXPERTISE. The Company intends
to leverage its expertise in the development of proprietary software and
components to continue to provide advanced network print servers. This
technological expertise enables the Company to offer additional software
based features and functionality including multiple output device support,
color calibration and management, network print spooling and document
management. The Company believes that the modularity of its software
enables the easy and rapid incorporation of new features. For example, the
Company intends to target specific business segments such as advertising
and graphic arts by developing software based features to address customer
requirements which are unique to such segments.

.EXPAND INTERNATIONAL PRESENCE. The Company intends to devote additional
resources to expand the worldwide marketing and sales of its products. The
Company's recent acquisition of CDS has resulted in a direct European
presence, particularly in Austria, Belgium, France, Germany, the
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. The
Company believes the Asian markets also represent a significant opportunity
in the color copier market. The Company intends to open a sales office in
Japan in 1997 in order to increase its market presence in Asia.

.OFFER A WIDE RANGE OF CONNECTIVITY OPTIONS. The Company intends to
continue to offer network connectivity to a broad range of digital color
copiers, large format printers and other output devices. The Company
believes this strategy offers end users flexibility to change or add output
devices without the need for a new print server. The Company intends to
focus on the integration of its products in computer networks and to
continue to coordinate development efforts with the manufacturers of
digital color copiers, large format printers and production publishing
systems to accommodate future technological advancements in digital
document products.

.SUPPORT OPEN, UPGRADEABLE SYSTEM DESIGN. The Company's network print
servers are designed as open, upgradeable and scaleable systems that can
easily incorporate advances in the Company's software and components as
well as improvements and modifications in high performance standard
computer platforms, network protocols and PostScript software. This design
approach extends product life by reducing the risk of obsolescence, and
enables the cost effective and timely introduction of new features,
functionality and applications. The Company intends to continue to utilize
open, upgradeable systems to enable it to bring new products to market more
quickly and to provide compatibility with a wide variety of computer
networks, protocols, software and components.

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<PAGE>

NETWORK PRINT SERVER PRODUCTS

The Cyclone is a network color print server that offers high quality color
printing from a broad range of digital color copiers and large format
printers. The Cyclone addresses the needs of the on demand color printing
segment. The NS Plus 3.0 will provide a single front end to support both the
Xerox DocuTech 135 and the Xerox DocuColor 40 to enable the cost effective use
of color in high volume production publishing environments.

COLORBUS CYCLONE IMAGING SYSTEM(R)

The Company entered the network color print server market in 1993 with the
introduction of the Cyclone which facilitated the printing of high resolution
color images from digital color laser copiers and various large format
printers. The Cyclone also enables users to scan images from a digital color
copier into the server and make them immediately available to the entire
network through file sharing software.

System Features. The current version of the Cyclone integrates the Company's
proprietary software and copier interface boards and PostScript licensed from
Adobe with a workstation manufactured by SGI. The Company believes the
popularity of the Cyclone is attributable to its high level of functionality,
numerous connectivity options, open and upgradeable architecture and a highly
intuitive graphical user interface. The use of open systems in the design of
the Cyclone has enabled the Company to concentrate its development efforts on
value added software solutions for color management and calibration, network
print spooling and document management.

The standard Cyclone configuration for single copier connectivity utilizes
the Indy workstation which runs on the IRIX (UNIX) operating system and
typically includes a MIPS R5000SC 180 MHz processor, 160 MB of RAM (expandable
to 256 MB RAM), a 1.0 GB internal hard drive and a high resolution 17" color
monitor. The system has built-in Ethernet and ISDN ports. The Company's
suggested list price for the Cyclone ranges from approximately $25,000 to
$55,000, depending on configuration.

SGI recently introduced a new workstation, the O/2/, which the Company
anticipates will replace the Indy workstation in mid 1997. The Company is
currently developing interface boards using the PCI bus, the industry standard
peripheral component interface, and making revisions to its Cyclone software
to adapt to the O/2/. The Company is also evaluating other workstation
platforms for its products, including Intel based platforms. There can be no
assurance that the Company will be able to complete any of these development
efforts in a timely manner, if at all, which would materially and adversely
affect the Company's business, financial condition and results of operations.

Simultaneous Support of Multiple Output Devices. The Cyclone currently can
be configured to support two digital color copiers from different
manufacturers (by adding an additional interface board) and up to two large
format printers. The Company believes it was the first to introduce
simultaneous dual copier support for color copiers. The Cyclone can support an
additional color output device at a much lower incremental cost to the user
than purchasing a second print server. In addition, by integrating the Cyclone
on a network, various users are provided with immediate access to multiple
output devices.

The Company's interface boards can be installed in the two slots in the SGI
Indy workstation. Large format printers are connected to either the parallel
or Ethernet port on the Cyclone and generally do not require a separate
interface board. While the O/2/ does not currently accommodate two internal
boards, the Company is investigating alternative methods to continue to
provide dual copier support. There can be no assurance that such development
will be completed on a timely basis, if at all. See "--Manufacturing,
Suppliers and Licensors."

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<PAGE>

Connectivity Options. The Company believes that the Cyclone offers
connectivity to more output devices than any competing color print server. The
Cyclone currently connects to all of the following copiers and printers:

<TABLE>
<CAPTION>
COLOR LASER COPIERS/PRINTERS
----------------------------
<C> <S>
Canon CLC 300, 320, 350, 500, 550, 700, 800
Kodak ColorEdge 1525, 1525+, 1550, 1550+, 1560, 1565
RICOH NC 5006, 5106, 5206
Savin SC106
Sharp AR-C860
Xerox DocuColor 40
MajestiK 5760, 5765
Regal 5790
5775 SSE
<CAPTION>
LARGE FORMAT
PRINTERS
------------
<C> <S>
ENCAD NovaJet III, IV, Pro, Pro 50
Hewlett-Packard 650C, 750C
Raster Graphics DCS 5442
Xerox ColorgrafX 8900, 8936, 8944, 8956,
VivaGrafX XL
</TABLE>

NETWORK SERVER PLUS 3.0

The Company is nearing completion of the development of a new network print
server, under a five year joint Product Development and Distribution Agreement
with Xerox (the "Xerox Agreement"). This product is scheduled to be introduced
in mid 1997 and will be distributed by Xerox as a Xerox product, the NS Plus
3.0, the successor to Network Servers developed internally by Xerox. The NS
Plus 3.0 will provide simultaneous support of the Xerox DocuTech 135 (a 135
page per minute black and white production printing) and the Xerox DocuColor
40 (the recently introduced 40 page per minute digital color production
system). This product will enable users to control the production publishing
process from the print server and facilitate the generation of integrated
black and white and color documents. The NS Plus 3.0 provides an integrated
front end and network connection for new placements of the DocuTech 135 and
the DocuColor 40, as well as for the existing installed base of more than
10,000 DocuTech 135 units.

The product to be sold to Xerox by the Company will consist of the Company's
proprietary software, interface boards and related components. Xerox will
purchase or arrange for the purchase of the workstation, license the
PostScript interpreter from Adobe and arrange for the assembly of the final
product. The Xerox Agreement includes minimum purchase requirements for Xerox
for the first year following Xerox's introduction of the NS Plus 3.0. The
Xerox Agreement terminates in June 2001 and limits the Company from developing
any network server system for connection to any other cut-sheet black and
white copier or printer with a rated speed of 70 pages per minute or more for
a specified period.

System Features. The NS Plus 3.0 utilizes the Company's proprietary software
and incorporates additional software based features specific to the high
volume production publishing environment, such as booklet creation, paper
stock selection, job replication and finishing options. The NS Plus 3.0 will
act as a print and file server by supporting file conversion, multiple queues
per device and network print spooling, and will provide extensive job
reporting for each job as it passes through the server. The NS Plus 3.0 will
enable users to take an active role in managing print queues, prioritizing
jobs and controlling the overall production publishing process.

The NS Plus 3.0 will operate on Sun Microsystems' Solaris 2.51 operating
system (UNIX) for Intel based platforms. This product will initially be
offered on a Compaq ProLiant platform utilizing an Intel Pentium Pro

30
<PAGE>

processor which is upgradeable to include four processors. The NS Plus 3.0 may
also be offered on Sun's UltraSPARC platform in the future. These open systems
platforms are designed to be upgradeable and scaleable to facilitate the
incorporation of future software releases and hardware advancements thereby
increasing the product's life cycle.

Automatic Color Separation and Processing. The color separation capability
of the NS Plus 3.0 automatically distinguishes color pages from black and
white pages within a single print job and creates two separate jobs, one
containing color pages and the other containing the black and white pages. The
color job is processed and sent to the DocuColor 40 while the black and white
job is processed and sent to the DocuTech 135. Color pages are printed first
on the DocuColor 40 in ordered sets and are then manually placed into a
specified tray of the DocuTech 135. As the DocuTech 135 prints the black and
white pages, the DocuTech 135 reads the insertion markers created by the NS
Plus 3.0 and directs the insertion of each color page into its appropriate
position within the document.

Multiple Queues Per Physical Device. The NS Plus 3.0 provides an additional
presorting capability to job queuing features offered on the Company's Cyclone
print server. Users of NS Plus 3.0 can define multiple queues, each with a
unique set of print parameters for a physical printer. Once established, these
queues are given a specific name and displayed as virtual printers on the
network. These queues facilitate the grouping of print jobs requiring common
print criteria enabling these jobs to be run in succession.

Job Replication. Replication involves the creation of multiple print jobs
from a single print request and the redistribution of the requested number of
copies among available print devices instead of transmitting the entire job to
a single device. The NS Plus 3.0 is capable of connecting up to four DocuTech
135 systems and a DocuColor 40. When multiple DocuTech 135 systems are
connected, the NS Plus 3.0 allows the black and white portion of a print job
to be replicated and printed simultaneously by the various DocuTech 135
systems. This feature expedites the completion of a job, allowing more
efficient use of the connected output devices.

SOFTWARE FEATURES

The following software features are common to both the Cyclone and the NS
Plus 3.0:

Color Calibration and Management. To provide optimal color from any color
output device, a network print server must be able to provide a means of
changing the input color values received by the server into corrected color
values for output to the color printing device to take into account any
inherent color reproduction characteristics as well as deficiencies of the
color output device resulting from such factors as mechanical wear or
environmental conditions (e.g., humidity). The Company's print servers utilize
a simple onscreen process to permit inexperienced users to easily calibrate
color copiers or other output devices. The Company's software offers several
options using densitometer based calibration goals that simulate industry
printing standards and provide users with the ability to build and save
customized sets of color calibration settings.

The Company has also developed proprietary Color Rendering Dictionaries
("CRDs") that are used by PostScript to convert the red, green and blue
("RGB") data used in the capture and display of digital images on a monitor to
the cyan, magenta, yellow and black ("CMYK") color values used in the printing
process. The Company's CRDs are designed for continuous tone photographs
through a process called "perceptual matching" which evaluates each particular
pixel and its surrounding pixels and determines an appropriate combination of
hue, saturation and chroma to maintain the best possible color and shadow
detail. In order to achieve consistent colors across devices, the Company's
color management software offers Standard Web Offset Press and EuroStandard
Press simulation options which adjust toner levels to meet printing industry
ink standards on various different devices. The Company's software also allows
the selection of the appropriate rendering mode (CMYK, RGB, grayscale or
monochrome) directly from the desktop prior to printing.

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<PAGE>

For heavily color saturated files that exceed the maximum toner levels of a
specific output device, the Company's color management software also offers
undercolor removal options which reduce the common underlying CMYK colors in
the dark or neutral shadow areas to decrease the total amount of ink coverage.
Such options can significantly lessen the risk of toner overload that can
cause bubbling and color distortion.

The printing of color images on a color copier entails sequential passes of
the printing drum to apply each of the CMYK color planes. In printing jobs at
high resolution, incorrect alignment of these color planes creates white gaps.
Trapping is a technique used to eliminate the white gaps or "traps" that can
appear between adjacent areas of color by adding a thin stroke of color to
cover the gap. The Company's software allows users to print color separated
CMYK files with their trapping adjustments directly to color copiers, thereby
eliminating the traps.

Graphical User Interface. The Company's software features an easy to use,
icon driven, graphical user interface ("GUI") to the print server functions.
The Company believes its GUI offers a highly intuitive approach to accessing
and controlling the printing process. The GUI provides a visual representation
of the various activities related to the printing process, and includes
progress bars, image preview windows, ripping and printing information.

Job Queueing and Management. The Company's software provides a
comprehensive, easy to use queueing system for managing spooled print jobs.
Queues are displayed on screen as separate windows, each of which represents a
different phase in the printing process. Queue management allows the user to
reprioritize or delete jobs within the queue, move jobs between queue windows,
and set specific preferences for automatic operations affecting the queue. The
software's job management features allow users to view detailed job
information and change specific parameters of the job such as copies printed,
rendering mode, duplexing, sorting and page range selection. In addition, the
Company's job accounting software offers an onscreen display of the printing
activity as well and a complete reporting system for tracking usage. The
Company's software also provides several options for reporting print activity.

Network Print Spooling. Print spooling allows multiple users on the network
to execute print commands from their workstation and have their print jobs
transmitted over the network to a print server for processing to a remote or
shared print device. The goals of print spooling are to release users from the
printing process as quickly as possible and to provide compatibility with a
variety of network protocols. The Company's print spooling software
accomplishes these goals by utilizing the multitasking capabilities of the
UNIX operating system to support multiple incoming print requests and by
running the AppleTalk, TCP/IP, and IPX network protocols simultaneously. In
addition, the Company's print spooling software was designed to keep the print
device operating at maximum efficiency by allowing smaller print jobs that
have completed spooling to "cut in line" in front of larger print jobs that
are still being spooled to the print server.

DISTRIBUTION, SALES AND MARKETING

DISTRIBUTION AND SALES

The Company generally sells its products indirectly through branch sales
offices or subsidiaries of color copier manufacturers, office equipment
distributors and other independent distributors and dealers. In addition to
developing and maintaining relationships with these resellers, the Company's
sales force also supports and trains the sales organizations of such
distributors. The Company selects organizations within these channels based
upon criteria such as customer base, reputation and technical expertise. None
of the Company's arrangements for the distribution and sale of the Cyclone
involve minimum purchase commitments and most of the Company's arrangements
are cancelable by either party with little or no notice requirements or
penalties. The Company's distributors typically do not maintain an inventory
of the Company's Cyclone products but purchase such products from the Company
as they receive orders from the end users.

32
<PAGE>

NORTH AMERICA. The Company's North American sales staff consists of 14
persons located in nine locations across the United States and Canada and is
primarily focused on the following relationships:

Canon. The Company distributes the Cyclone and related products through
informal distribution arrangements with three subsidiaries of Canon located in
Chicago, Los Angeles, New York and with a division of Canon located in Toronto
pursuant to a dealer agreement. During the years ended December 31, 1995 and
1996, worldwide sales to the Canon subsidiaries represented 19.8% and 12.2%,
respectively, of the Company's net revenues, a substantial majority of which
were derived from the United States and Canada.

Danka. The Company sells the Cyclone and related products to Danka, one of
the largest independent suppliers of photocopiers, facsimile equipment and
other automated office equipment in North America and Europe. Danka markets
color copiers and related digital document products manufactured by Canon,
Minolta and RICOH. Danka recently acquired the sales, marketing and equipment
services operations of Kodak's Office Imaging Business and formed a strategic
alliance whereby Kodak will supply Kodak copiers and printers to Danka. In
February 1996, the Company entered into a master dealer agreement with Danka
to distribute the Cyclone and related products. Notwithstanding this master
agreement with Danka, purchases of the Company's products are generally made
through the individual Danka locations.

IKON. The Company sells the Cyclone and related products to IKON, one of the
largest independent network of copier and office equipment distributors,
throughout North America. IKON focuses on total office automation solutions
and offers color copiers manufactured by Canon, Minolta, RICOH and Sharp, as
well as related network digital document products. The Company has entered
into dealer agreements with several individual IKON distributors but has not
entered into a master agreement with IKON to date. Worldwide sales to IKON
dealers during the years ended December 31, 1995 and 1996 represented 23.3%
and 23.0%, respectively, of the Company's net revenues, most of which were
generated in the United States and Canada.

RICOH. The Company distributes the Cyclone and related products through
three subsidiaries of RICOH located in Detroit, New York and Seattle, with
whom the Company has entered into dealer agreements. The Company also has an
informal distribution arrangement with a division of RICOH in Orange County,
California.

Xerox. The Company began distributing the Cyclone and related products for
use with Xerox copiers in March 1994 through a third party distributor and
entered into a four year distribution agreement with Xerox effective April
1996. Pursuant to this agreement, Xerox has authorized its sales force
throughout the United States to sell the Company's Cyclone and related
products. The Company also distributes its products in Canada under a
separate, informal arrangement with Xerox Canada Ltd. While worldwide sales to
Xerox and its affiliated companies during the years ended December 31, 1994,
1995 and 1996 represented 10.2%, 16.4% and 33.9%, respectively, of the
Company's net revenues, a substantial majority of such sales in 1995 and 1996
were derived from Europe. In June 1996, the Company entered into an OEM
arrangement with Xerox for the development and distribution of the NS Plus 3.0
to support Xerox's DocuTech 135 and DocuColor 40. Pursuant to this
distribution and development agreement, Xerox will sell the NS Plus 3.0 under
its own label and will be subject to certain minimum purchase obligations
during the first year following Xerox's launch of this product. See "--Network
Print Server Products--Network Server PLUS 3.0"

Other Independent Copier Dealers. The Company also sells the Cyclone through
other independent color copier dealers, the majority of whom are authorized
Canon and RICOH dealers. The Company has entered into formal dealer agreements
with most of its independent color copier dealers.

Direct Sales. In certain limited circumstances, the Company may also market
its products directly to end users, primarily print-for-pay firms such as
Kinko's, Inc. The Company does not currently have a purchase agreement with
the individual Kinko's retail stores, its parent corporation or any other
print-for-pay firm, but rather sells its products through informal
arrangements.

33
<PAGE>

INTERNATIONAL. The Company's international sales staff consists of 17
persons in eight locations across Europe. In addition, the Company has
informal distribution arrangements with independent sales organizations in
Japan, Taiwan and Australia. The Company's international distribution channels
primarily focus on the following relationships:

Europe. The Company acquired CDS in December 1996. CDS, through its
operating subsidiary Colorbus International, B.V., has been the exclusive
distributor of the Cyclone in Europe, the Middle East and Africa since January
1994. CDS currently maintains sales offices in Austria, France, Germany and
the Netherlands, and plans to open sales offices in Scandinavia in 1997. The
Company's direct sales force in Europe primarily focuses its efforts on
comarketing the Company's products with sales representatives from Rank Xerox
and, to a lesser extent, other color copier dealers. CDS has entered into
separate distribution arrangements with Rank Xerox's subsidiaries in Belgium,
Germany, the Netherlands, Norway, and Switzerland, with IKON in France and the
United Kingdom and with Canon branches in Germany. CDS also distributes the
Company's products through Rank Xerox subsidiaries in Austria, France, Italy
and Sweden and through Canon dealers and resellers in France and Germany,
although it has not entered into formal distribution or sales agreements with
such companies. The Company anticipates that Rank Xerox will handle the
distribution of the NS Plus 3.0 in Europe on substantially the same terms as
sales by Xerox's sales force in the United States and Canada. In 1995 and
1996, a substantial majority of the Company's worldwide revenues from sales to
Xerox and its affiliated companies were derived from sales to Rank Xerox.

Other Foreign Distributors. The Company has also entered into informal
distribution arrangements with Professional Prepress Services, Ltd. in
Australia, Nippon Technical Laboratories and Visual Processing Japan in Japan
and Lunar International in Taiwan to sell the Cyclone to both the Xerox and
Canon dealer and reseller networks. These distributors purchase the software
for the Cyclone and certain related components from the Company, purchase the
Indy workstations directly from SGI and assemble the Cyclone locally. The
Company plans to open an office in Japan in 1997 and to pursue expansion into
this geographic region.

MARKETING ACTIVITIES

The Company's marketing efforts are primarily directed to color copier
dealers and manufacturers and, to a lesser extent, to prospective end users of
the Company's products. These marketing efforts generally consist of trade
show attendance, advertising campaigns, mailings and product branding.

CUSTOMER SERVICE AND SUPPORT

The Company employs 11 domestic and 15 European technical support personnel
who provide telephone and field support to assist its distributors and end
users in the installation, upgrade, configuration and use of the Company's
products. The Company also maintains a toll free support line (800-RGB-CMYK)
from 6:00 a.m. to 5:00 p.m. Pacific time to answer any inquiries regarding the
Company's products and to assist end users in the operation of the Cyclone.

The Company offers warranties on the Cyclone ranging from 60 days to one
year. The Company generally extends to its customers a warranty that
corresponds to the warranty provided to the Company by its suppliers. The
failure of a supplier to meet its warranty obligations may require the Company
to assume responsibility for such warranty obligations which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

34
<PAGE>

END USERS

The Company's products are used by a broad range of end users in a variety
of industries, but the Company primarily focuses on the on demand color
printing market and the production publishing market. Representative end users
of the Cyclone include the following companies:

ADVERTISING CONSUMER GOODS/SERVICES MANUFACTURING
Bozell Worldwide Calvin Klein, Inc. Bechtel Corporation
Creative Artists Agency Donna Karan The Boeing Company
DDB Needham Worldwide International, Inc. Chrysler Corporation
Ogilvy & Mather G.D. Searle & Co. Daimler Benz AG
Young & Rubicam Inc. Heineken N.V. Ford Motor Company
Nestle USA, Inc. Lockheed Martin
Nordstrom, Inc. Corporation
COMMUNICATIONS & TECHNOLOGY Price-Costco Monsanto Company
AT&T Corporation The Procter & Gamble Co.
Ericsson Telecom Company
Lucent Technologies, Inc. PRINT-FOR-PAY
Microsoft Corporation ENTERTAINMENT Kinko's, Inc.
Xerox Corporation Atlantic Records Sir Speedy Printing
Blockbuster Entertainment
Corp.
CONSULTING & FINANCIAL MCA Inc. PUBLISHING
SERVICES Paramount Studios, Inc. Associated Press
Arthur Andersen & Co. LLP Time Warner, Inc. Fortune Magazine
Austrian National Bank The Walt Disney Company People Magazine
Bear Stearns & Co. Inc. Virgin Interactive Rolling Stone Magazine
Ernst & Young LLP Entertainment, Inc. Time Magazine
J.P. Morgan & Co. Inc.
KPMG Peat Marwick LLP

RESEARCH AND DEVELOPMENT

The Company believes its future success will depend upon its ability, in a
timely manner, to develop and introduce new products and product enhancements
which incorporate evolving technologies and emerging industry standards. The
Company intends to take advantage of technological advancements in digital
document products and continue to develop innovative software based products
and components that provide increasingly higher levels of performance and
reliability and achieve cost reductions for its existing products. Research
and development expenses for the years ended December 31, 1994, 1995 and 1996
were $894,000, $1.5 million and $2.0 million, respectively. The Company
maintains two product development teams consisting of a total of 14 software
and hardware design engineers located in Irvine, California and Vancouver,
Washington. The Company also engages independent research and development
firms from time to time to handle special projects.

The Company intends to focus its development efforts in general on expanding
the compatibility of its products across multiple workstation and server
platforms, the ongoing refinement of advanced color technology and the
continued development of new and enhanced software and hardware components. In
order to provide additional functionality, the Company plans to integrate,
where appropriate, licensed OEM technology from strategic partners.

In particular, the primary focus of the Company's current research and
development activities consists of (i) completing the development of the NS
Plus 3.0, (ii) adapting the Cyclone to operate on SGI's new O/2/ platform,
(iii) offering proprietary software and components to provide increased
functionality and connectivity to advanced digital color copiers, large format
printers and additional output devices, and (iv) developing new software and
integrating much of the Company's current program code to run under the
Windows NT operating system on Intel based platforms. By offering a Windows NT
product, the Company intends to take advantage of the performance and cost
savings associated with Intel based platforms and to leverage the increasing
number of client/server, Internet, telephone and network connectivity
applications currently available or under development

35
<PAGE>

for Windows NT based systems. There can be no assurance that the Company will
be successful in developing and marketing new products or enhancements to the
Company's existing products, or that its products will adequately address the
changing needs of the market.

The O/2/ does not currently accommodate two internal interface boards and,
accordingly, the Company may not be able to provide dual copier support on
this platform which could adversely affect the marketability of the Cyclone.
While the Company is currently developing interface boards and making
revisions to its Cyclone software to adapt to the O/2/ and is investigating
alternative methods to continue to provide dual copier support, such
development is only partially completed. There can be no assurance that such
development will be fully completed on a timely basis, if at all, or that the
Company will be able to continue to provide dual copier support. See "--
Network Server Products--COLORBUS Cyclone Imaging System."

MANUFACTURING, SUPPLIERS AND LICENSORS

The Company's manufacturing operations for the Cyclone typically consist of
the integration of the Company's proprietary software and copier interface
boards, Adobe PostScript, additional memory and other components into the
workstation platform, and the implementation of testing and quality assurance
programs. The Company's Cyclone products which are sold in the United States
and Canada are assembled at the Company's principal facility located in
Irvine, California, and the Company's products which are sold in Europe are
assembled at the Company's facility in the Netherlands. The Company's
distributors in Australia and Asia purchase the software, interface boards and
related components from the Company, purchase workstations from SGI and
assemble the Cyclone locally. The Company will provide its proprietary
software, interface boards and related components to Xerox for the NS Plus
3.0. Xerox will purchase or arrange for the purchase of the workstations, will
license PostScript from Adobe and will arrange for the assembly of the final
product.

Management believes that the Company maintains inventory levels adequate to
meet anticipated short term production levels. The Company is, however,
dependent upon single sources for several components, including workstations,
interface boards, DRAMs and densitometers.

The Cyclone currently operates on the Indy workstation manufactured by a
single supplier, SGI. Pursuant to the Company's agreement with SGI, SGI
granted the Company a nonexclusive license to incorporate the Company's
software and components into the Indy workstation and certain successor
products. This agreement expires in February 1998, and may be renewed for
subsequent one year terms upon the mutual prior written agreement of the
Company and SGI. There can be no assurance that the Company's agreement with
SGI will be renewed or extended on favorable terms, if at all. SGI recently
introduced a new workstation, the O/2/, which the Company anticipates will
replace the Indy workstation in mid 1997. The Company is currently developing
interface boards and making revisions to its software to adapt to this new
workstation. Sales of the Indy based Cyclone may decline pending the
introduction of the new workstation. If SGI were to discontinue production of
the Indy before the Company is able to adapt to the new platform, or if SGI
were unable to provide or otherwise ceases to provide an acceptable level of
end user customer support for the Indy workstation, the Company's business,
financial condition and results of operations would be materially and
adversely affected. The Company is also evaluating other workstation platforms
for its products, but there can be no assurance that such development efforts
will be successful in a timely manner, if at all, or that network print
servers utilizing alternative workstations from other manufacturers will be
accepted in the market.

The Company's copier interface boards are also manufactured by a single
supplier, CDI. While the Company believes that the boards could be
successfully manufactured by an alternative supplier, a disruption in the
supply of the boards could have an adverse effect on the Company's ability to
fulfill orders on a short term basis. The Company's domestic and European
operations each purchase DRAMs from a single supplier. Although other sources
are available, a change in the Company's DRAM suppliers could cause delays in
the Company's ability to obtain these components, which could limit production
of the Company's products. Such delays could be exacerbated in times of memory
shortages. Any inability to obtain adequate deliveries of any of the
components used in the Company's products, including DRAMs, or any
circumstance which would require the Company to seek an alternate supplier for
its sole sourced components could affect the Company's ability to

36
<PAGE>

ship products on a timely basis, which could damage relationships with current
and prospective customers and could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's products utilize the Adobe Configurable PostScript
Interpreter. PostScript interprets page description (text, graphics and
images) written in the programming language and generates raster image output.
The Company's nonexclusive license agreement with Adobe expires in November
1997 and is subject to renewal upon mutual consent. Pursuant to this
agreement, the Company pays royalties to Adobe for each copy of PostScript
incorporated in the Cyclone, which generally constitutes a significant portion
of the product cost of the Cyclone. The Company also participates in Adobe's
quality assurance program which requires Adobe's approval each time the
Company develops a new product that includes PostScript, incorporates a new
version of PostScript into its products (such as Adobe's Level 3 PostScript
interpreter which is scheduled to be released in 1997), or if the Company
significantly changes an existing product that incorporates PostScript. Any
delay in the release of future versions of PostScript or any material defects
in such software could have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
to date has been able to obtain licenses for PostScript as requested, there
can be no assurance the Company will be able to extend or renew this license
or obtain new licenses for future versions of PostScript, on favorable terms,
in a timely manner, if at all. If the Adobe license agreement is terminated
for any reason or if the Company's relationship with Adobe is impaired, the
Company could be required to adopt an alternative software which would require
the expenditure of significant resources and time. Although the Company
believes it would be able to incorporate similar software from another
supplier, such incorporation may reduce the marketability and functionality of
the Company's products and could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's products may contain undetected hardware or software defects
when first introduced or when new versions are released, and the Company has
in the past discovered software defects in certain of its new products after
their introduction. Although the Company has not experienced any material
adverse effects resulting from any defects to date, there can be no assurance
that errors would not be found in new versions of the Company's products after
commencement of commercial shipments, or that any such defects would not
result in a loss of or delay in market acceptance which could cause a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, defects in the Company's products (including errors
in licensed third party software) detected prior to the Company's release of
new products could result in a delay in or the cancellation of the
introduction of such new products causing the Company to incur significant
additional expenses.

COMPETITION

The markets for the Company's products are relatively new and evolving, and
are characterized by intense competition and rapid technological change. The
Company primarily competes with several manufacturers of color print servers,
including EFI and Splash, as well as manufacturers of digital color copiers
and color laser printers. These competitors are expected to expand the
functionality and performance of their products which may render such
technologies more competitive than the Company's products. The Company
believes the principal competitive factors in its markets are product
features, functionality, performance and price as well as strategic
relationships with key partners in existing distribution channels. The Company
believes that the ability to incorporate platforms manufactured by various
workstation manufacturers and adapt to the Windows NT operating system may
also be an important competitive factor in the future.

The Company believes that it enjoys a competitive advantage as a result of
the Cyclone's enhanced and easy to use features, its ability to support
multiple output devices, and its open, upgradeable system. EFI's competing
product is a dedicated printer controller which lacks certain of the
advantages and functionality of an open, upgradeable system such as the
Cyclone. Xerox and Canon have entered into OEM arrangements with certain of
the Company's competitors which has made it more difficult for the Company to
market its products

37
<PAGE>

through such manufacturers' branches and subsidiaries. Certain competing color
print servers have achieved greater brand recognition than the Cyclone which
has further impacted the Company's ability to achieve increased market
acceptance of its products.

The Company also competes with manufacturers of digital color copiers who
incorporate color server features into their copiers, and manufacturers of
color laser printers that offer increasing speed and color server capability.
Recent advancements in color laser printers manufactured by Hewlett-Packard,
Tektronix and others offer increasing speed and color capabilities, and a
broad range of color calibration and color management software, components and
systems. As component prices decrease and the processing power and other
functionality of copiers and laser printers increases, manufacturers of such
output devices will continue to add color server functionality to their
systems which could reduce the market for the Company's existing products.
Certain competitors have developed embedded color printer controllers that
reside inside the copier or printer. To the extent copier manufacturers
incorporate color server technology with their copiers as an integrated color
solution, the Company's ability to sell its products through such
manufacturers will likely be materially and adversely affected.

Many of the Company's competitors have significantly greater financial,
technical, manufacturing and marketing and other resources than the Company,
and there can be no assurance that the Company will be able to compete
successfully with these companies.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company relies heavily on proprietary technology which it protects
primarily through copyright, trademark and trade secret laws, exclusive
licensing arrangements, employee nondisclosure agreements and other security
measures. Due to rapid advancements in color image processing technology, the
Company has decided to rely on trade secret protection instead of pursuing
patents in an attempt to avoid any disclosure of the Company's software and
components. The Company is in the process of obtaining confidentiality
agreements from each of its employees. Despite these precautions, there can be
no assurance that the Company will be successful in protecting its proprietary
technology, or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies.

Intellectual property rights have been the subject of substantial litigation
in the computer software and hardware industry. Although no known infringement
claims or lawsuits are currently pending against the Company, there can be no
assurance that infringement claims by third parties, or claims for
indemnification resulting from infringement claims, will not be asserted in
the future. All claims, regardless of merit could be time consuming, result in
costly litigation, 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, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Litigation
may be necessary in the future to protect the Company's trade secrets or know-
how owned by or licensed to the Company, to defend the Company against
infringement claims or to determine the scope and validity of the proprietary
rights of others. Litigation to determine the validity of any claims could
result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from productive tasks. In
addition, the Company may lack sufficient resources to initiate a meritorious
claim. In the event of an adverse ruling in any litigation regarding
intellectual property, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop noninfringing technology or obtain licenses to infringing
or substituted technology. The failure of the Company to develop or license,
if required, a substitute technology on acceptable terms could have a material
adverse affect on the Company's operating results.

38
<PAGE>

FACILITIES

The Company leases approximately 12,000 square feet in Irvine, California
pursuant to two leases which expire in April 1997. These buildings are used as
the Company's headquarters and include administration, manufacturing,
marketing and sales, customer service and distribution facilities. The Company
also leases approximately 5,600 square feet in Vancouver, Washington which is
used for research and product development. This lease expires in August 1999.
The Company also leases office space in Austria, France, Germany, the
Netherlands and the United Kingdom. The Company plans to relocate its
corporate headquarters and domestic manufacturing facilities in 1997 to a
larger facility in Orange County, California. The Company believes that this
new facility will be sufficient to meet its needs for the foreseeable future.

EMPLOYEES

As of February 15, 1997, the Company employed 111 people, including 43 in
sales and marketing, 26 in customer service and support, 14 in research and
product development, six in manufacturing, and 22 in finance and
administration. The Company's future success will depend in large part upon
its ability to continue to attract and retain highly qualified technical,
marketing and management personnel, the competition for whom is intense. The
Company's employees are not represented by any collective bargaining
agreements. The Company has never experienced a work stoppage. The Company
believes that its relations with its employees are good.

LEGAL PROCEEDINGS

From time to time, the Company has been involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
the date of this Prospectus, the Company is not a party to any legal
proceedings, the adverse outcome of which, in management's opinion,
individually or in the aggregate, would have a material adverse effect on the
Company's results of operations or financial position.

39
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors, executive officers and key employees of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Worth T. Probst(1) 58 Chairman of the Board
Paul R. Peffer(1) 44 Chief Executive Officer and Director
President, Chief Operating Officer and
Barry Broere(1) 45 Director
Kees Mulder(1) 41 Executive Vice President, Global Marketing
and Strategy and Director
Cameron C. Altenhof-Long 27 Chief Technology Officer and Vice President
Steven Kang 32 Vice President, Engineering
Terry Kennell 37 Vice President, Customer Service
Don S. Krysinski 43 Vice President, Sales North America
Paul de Roij 40 Director of Finance, CDS
Dean N. Trojan 40 Chief Financial Officer and
Vice President, Finance and Administration
Patrick Arrington 54 Director
</TABLE>
- --------
(1) Members of the Executive Committee.

Worth T. Probst has been the Chairman of the Board of the Company since it
commenced operations in 1990 and served as the Chief Executive Officer of the
Company from inception until January 1995. From 1974 to 1988, Mr. Probst owned
and operated two Canon copier dealerships in Southern California and Hawaii
which he sold in 1988 and 1993, respectively. Prior to 1974, Mr. Probst was
employed by Xerox Corporation in several capacities including division
marketing manager, branch manager and sales representative. Mr. Probst
received a B.S. degree in Chemistry and Biology from Syracuse University and
an M.B.A. degree from Northwestern University.

Paul R. Peffer joined the Company in May 1990 as its President and as a
Director. Mr. Peffer was promoted to Chief Executive Officer in January 1995.
Mr. Peffer also served as Chief Operating Officer between December 1994
through December 1996. From June 1985 to December 1989, Mr. Peffer served in
various positions and most recently as Vice President, Finance for University
Copy Systems, one of the Canon dealerships owned by Mr. Probst. Mr. Peffer
received a B.S. degree in Business from Augsburg College.

Barry Broere joined the Company in December 1996 as its President and Chief
Operating Officer and as a Director following the Company's acquisition of
CDS. Mr. Broere cofounded CDS in August 1992 and continues to serve as a
Managing Director of CDS. From June 1989 to July 1992, Mr. Broere served as a
Managing Director of the Color and Document Systems Division of HCS
Technology. From 1976 to 1989, Mr. Broere served in various management
positions with Nashua Corporation, most recently as the General Manager of its
Laser Printer Systems Division.

Kees Mulder joined the Company in December 1996 as its Executive Vice
President, Global Marketing and Strategy and as a Director following the
Company's acquisition of CDS. Mr. Mulder cofounded CDS and has served as its
Director of Marketing and Sales since August 1992 and continues to serve as a
Managing Director of CDS. From August 1989 to July 1992, Mr. Mulder served as
the Director of Marketing and Sales of the Color and Document Systems division
of HCS Technology. From 1984 to 1989, Mr. Mulder served in various marketing
positions with Samas Group, most recently as its Marketing Manager Office
Equipment.

40
<PAGE>

Cameron C. Altenhof-Long has served as the Company's Chief Technology
Officer and Vice President since January 1992 and as a software consultant to
the Company from June 1991 to January 1992. Mr. Altenhof-Long received a B.S.
degree in Electrical Engineering and Computer Engineering from the Carnegie
Mellon Institute in May 1992.

Steven Kang has served as the Company's Vice President, Engineering since
November 1996. From May 1988 through November 1996, Mr. Kang was employed by
Xerox as a Principal Software Engineer. Prior to that, Mr. Kang was a Software
Engineer for Unisys Corporation. Mr. Kang received a B.S. degree in Computer
Science from the University of California, Irvine, an M.S. degree in Computer
Science from the University of Southern California and an M.B.A degree from
the University of California, Los Angeles.

Terry Kennell joined the Company in January 1995 as its Director of
Technology Support and became the Vice President, Customer Service in August
1995. Prior to joining the Company, Mr. Kennell was employed by Delta Business
Systems, a subsidiary of IKON, from 1982 through January 1995 as the Director
of Technical Support.

Don S. Krysinski joined the Company in May 1995 as its Vice President,
Marketing and became the Vice President, Sales North America in January 1997.
From 1988 to May 1995, Mr. Krysinski served as the Vice President, General
Manager and Director of Marketing of Point 4 Data Corporation. Mr. Krysinski
received a B.S. degree in Management from California State University, Long
Beach and an M.B.A degree from the University of Phoenix.

Paul de Roij joined the Company in December 1996 following the Company's
acquisition of CDS. Mr. de Roij joined CDS in October 1992 as its Director of
Finance and became a Managing Director of CDS in December 1993. From February
1991 to September 1992, Mr. de Roij served as the Director of Finance of the
Public Automation Division of HCS Technology. From 1987 to 1991, Mr. de Roij
served in various Divisions of Interpolis NV as Financial Controller. Mr. de
Roij received a B.S. degree in Economics from Tilburg University, the
Netherlands.

Dean N. Trojan has served as the Company's Chief Financial Officer and Vice
President, Finance and Administration since December 1994. From November 1993
through August 1994, Mr. Trojan was employed by Cybernetics Products, Inc. as
its Chief Financial Officer, and from February 1990 through March 1993 served
as Controller and Chief Financial Officer of Koll Management Services, Inc.
Prior to that, Mr. Trojan was employed by Ernst & Young for eleven years, most
recently as a Senior Manager. Mr. Trojan received a B.S. degree in Accounting
from California State University, Long Beach.

Patrick Arrington was appointed to the Board of Directors of the Company in
January 1995. Mr. Arrington has been engaged in the practice of law since 1968
and is a member of the law firm of Brobeck, Phleger & Harrison LLP, Newport
Beach, California, counsel to the Company. Mr. Arrington received a B.A.
degree in History from the University of New Mexico and an LL.B. degree from
Harvard Law School. Mr. Arrington is currently also a member of the Board of
Directors of Proxima Corporation.

41
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning
compensation paid or accrued for services rendered to the Company in all
capacities during the year ended December 31, 1996 to (i) the Company's Chief
Executive Officer, (ii) each of the three other most highly compensated
executive officers whose total salary and bonus for 1996 exceeded $100,000 and
(iii) two executive officers of CDS who became executive officers of the
Company and would have been included among the Company's four most highly
compensated executive officers had they been employed by the Company during
1996 (the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL STOCK ALL OTHER
POSITION FISCAL YEAR SALARY($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ------------------ ----------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Worth T. Probst,
Chairman of the Board.. 1996 144,000 14,886(1) -- 535(2)
Paul R. Peffer,
Chief Executive
Officer................ 1996 215,000 -- -- 5,290(2)(3)
Barry Broere,
President and Chief
Operating Officer...... 1996 272,823(6) -- -- 17,632(4)
Kees Mulder,
Executive Vice
President, Global
Marketing and Strategy. 1996 272,823(6) -- -- 15,869(4)
Cameron C. Altenhof-
Long,
Vice President and
Chief Technology
Officer................ 1996 360,000 -- 19,592(5) 3,743(2)(3)
Dean N. Trojan,
Chief Financial Officer
and Vice President,
Finance and
Administration......... 1996 120,000 -- -- 483(2)
</TABLE>
- --------
(1) Includes payments to the Named Executive Officer of $13,902 for a car
allowance and $984 for club dues.
(2) Includes matching contributions under the Company's 401(k) plan.
(3) Includes premiums paid by the Company for life insurance and long term
disability insurance for the benefit of the Named Executive Officer.
(4) Includes premiums paid by CDS for life insurance and accidental death
coverage for the benefit of the Named Executive Officer.
(5) This option vests annually over a four year period commencing January 1996
and expires in January 2006 subject to continued employment. The exercise
price of this option is $11.02 which is equal to the fair market value of
the underlying Common Stock on the date of grant, as determined by the
Board of Directors of the Company.
(6) Actual salary is NLG 459,824 which includes amounts payable to such
officers' personal holding companies pursuant to the Management Agreement
between CDS and such personal holding company as well as other amounts
payable directly from other CDS subsidiaries. Amounts specified in the
table are based upon the average exchange rate of Dutch guilders to U.S.
dollars for the year ended December 31, 1996. See "--Employment Contracts,
Termination of Employment Agreements and Change in Control Arrangements."

42
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1996 to each of the Named Executive Officers.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Worth T. Probst......... -- -- -- -- -- --
Paul R. Peffer.......... -- -- -- -- -- --
Barry Broere............ -- -- -- -- -- --
Kees Mulder............. -- -- -- -- -- --
Cameron C. Altenhof-
Long.................... 19,592 23.5% 11.02 01/08/06 $ 135,781 $ 344,095
Dean N. Trojan.......... -- -- -- -- -- --
</TABLE>
- --------
(1) The exercise price of such options was equal to the fair market value of
the Common Stock on the date of grant. The 5% and 10% assumed rates of
appreciation are prescribed by the rules and regulations of the Securities
and Exchange Commission and do not represent management's estimate or
projection of future trading prices of the Common Stock.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

The following table sets forth information with respect to exercises of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1996 and the number and value of securities underlying
unexercised options held by the Named Executive Officers as of December 31,
1996.

<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
NAME (#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Worth T. Probst......... -- -- --/-- --/--
Paul R. Peffer.......... -- -- --/-- --/--
Barry Broere............ -- -- --/-- --/--
Kees Mulder............. -- -- --/-- --/--
Cameron C. Altenhof-
Long.................... -- -- --/19,592
Dean N. Trojan.......... -- -- 20,400/10,212
</TABLE>
- --------
(1) No public market existed for the Common Stock at December 31, 1996.
Accordingly, these values have been calculated based on the assumed
initial public offering price.

1997 STOCK INCENTIVE PLAN

The Company's 1997 Stock Incentive Plan (the "1997 Plan") became effective
on January 17, 1997 upon adoption by the Board of Directors and the Company's
stockholders. A total of 350,000 shares of Common Stock have been authorized
for issuance under the 1997 Plan.

The 1997 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, nonemployee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of

43
<PAGE>

Common Stock at an exercise price not less than the fair market value of those
shares on the grant date, (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrator's discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price not less
than fair market value at the time of issuance or as a bonus awarded for
services rendered the Company, and (iii) the Automatic Option Grant Program
under which option grants will automatically be made at periodic intervals to
eligible nonemployee Board members to purchase shares of Common Stock at an
exercise price equal to 100% of the fair market value of those shares on the
grant date.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Company's Board of Directors until the Company
establishes a Compensation Committee. The Compensation Committee as Plan
Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times
when such option grants or stock issuances are to be made, the number of
shares subject to each such grant or issuance, the status of any granted
option as either an incentive stock option or a nonstatutory stock option
under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The administration of the Automatic Option
Grant Program will be self executing in accordance with the express provisions
of that program.

The exercise price for the shares of Common Stock subject to option grants
made under the 1997 Plan may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date. The option may also be
exercised through a same day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial assistance
to one or more individuals in their acquisition of shares of Common Stock
through option exercises or direct issuances by allowing such individuals to
deliver a full recourse, interest bearing promissory note in payment of the
applicable exercise or issue price and any associated withholding taxes
incurred in connection with their acquisition of those shares.

In the event that the Company is acquired by merger or sale of substantially
all of the Company's assets or more than 50% of the Company's outstanding
voting securities, each outstanding option under the Discretionary Option
Grant Program which is not to be assumed by the successor corporation or
otherwise to continue in effect will automatically accelerate in full, and all
unvested shares under the Stock Issuance Program will immediately vest, except
to the extent the Company's repurchase rights with respect to those shares are
to be assigned to the successor corporation. The Plan Administrator will have
the authority under the Discretionary Option Grant and Stock Issuance Programs
to grant options and to structure repurchase rights so that the shares subject
to those options or repurchase rights will automatically vest in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a designated period (not to exceed six (6)
months) following (i) an acquisition in which those options are assumed or
those repurchase rights are assigned or (ii) a hostile change in control of
the Company effected by a successful tender offer for more than 50% of the
Company's outstanding voting stock.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares
with an exercise price per share not less than the fair market value of the
Common Stock on the new grant date.

Under the Automatic Option Grant Program, each individual who first joins
the Board after the effective date of this Offering as a nonemployee Board
member will receive an option grant for shares of Common Stock at the time of
his or her commencement of Board service, provided such individual has not
otherwise been in the prior employ of the Company. In addition, at each annual
stockholders meeting, beginning with the first annual meeting held after the
effective date of this Offering, each individual who is to continue to serve
as a nonemployee Board member will receive an option grant to purchase shares
of Common Stock.

44
<PAGE>

Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of ten years, subject to earlier termination following the optionee's
cessation of Board service. The initial grant will vest immediately and each
annual grant thereafter will vest over four years measured from the grant
date. However, the shares subject to each outstanding option will immediately
vest upon (i) certain changes in the ownership or control of the Company, or
(ii) the death or disability of the optionee while serving as a Board member.

The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate in January 2007, unless sooner terminated by the Board.

OTHER STOCK OPTIONS

Between December 1994 and January 1996, the Company granted nonqualified
stock options to certain members of the Company's senior management for the
purchase of an aggregate of 113,878 shares of Common Stock at a weighted
average exercise price of $10.43 per share. Such options generally vest over a
four year period commencing one year following the date of grant. These
options were not granted under any formal stock option plan. All of these
options were granted in consideration for services rendered by the Optionees
to the Company, and no cash consideration was tendered for these options.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AGREEMENTS AND CHANGE IN
CONTROL ARRANGEMENTS

The Company's wholly-owned subsidiary, CDS has entered into a Management
Agreement with each of the personal holding companies of Messrs. Broere and
Mulder effective January 1, 1996, pursuant to which such companies are
responsible for the management of CDS and certain of its subsidiaries. These
agreements have an indefinite term but are terminable by either party upon 24
months prior written notice. As consideration for the services rendered under
such agreements, CDS is required to pay to each of such personal holding
companies a management fee in the amount of NLG 336,000 (U.S. $192,000 as of
December 31, 1996) in addition to other consideration payable by other
subsidiaries of CDS.

The Company also provides options grants as incentives (which are typically
subject to a four year vesting schedule) to attract and retain executive
officers and other key employees. The Compensation Committee of the Board of
Directors, as Plan Administrator of the 1997 Plan, will have the authority to
provide for the accelerated vesting of options held by such individuals under
the 1997 Plan, in connection with the termination of the individual's
employment following an acquisition in which these options are assumed or the
repurchase rights with respect to the unvested shares are assigned.

BOARD COMMITTEES

The Company currently has an Executive Committee of the Board of Directors
consisting of Messrs. Broere, Mulder, Peffer and Probst. The Executive
Committee has the full power and authority of the Board of Directors except
where prohibited by law, and has the primary authority for the strategic
planning and management of the Company. Upon consummation of the Offering, the
Company intends to establish a Compensation Committee which will administer
the Company's 1997 Plan, and an Audit Committee which will supervise and make
recommendations and decisions with respect to the periodic audits of the
Company's financial results. The Company intends to appoint two outside
directors following this Offering who will serve on these committees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No other interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the board of directors of any other
company.

45
<PAGE>

DIRECTOR COMPENSATION

Directors of the Company do not receive any compensation for their services
as directors, but are reimbursed for expenses actually incurred in connection
with attending meetings of the Board of Directors. Pursuant to the Automatic
Option Grant Program contained in the 1997 Plan, each nonemployee director
will receive an option to purchase shares of Common Stock at the commencement
of his service on the Board of Directors. In addition, at each annual
stockholders meeting, each individual who is elected to continue to serve as a
nonemployee director will receive an option to purchase additional shares of
Common Stock. See "--1997 Stock Incentive Plan." In January 1996, Patrick
Arrington received a grant of an option to purchase 14,694 shares of the
Company's Common Stock at an exercise price of $11.02 per share, of which
7,200 shares vested in January 1997, 3,600 shares vest in January 1998 and
3,894 shares vest in January 1999.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the Company can
indemnify its directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company's Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent permitted by
law and require the Company to advance litigation expenses upon receipt by the
Company of an undertaking by the director or officer to repay such advances if
it is ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws do not exclude any other right such persons may have or acquire under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.

The Company's Certificate of Incorporation provides that, pursuant to
Delaware Law, its directors shall not be liable for monetary damages for
breach of the directors' fiduciary duty of care to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available under Delaware Law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company or its stockholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.

The Company has entered into agreements to indemnify its directors and
certain of its officers in addition to the indemnification provided for in the
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and certain of its officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by
or in the right of the Company, on account of services as a director or
officer of the Company, or as a director or officer of any other company or
enterprise to which the person provides services at the request of the
Company.

There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

46
<PAGE>

CERTAIN TRANSACTIONS

On December 31, 1996, the Company issued 1,054,943 shares of its common
stock in exchange for all the issued and outstanding capital stock and loans
payable to certain stockholders of CDS. CDS had theretofore been the Company's
exclusive sales and marketing agent in Europe. Messrs. Broere and Mulder were
founders, principal stockholders and managing directors of CDS, and became
principal stockholders and executive officers of the Company as a result of
the transaction. As a result of this business combination, which was accounted
for as a pooling of interests, CDS became a wholly owned subsidiary of the
Company and its results of operations are included in the Company's
consolidated statements of operations for all periods presented.

From time to time, the Company has borrowed from certain of its principal
stockholders on terms no less favorable to the Company than those available
from unaffiliated third parties. At December 31, 1996, no such loans were
outstanding.

47
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 15, 1997,
and as adjusted to reflect the sale of Common Stock by the Company and the
Selling Stockholders offered hereby, by (i) each of the Selling Stockholders,
(ii) each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (iii) each of the Company's directors,
(iv) each of the Named Executive Officers, and (v) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY NUMBER BENEFICIALLY
OWNED PRIOR TO OF OWNED AFTER
OFFERING (1) SHARES OFFERING(1)
----------------- BEING --------------
NAME AND ADDRESS(2) NUMBER PERCENT OFFERED NUMBER PERCENT
------------------- --------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Worth T. Probst(3)............... 920,813 30.6%
Barry Broere(4).................. 506,411 16.8%
Paul R. Peffer................... 411,427 13.6%
Kees Mulder(4)................... 337,607 11.2%
Terry M. Giles(5)................ 264,489 8.8%
16902 Via Cuesta Verde
Rancho Santa Fe, CA 92067
Gaymark Associates............... 156,734 5.2%
635 Madison Avenue
New York, NY 10022
Cameron C. Altenhof-Long(6)...... 151,739 5.0%
Dean N. Trojan(7)................ 20,400 *
Patrick Arrington(8) ............ 7,200 *
All directors and executive
officers as a group
(7 persons)..................... 2,326,209 75.6%
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is based upon 3,014,118 shares of Common Stock as of
February 15, 1997 and shares of Common Stock outstanding after
completion of this Offering. Shares of Common Stock subject to options
that are currently exercisable or exercisable within 60 days of the date
of this Prospectus are deemed to be outstanding and beneficially owned by
the person holding such option for the purpose of computing beneficial
ownership of such person, but are not treated as outstanding for the
purposes of computing the percentage ownership of any other person.
(2) The address of Messrs. Probst, Peffer, Broere, Mulder and Altenhof-Long is
c/o COLORBUS, Inc., 18261 McDurmott West, Irvine, California 92614.
(3) Includes 600,000 shares of Common Stock held by Mr. Probst's family
limited partnership. Also includes shares subject to an option granted to
Mr. Altenhof-Long to purchase up to 58,775 shares of Common Stock, of
which 29,388 shares are exercisable within 60 days of the date of this
Prospectus.
(4) All of such shares are owned by the Netherlands personal holding company
of the named individual.
(5) All of such shares are held by Millenium Partners. Mr. Giles is the
General Partner of Millenium Partners and has the sole voting and
investment control over such shares. Mr. Giles served as a director of the
Company until December 1996.
(6) Includes options to purchase 4,800 shares of Common Stock which are
exercisable within 60 days of the date of this Prospectus. Also includes
options to purchase 29,388 shares of Common Stock held by Mr. Probst,
which are exercisable by Mr. Altenhof-Long within 60 days of the date of
this Prospectus pursuant to an option to purchase 58,775 shares of Common
Stock. Mr. Altenhof-Long served as a director of the Company until
December 1995 and currently serves as the Chief Technology Officer and
Vice President of the Company.
(7) Consists of options to purchase 20,400 shares of Common Stock which are
exercisable within 60 days of the date of this Prospectus.
(8) Consists of options to purchase 7,200 shares of Common Stock which are
exercisable within 60 days of the date of this Prospectus.

48
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon completion of this Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.0001 par value,
and 1,000,000 shares of Preferred Stock, $.0001 par value.

COMMON STOCK

As of February 15, 1997, the Company had outstanding 3,014,118 shares of
Common Stock, held of record by 20 stockholders. Upon consummation of this
Offering, the Company will have outstanding shares of Common Stock
after giving effect to the sale of the shares of Common Stock offered hereby.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. There are no
cumulative voting or preemptive rights applicable to any shares of Common
Stock. Subject to preferences that may be applicable to any shares of
Preferred Stock issued in the future, holders of Common Stock are entitled to
participate pro rata in distributions and in such dividends as may be declared
by the Board of Directors out of the funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference
of any then outstanding shares of Preferred Stock. Holders of Common Stock
have no preemptive rights and no right to convert their Common Stock into any
other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are,
and all shares of Common Stock to be issued in this Offering will be, fully
paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by the stockholders. The issuance of Preferred Stock
could adversely affect the voting power of the holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation, and could have the effect of delaying, deferring or preventing a
change in the control of the Company. No shares of Preferred Stock are
outstanding as of the date of this Prospectus, and the Company does not have
any current plans to issue any shares of Preferred Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.

49
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, shares of Common Stock
( shares if the Underwriters' over-allotment options are exercised
in full) will be outstanding. Of these shares, the shares sold in
this Offering ( shares if the Underwriters over-allotment options
are exercised in full) will be freely tradeable without restriction under the
Securities Act. The remaining 3,014,118 shares of Common Stock held by
existing stockholders are "restricted securities" within the meaning of Rule
144 under the Act and, subject to the lock-up described below, will become
eligible for sale subject to the provisions of Rule 144 and Rule 701 under the
Act.

All stockholders, officers and directors of the Company have agreed with the
Underwriters that they will not, directly or indirectly, offer, sell, offer to
sell, contract to sell, grant any option to purchase or otherwise sell or
dispose of (or announce any offer, sale, offer of sale, contract to sell,
pledge, grant of any options to purchase or other sale or disposition) of any
shares of Common Stock or other capital stock of the Company or any securities
convertible into or exercisable or exchangeable for, or any rights to purchase
or acquire, any shares of Common Stock or other capital stock of the Company,
without the prior written consent of Prudential Securities Incorporated, for a
period of 180 days after the date of this Prospectus. Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the shares of Common Stock subject to such
agreement. After such 180 day period, this restriction will expire and shares
permitted to be sold under Rule 144 will be eligible for sale. See
"Underwriting."

In general, under Rule 144 as currently in effect, if two years have elapsed
since the date of acquisition of beneficial ownership of restricted shares of
Common Stock from the Company or any affiliate, the acquiror or subsequent
holder thereof is entitled to sell within any three month period a number of
such shares that does not exceed the greater of 1% of the then outstanding
shares of the same series of Common Stock or the reported average weekly
trading volume of the Common Stock on national securities exchanges during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain provisions regarding the manner of sale, notice requirements and
the availability of current public information about the Company. If three
years have elapsed since the date of acquisition of restricted shares of
Common Stock from the Company or any affiliate and the acquiror or subsequent
holder is not deemed to have been an affiliate of the Company for at least 90
days prior to a proposed transaction, such person would be entitled to sell
such shares under Rule 144 without regard to the limitations described above.
These holding periods will be reduced to one year and two years, respectively,
as of April 29, 1997.

As of December 31, 1996, the Company had outstanding options to purchase
113,878 shares of Common Stock. Any employee of the Company who has been
granted options to purchase shares or who has purchased shares pursuant to a
written compensatory plan or contract prior to the effective date of this
Offering is entitled to rely on the resale provisions of Rule 701 promulgated
under the Act, which permits nonaffiliates to sell their Rule 701 shares
without having to comply with the provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this Prospectus.

On January 17, 1997, the Company reserved 350,000 shares of Common Stock for
issuance pursuant to the 1997 Stock Incentive Plan. The Company intends to
file a registration statement on Form S-8 under the Act approximately 90 days
after the date of this Prospectus to register shares to be issued pursuant to
such plan and other outstanding options. Shares of Common Stock issued under
this plan after the effective date of such registration statement will be
freely tradeable in the public market, subject to lock-up agreements and, in
the case of sales by affiliates, to the amount, manner of sale, notice and
public information requirements of Rule 144. See "Management--1997 Stock
Incentive Plan."

Prior to this Offering, there has been no public market for the Common Stock
and there is no assurance a significant public market for the Common Stock
will develop or be sustained after this Offering, or that the market price of
the Common Stock will not decline below the initial public offering price.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect market prices prevailing from time to time.

50
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Hambrecht & Quist LLC are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company and the Selling Stockholders the number of shares of Common Stock
set forth below opposite their respective names.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated.................................
Hambrecht & Quist LLC..............................................
---------
Total............................................................
=========
</TABLE>

The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby, if any are purchased.

The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of
this Prospectus; that the Underwriters may allow to certain dealers a
concession of $ per share; and that such dealers may reallow a concession
of $ per share to certain other dealers. After the initial public
offering, the offering price and the concessions may be changed by the
Representatives.

The Company and the Selling Stockholders have granted to the Underwriters
over-allotment options, exercisable for 30 days from the date of this
Prospectus, to purchase, in the aggregate, up to additional shares
of Common Stock at the initial public offering price, less underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such options are exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to .

The Company and certain of its stockholders have agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) any shares of Common Stock or other capital stock
or any securities convertible into or exercisable or exchangeable for or any
right to acquire any shares of Common Stock or other capital stock of the
Company for the 180-day period after the date of this Prospectus without the
prior written consent of Prudential Securities Incorporated on behalf of the
Underwriters. Prudential Securities Incorporated may, in its sole discretion,
at any time and without notice, release all or any portion of the shares of
Common Stock subject to such agreement.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.

51
<PAGE>

Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company, the Selling
Stockholders and the Representatives. Among the factors to be considered in
such determination are the prevailing market conditions, the Company's
financial and operating history and condition, its prospects and the prospects
for the industry in which the Company operates, the management of the Company
and the market prices of securities for companies in businesses similar to
that of the Company.

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with the Offering
than they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to shares of Common Stock, by exercising the
Underwriters' over-allotment options referred to above. In addition,
Prudential Securities Incorporated, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Newport Beach, California. Certain
legal matters relating to this Offering will be passed upon for the
Underwriters by Fenwick & West LLP, Palo Alto, California.

Patrick Arrington, a member of Brobeck, Phleger & Harrison LLP, is a
director of the Company and has been granted an option to purchase up to
14,694 shares of Common Stock at an exercise price of $11.02 per share.

EXPERTS

The consolidated financial statements and schedule of the Company as of
December 31, 1995 and 1996, and for each of the years in the three year period
ended December 31, 1996, have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and in the
Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.

52
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain items are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract of other document referred to
are not necessarily complete, and in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each statement being qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits and schedules thereto, may
be inspected without charge at the public reference facilities maintained by
the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. The Registration Statement may be obtained from such
office upon the payment of fees prescribed by the Commission. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited by its independent
auditors, and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.

53
<PAGE>

COLORBUS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............... F-3
Consolidated Statements of Income for the years ended December 31, 1994,
1995 and 1996............................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995
and 1996.................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996....................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Colorbus, Inc.:

We have audited the accompanying consolidated balance sheets of Colorbus,
Inc. as of December 31, 1995 and 1996 and the related consolidated statements
of income, stockholders' equity and cash flows for each of the years in the
three year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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 Colorbus, Inc. as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Orange County, California
January 24, 1997

F-2
<PAGE>

COLORBUS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 335,000 $ 2,326,000
Trade accounts receivable, less allowance for
doubtful accounts of $166,000 and $366,000 as of
December 31, 1995 and 1996, respectively.......... 4,537,000 4,954,000
Inventories........................................ 5,132,000 2,518,000
Prepaid expenses and other current assets.......... 1,385,000 1,076,000
Income taxes receivable............................ 174,000 157,000
----------- -----------
Total current assets............................. 11,563,000 11,031,000
Property and equipment, net ......................... 1,993,000 1,848,000
----------- -----------
$13,556,000 $12,879,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.............................. $ 1,832,000 $ --
Current portion of term note payable to bank....... -- 375,000
Accounts payable................................... 4,677,000 4,277,000
Accrued liabilities................................ 3,251,000 3,918,000
----------- -----------
Total current liabilities........................ 9,760,000 8,570,000
Term note payable to bank, excluding current portion. -- 188,000
Obligations under capital leases, excluding current
portion.............................................. 393,000 190,000
Loans payable to subsidiary stockholders............. 746,000 --
----------- -----------
Total liabilities................................ 10,899,000 8,948,000
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value. Authorized 1,000,000
shares; no shares issued and outstanding.......... -- --
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 2,940,649 shares in
1995 and 3,014,118 shares in 1996................. 1,255,000 1,942,000
Retained earnings.................................. 1,431,000 2,059,000
Cumulative translation adjustment.................. (29,000) (70,000)
----------- -----------
Total stockholders' equity....................... 2,657,000 3,931,000
----------- -----------
$13,556,000 $12,879,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

COLORBUS, INC.

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................ $26,959,000 $37,220,000 $42,264,000
Cost of revenues........................ 17,194,000 22,320,000 23,692,000
----------- ----------- -----------
Gross profit............................ 9,765,000 14,900,000 18,572,000
----------- ----------- -----------
Operating expenses:
Research and development.............. 894,000 1,495,000 2,006,000
Sales and marketing................... 5,298,000 9,731,000 11,907,000
General and administrative............ 1,861,000 2,412,000 2,918,000
Other costs and expenses.............. -- 181,000 397,000
----------- ----------- -----------
Total operating expenses................ 8,053,000 13,819,000 17,228,000
----------- ----------- -----------
Operating income........................ 1,712,000 1,081,000 1,344,000
Interest expense........................ 134,000 289,000 349,000
Interest and other income............... (13,000) (32,000) (13,000)
----------- ----------- -----------
Income before income taxes.............. 1,591,000 824,000 1,008,000
Provision for income taxes.............. 628,000 287,000 380,000
----------- ----------- -----------
Net income.............................. $ 963,000 $ 537,000 $ 628,000
=========== =========== ===========
Net income per share.................... $ $ $
=========== =========== ===========
Weighted average common and common
equivalent shares.......................
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

COLORBUS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS CUMULATIVE TOTAL
-------------------- (ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT DEFICIT) ADJUSTMENT EQUITY
--------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1993...... 2,911,261 $ 999,000 $ (69,000) $(23,000) $ 907,000
Issuance of common stock upon
exercise of stock options........... 29,388 45,000 -- -- 45,000
Stock compensation................... -- 56,000 -- -- 56,000
Net income........................... -- -- 963,000 -- 963,000
Foreign currency translation
adjustments......................... -- -- -- (18,000) (18,000)
--------- ---------- ---------- -------- ----------
Balance as of December 31, 1994...... 2,940,649 1,100,000 894,000 (41,000) 1,953,000
Conversion of subsidiary stockholder
loans payable to equity............. -- 155,000 -- -- 155,000
Net income........................... -- -- 537,000 -- 537,000
Foreign currency translation adjust-
ments............................... -- -- -- 12,000 12,000
--------- ---------- ---------- -------- ----------
Balance as of December 31, 1995...... 2,940,649 1,255,000 1,431,000 (29,000) 2,657,000
Issuance of common stock in exchange
for loans payable to subsidiary
stockholders........................ 73,469 687,000 -- -- 687,000
Net income........................... -- -- 628,000 -- 628,000
Foreign currency translation
adjustments......................... -- -- -- (41,000) (41,000)
--------- ---------- ---------- -------- ----------
Balance as of December 31, 1996...... 3,014,118 $1,942,000 $2,059,000 $(70,000) $3,931,000
========= ========== ========== ======== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

COLORBUS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 963,000 $ 537,000 $ 628,000
Adjustments to reconcile net income to
net cash provided by
(used in) operating activities:
Depreciation and amortization......... 303,000 833,000 970,000
Loss on disposals of property and
equipment............................ 75,000 -- --
Provision for doubtful accounts....... 43,000 123,000 214,000
Deferred income taxes................. (192,000) (212,000) 87,000
Stock compensation expense............ 56,000 -- --
Increase in accounts receivable....... (3,442,000) (557,000) (836,000)
Decrease (increase) in inventories.... (1,517,000) (2,350,000) 2,439,000
Decrease (increase) in prepaid
expenses and other current assets (595,000) (278,000) 163,000
Decrease (increase) in income taxes
receivable........................... -- (174,000) 17,000
(Decrease) increase in accounts
payable.............................. 1,760,000 805,000 (72,000)
Increase in accrued liabilities....... 2,230,000 380,000 743,000
(Decrease) increase in income taxes
payable.............................. 794,000 (714,000) (88,000)
----------- ----------- -----------
Net cash provided by (used in)
operating activities............... 478,000 (1,607,000) 4,265,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES--
purchases of property and equipment.... (771,000) (1,336,000) (838,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) on notes
payable to bank...................... 356,000 1,356,000 (1,773,000)
Proceeds from term note payable to
bank................................. -- -- 750,000
Principal payments on term note
payable to bank...................... -- -- (187,000)
Proceeds from issuance of loans
payable to subsidiary stockholders... 659,000 -- --
Repayments on notes payable to
officer.............................. (125,000) -- --
Repayments on obligations under
capital leases....................... (18,000) (142,000) (212,000)
Proceeds from issuance of common
stock................................ 45,000 -- --
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... 917,000 1,214,000 (1,422,000)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS................... 45,000 53,000 (14,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... 669,000 (1,676,000) 1,991,000
Cash and cash equivalents at beginning
of year................................ 1,342,000 2,011,000 335,000
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................... $ 2,011,000 $ 335,000 $ 2,326,000
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................ $ 134,000 $ 248,000 $ 352,000
Income taxes........................ 33,000 1,236,000 355,000
=========== =========== ===========
Supplemental disclosures of noncash
investing and financing activities:
Capital lease obligations incurred for
new equipment........................ $ 43,000 $ 679,000 $ 33,000
=========== =========== ===========
Conversion of stockholder loans to
equity............................... $ -- 155,000 687,000
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994, 1995 AND 1996

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL BUSINESS INFORMATION

Colorbus, Inc. (the "Company") develops and markets network print servers
which enable the printing of high resolution color images from various digital
color copiers and large format printers. The Company's principal product
incorporates proprietary software which manages the simultaneous print
requests of multiple users on a computer network, processes color images and
outputs documents on multiple connected output devices. The Company generally
sells its products indirectly through branch sales offices or subsidiaries of
color copier manufacturers, office equipment distributors and other
independent distributors and dealers. The Company's customers are concentrated
in North America and Europe. See Note 9.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the financial statements of
Colorbus, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).

Property and Equipment

Property and equipment are stated at cost. Property and equipment held under
capital leases are stated at the present value of minimum lease payments.
Depreciation is calculated using the straight-line method over estimated
useful lives of three to five years. Property and equipment held under capital
leases and leasehold improvements are amortized on a straight-line basis over
the shorter of the lease term or the estimated useful life of the related
asset.

Common Stock Split

In December 1996, the Company effected a 300-for-1 split of its common
stock. All share data has been restated to reflect the stock split.

Revenue Recognition

Product revenue is recognized upon shipment, provided no significant
obligations remain. An accrual for estimated warranty costs is recorded upon
recognition of revenue. Revenue from extended warranty contracts is deferred
and recognized into income on a straight-line basis over the contract period.
Direct costs incurred to acquire extended warranty contracts on equipment
purchased from outside vendors and sold to customers are deferred and charged
to expense in proportion to the extended warranty revenue recognized.

F-7
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Income Taxes

The Company accounts for income taxes under the asset and liability method,
whereby deferred tax assets and liabilities are determined based on
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. The realization of
deferred tax assets is based on historical positions and expectations about
future taxable income. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.

Translation of Foreign Currencies

The consolidated assets and liabilities of the Company's wholly owned
subsidiary, CDS International B.V. ("CDS") (See Note 2), whose functional
currency is the Dutch guilder, have been translated into U.S. dollars using
the current exchange rates at each balance sheet date, while the operating
results have been translated at average exchange rates during each reporting
period. Adjustments resulting from translation of foreign currency financial
statements are reflected under the caption "cumulative translation adjustment"
in the accompanying consolidated balance sheets. Other foreign subsidiaries
that are consolidated with CDS use their local currency as their functional
currency. Exchange gains and losses resulting from realized foreign currency
transactions are included in operations in the period in which they occur.

Foreign Exchange Contracts

As of December 31, 1995, the Company had outstanding foreign exchange
contracts to purchase $6.9 million through March 1997. As of December 31,
1996, contracts to purchase $1.2 million remained outstanding. These contracts
are designated as hedges of U.S dollar commitments to purchase inventory.
Accordingly, market value gains and losses on the contracts and forward
contract premiums are recorded when realized as adjustments to the value of
inventory purchased, and ultimately as a component of cost of revenues when
inventory is sold. The Company recorded exchange losses of $54,000 and
$417,000 in 1994 and 1995, respectively, and an exchange gain of $155,000 in
1996. The fair value of the contracts was a liability of $369,000 and an asset
of $248,000 as of December 31, 1995 and 1996, respectively.

Other Costs and Expenses

Other costs and expenses in 1995 represent amounts expensed upon the
termination in that year of the Company's proposed initial public offering of
the Company's common stock, and in 1996 represent legal and other
administrative expenses associated with the Company's business combination
with CDS (see note 2).

Net Income per Share

The calculation of net income per share was determined by dividing net
income by the weighted average common and common equivalent shares outstanding
when dilutive. In accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 83, shares issued and stock options granted within one
year of the proposed initial public offering ("IPO") of the Company's common
stock have been included in the calculation of common equivalent shares, using
the treasury stock method, as if they were outstanding for all periods
presented even if they were antidilutive. The calculation of common equivalent
shares assumes that the proceeds of common shares and stock options issued
within one year of the IPO were used to repurchase common shares at an assumed
IPO price of $ per share. Primary earnings per share approximates fully
diluted earnings per share for all periods presented.

F-8
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The computation of weighted average common and common equivalent shares
outstanding during the years ended December 31, 1994, 1995 and 1996 follows:

<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding
during the year...............................
Incremental shares assumed to be outstanding
related to stock options granted..............
--------- -------- ---------
Weighted average common and common equivalent
shares........................................
========= ======== =========
</TABLE>

Capitalized Software Costs

Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
provides for the capitalization of certain software development costs once
technological feasibility is established. The cost so capitalized is then
amortized on a straight-line basis over the estimated product life, or the
ratio of current revenues to total projected product revenues, whichever is
greater. No internal costs have been capitalized to date as the impact on the
consolidated financial statements for all periods presented is immaterial.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
on January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of SFAS No. 121 did not have a material
impact on the Company's financial position, results of operations or
liquidity.

Fair Value of Financial Instruments

In December 1991, the Financial Accounting Standards Board issued SFAS No.
107, "Disclosures about Fair Value of Financial Instruments." SFAS No. 107
requires all entities to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the balance
sheet, for which it is practicable to estimate fair value. SFAS No. 107
defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties. As of December 31, 1996, with the exception of foreign exchange
contracts, the fair value of all financial instruments approximated carrying
value.

Stock Options

Prior to January 1, 1996, the Company accounted for its stock options in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense

F-9
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma net income per share disclosures for employee stock options
granted in 1995 and subsequent years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.

Use of Estimates

Company management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.

2. BUSINESS COMBINATION

In December 1996, the Company entered into an agreement to exchange all
outstanding shares of capital stock and loans payable to certain stockholders
of CDS for 1,054,943 shares of common stock of the Company (the
"Acquisition"). CDS is the exclusive distributor of the Company's products in
Europe. The Acquisition was accounted for as a pooling of interests and,
accordingly, the Company's consolidated financial statements have been
restated to include the results of CDS for all periods presented.

Consolidated results reflect adjustments to net revenues which represent the
elimination of sales from Colorbus to CDS. Consolidated and separate results
of the Company and CDS during the periods preceding the Acquisition were as
follows:

<TABLE>
<CAPTION>
COLORBUS,
INC. CDS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Year ended December 31,
1994
Net revenues.......... $20,942,000 $ 8,810,000 $(2,793,000) $26,959,000
Net income............ $ 787,000 $ 176,000 $ -- $ 963,000
Year ended December 31,
1995
Net revenues.......... $27,075,000 $14,219,000 $(4,074,000) $37,220,000
Net income............ $ 352,000 $ 185,000 $ -- $ 537,000
Year ended December 31,
1996
Net revenues.......... $27,698,000 $19,080,000 $(4,514,000) $42,264,000
Net income............ $ 265,000 $ 363,000 $ -- $ 628,000
=========== =========== =========== ===========
</TABLE>

3. INVENTORIES

A summary of inventories follows:

<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Component parts.................................... $ 2,854,000 $1,664,000
Finished goods..................................... 2,278,000 854,000
----------- ----------
$ 5,132,000 $2,518,000
=========== ==========
</TABLE>

F-10
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. PROPERTY AND EQUIPMENT

A summary of property and equipment, net, follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Leased equipment.................................. $ 777,000 $ 755,000
Computers and equipment........................... 1,725,000 1,853,000
Furniture and fixtures............................ 650,000 992,000
Software.......................................... 39,000 43,000
---------- ----------
3,191,000 3,643,000
Accumulated depreciation and amortization:
Owned property and equipment.................... 1,064,000 1,400,000
Leased equipment................................ 134,000 395,000
---------- ----------
Property and equipment, net................... $1,993,000 $1,848,000
========== ==========
</TABLE>

5. BORROWINGS FROM BANKS

As of December 31, 1996, the Company had available a bank line of credit
providing for borrowings of up to $3 million, with interest payable monthly at
the bank's prime rate (8.25% as of December 31, 1996). There were no
borrowings outstanding under this line as of December 31, 1996.

In June 1996, the Company entered into a bank term loan in the amount of
$750,000 for the purchase of certain equipment. Principal payments of $31,250,
plus interest at the bank's prime rate plus one-half percent are payable
monthly over a period of two years from inception of the loan. As of December
31, 1996, the principal balance due under the term loan was $563,000. Both the
line and the term loan are secured by all assets of the Company and are
personally guaranteed by two of the Company's stockholders who serve as
executive officers.

F-11
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. ACCRUED LIABILITIES

A summary of accrued liabilities is as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Royalties............................................. $ 950,000 $1,430,000
Deferred revenue...................................... 638,000 242,000
Compensation.......................................... 228,000 495,000
Other................................................. 1,435,000 1,751,000
----------- ----------
$ 3,251,000 $3,918,000
=========== ==========
</TABLE>

7. STOCKHOLDERS' EQUITY

Preferred Stock

In January 1995, the Board of Directors adopted an amendment to the
Company's articles of incorporation to authorize the issuance of up to
1,000,000 shares of preferred stock, no par value. As of December 31, 1996, no
preferred stock had been issued.

Common Stock

In connection with a 1991 stock purchase, the Company granted an investor
(the "Investor") an option, as amended, to purchase 97,959 shares of the
Company's outstanding common stock for an aggregate purchase price of $100,000
on or prior to December 31, 1994. As of December 31, 1993, options to purchase
68,571 shares had been exercised. In 1994, the Investor assigned and
transferred the balance of his options to two other investors who exercised
the options and purchased the remaining 29,388 shares of the Company's common
stock for an aggregate purchase price of $45,000 in cash.

In January 1994, an executive officer/shareholder transferred 19,592 shares
of the Company's common stock to another employee. In connection with this
transaction, the Company recognized compensation expense of $56,000
representing the estimated fair market value of such common stock.

During 1993 and 1994, CDS issued 250,000 Dutch guilders in convertible notes
payable to stockholders. In 1995, these notes were converted to common stock
of CDS, equivalent to $155,000 based on the exchange rate at the time of
conversion.

During 1994, certain of CDS' stockholders sold personal stockholdings in CDS
to outside investors. The proceeds from the sale were advanced to CDS in
exchange for 1,200,000 Dutch guilders ($746,000) in loans payable. In
connection with the Acquisition, the loans of $687,000, based on the exchange
rate at the date of the Acquisition, were exchanged for 73,469 shares of the
Company's common stock as residual equity interests.

Stock Options

In December 1994, the Company granted a nonqualified stock option to an
executive officer to purchase 30,612 shares of common stock at an exercise
price of $8.82 per share, which represented the estimated fair market value of
the common stock on the date of grant. This option is exercisable for ten
years and vests over a three year period.

In January 1996, the Company granted nonqualified stock options to four
employees and one director to purchase 83,266 shares of common stock at an
exercise price of $11.02 per share, which represented the estimated fair
market value of the common stock on the date of grant. Such options are
exercisable for ten years and vest over a four year period.

F-12
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In January 1995, the Board of Directors adopted the 1995 Stock Option Plan.
No stock options were granted under this plan. In January 1997, the Board of
Directors canceled the 1995 Stock Option Plan, and adopted the 1997 Stock
Incentive Plan (the "Plan"), which allows for the issuance of both incentive
and nonqualified stock options. A total of 350,000 shares have been reserved
under the Plan for issuance to employees, officers, directors and consultants
as determined by the Board of Directors. The Plan is administered by the Board
of Directors of the Company or a committee designated by the Board of
Directors. Pursuant to the Plan, the exercise price of stock options granted
will not be less than the fair market value of the Company's common stock on
the date of grant. Options granted vest as specified by the Board of Directors
and generally expire ten years from the date of grant. Accelerated vesting of
options may occur upon certain specified events, including change in ownership
or control of the Company and the death or disability of an optionee while
serving as a Board member.

The per share weighted-average fair value of stock options granted during
1996 was $5.62 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: Expected dividend yield
of 0%, risk-free interest rate of 6.2%, volatility of its stock over the
expected life of the options of .5, and an expected life of five years.

The Company applies APB Opinion No. 25 in accounting for its stock options
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net income and net income per share would have
been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net income:
As reported........................................... $537,000 $628,000
======== ========
Pro forma............................................. $537,000 $503,000
======== ========
Net income per share:
As reported........................................... $ $
======== ========
Pro forma............................................. $ $
======== ========
</TABLE>

Pro forma net income reflects only options granted in 1996. There were no
stock options granted during 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income amounts presented above because compensation cost is
reflected over the options' vesting period of three to four years and
compensation cost for options granted prior to January 1, 1995 is not
considered.

A summary of the Company's stock option activity, and related information
for the years ended December 31, 1994, 1995 and 1996 follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding as of December 31, 1993............... -- $ --
Granted........................................... 30,612 8.82
------- ------
Outstanding as of December 31, 1994 and December
31, 1995 30,612 $ 8.82
Granted........................................... 83,266 11.02
------- ------
Outstanding as of December 31, 1996............... 113,878 $10.43
======= ======
Exercisable as of December 31, 1996............... 20,400 $ 8.82
======= ======
Weighted average fair value of options granted
during 1996...................................... $ 5.62
======
</TABLE>

F-13
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.82 to $11.02 and 8.7
years, respectively.

8. INCOME TAXES

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal..................................... $ 591,000 $ 252,000 $ 12,000
State....................................... 143,000 79,000 58,000
Foreign..................................... 86,000 168,000 223,000
--------- --------- --------
820,000 499,000 293,000
--------- --------- --------
Deferred:
Federal..................................... (202,000) (122,000) 85,000
State....................................... (50,000) (33,000) 2,000
Foreign..................................... 60,000 (57,000) --
--------- --------- --------
(192,000) (212,000) 87,000
--------- --------- --------
$ 628,000 $ 287,000 $380,000
========= ========= ========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1995
and 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible.......................... $251,000 $ 21,000
Deferred revenue currently taxable......................... 127,000 347,000
Depreciation............................................... 92,000 102,000
-------- --------
Deferred tax assets...................................... 470,000 470,000
-------- --------
Deferred tax liabilities:
State taxes................................................ -- 14,000
Other...................................................... 64,000 137,000
-------- --------
Deferred tax liabilities................................. 64,000 151,000
-------- --------
Net deferred tax assets.................................. $406,000 $319,000
======== ========
</TABLE>

Based on the level of historical taxable income and projections of future
taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences. Accordingly, there was
no valuation allowance for deferred tax assets as of December 31, 1995 or
1996.

Deferred tax assets are included in prepaid expenses and other current
assets in the accompanying consolidated balance sheets.

F-14
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The provision for income taxes varied from the amount computed by applying
the Federal statutory income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" provision for income
taxes at Federal statutory rate............. $541,000 $280,000 $343,000
State income taxes, net of Federal income tax
benefit..................................... 94,000 32,000 14,000
Foreign taxes at rates in excess of Federal
income tax rate............................. 36,000 11,000 23,000
Foreign sales corporation benefit............ -- (13,000) (61,000)
Research and experimentation benefit......... (121,000) (43,000) (45,000)
Nondeductible merger costs................... -- -- 71,000
Other, net................................... 78,000 20,000 35,000
-------- -------- --------
$628,000 $287,000 $380,000
======== ======== ========
</TABLE>

The Company has received notice from the Internal Revenue Service (the
"IRS") that the IRS intends to audit the Company's December 31, 1994 Federal
income tax return. In the opinion of management, the IRS examination will not
have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.

9. SIGNIFICANT CUSTOMERS, SUPPLIERS, EXPORT SALES AND GEOGRAPHIC AREAS

The following table reflects sales to customers representing 10% or more of
the Company's net revenues, and customer accounts receivable representing 10%
or more of the Company's accounts receivable.

<TABLE>
<CAPTION>
ACCOUNTS
NET REVENUES RECEIVABLE
-------------- ------------
1994 1995 1996 1995 1996
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Customer 1....................................... 10% 16% 34% 25% 51%
Customer 2....................................... 28% 23% 23% N/A N/A
Customer 3....................................... 20% 20% 12% N/A N/A
</TABLE>

A substantial portion of the Company's business is conducted with one major
hardware supplier and one major software vendor from whom the Company has
obtained a nonexclusive license agreement with an initial term that expires in
November 1997. The license agreement requires the payment of royalties, at a
minimum of $200,000 quarterly, based on the selling price of the Company's
products to end users. With the exception of these suppliers, management
believes that the loss of any one supplier would not have a material adverse
effect on its operations.

A summary of the Company's net revenues, operating income and identifiable
assets by geographical area follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------
NORTH
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues from
unaffiliated customers.. $18,149,000 $8,810,000 $ -- $26,959,000
Transfers between
geographical areas...... 2,793,000 -- (2,793,000) --
----------- ---------- ----------- -----------
Net revenues............. $20,942,000 $8,810,000 $(2,793,000) $26,959,000
=========== ========== =========== ===========
Operating income......... $ 1,276,000 $ 436,000 $ -- $ 1,712,000
=========== ========== =========== ===========
Identifiable assets...... $ 6,940,000 $4,499,000 $(1,113,000) $10,326,000
=========== ========== =========== ===========
</TABLE>

F-15
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
NORTH
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues from
unaffiliated customers. $23,001,000 $14,219,000 $ -- $37,220,000
Transfers between
geographical areas..... 4,074,000 -- (4,074,000) --
----------- ----------- ----------- -----------
Net revenues............ $27,075,000 $14,219,000 $(4,074,000) $37,220,000
=========== =========== =========== ===========
Operating income........ $ 574,000 $ 507,000 $ -- $ 1,081,000
=========== =========== =========== ===========
Identifiable assets..... $ 7,800,000 $ 6,444,000 $ (688,000) $13,556,000
=========== =========== =========== ===========
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
NORTH
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues from
unaffiliated customers. $23,184,000 $19,080,000 $ -- $42,264,000
Transfers between
geographical areas..... 4,514,000 -- (4,514,000) --
----------- ----------- ----------- -----------
Net revenues............ $27,698,000 $19,080,000 $(4,514,000) $42,264,000
=========== =========== =========== ===========
Operating income........ $ 552,000 $ 792,000 $ -- $ 1,344,000
=========== =========== =========== ===========
Identifiable assets..... $ 7,812,000 $ 5,932,000 $ (865,000) $12,879,000
=========== =========== =========== ===========
</TABLE>

In determining operating income for each geographic area, sales and
purchases between geographic areas have been accounted for on the basis of
prices set between Colorbus, Inc. and CDS prior to the Acquisition.
Identifiable assets by geographic area are those assets that are used in the
Company's operations in each location.

Export sales to Canada and the Pacific Rim are included in the North America
amounts shown in the summary table by geographic area above, and were
approximately 6%, 9% and 10% of net revenues in 1994, 1995 and 1996,
respectively.

F-16
<PAGE>

COLORBUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain facilities and equipment under noncancelable
operating lease agreements and under various capital leases. Future minimum
capital and operating lease payments as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
------------------------ -------- ----------
<S> <C> <C>
1997................................................. $248,000 $ 766,000
1998................................................. 100,000 455,000
1999................................................. 67,000 236,000
2000................................................. 64,000 83,000
2001................................................. 14,000 --
-------- ----------
Total minimum lease payments......................... 493,000 $1,540,000
==========
Less amounts representing interest (at rates ranging
from 11.0% to 12.5%)................................ 87,000
--------
Present value of net minimum capital lease payments.. 406,000
Less current portion of obligations under capital
leases.............................................. 216,000
--------
Obligations under capital leases, excluding current
portion............................................. $190,000
========
</TABLE>

The current portion of obligations under capital leases are included in
accrued liabilities and the gross amount of equipment held under capital
leases and related accumulated amortization is included in property and
equipment in the accompanying consolidated balance sheets.

Total rental expense, including month-to-month rentals, totaled $191,000,
$490,000 and $809,000 in 1994, 1995 and 1996, respectively.

Salary Savings Plan

On November 1, 1994, the Company established the Salary Savings Plan, which
is intended to qualify under Section 401(k) of the Internal Revenue Code. The
Company matches up to a maximum of 100% of each employee's contribution, up to
a maximum of 6% of compensation. Company contributions totaled $17,000,
$66,000 and $12,000 in 1994, 1995 and 1996, respectively.

CDS maintains a defined contribution pension plan for eligible employees in
the Netherlands. Employee contributions based on salaries are matched by the
Company. Company contributions totaled $16,000, $63,000 and $45,000 in 1994,
1995 and 1996, respectively.

Contingencies

The Company is involved in various legal matters arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.

F-17
<PAGE>

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THESE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 15
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 26
Management................................................................ 40
Certain Transactions...................................................... 47
Principal and Selling Stockholders........................................ 48
Description of Capital Stock.............................................. 49
Shares Eligible For Future Sale........................................... 50
Underwriting.............................................................. 51
Legal Matters............................................................. 52
Experts................................................................... 52
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
[LOGO]
COLORBUS, INC.
Common Stock
----------------

PROSPECTUS

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

PRUDENTIAL SECURITIES INCORPORATED

HAMBRECHT & QUIST

, 1997

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale
and distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee. All of the
following expenses below will be paid by the Registrant.

<TABLE>
<S> <C>
Registration fee................................................. $13,939
NASD filing fee.................................................. 5,100
Printing and engraving expenses.................................. *
Nasdaq application fee........................................... *
Blue sky qualification fees and expenses......................... *
Legal fees and expenses.......................................... *
Accountants' fees and expenses................................... *
Transfer agent and registrar fees................................ *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be supplied by amendment

The Registrant will bear the expenses of the Selling Stockholders in
connection with the registration of their shares, other than the underwriting
discounts and commissions.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law the Registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act
of 1933. The Registrant's Bylaws (Exhibit 3.3 hereto) provides that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by Delaware law. The Bylaws require the Registrant, subject to
certain limitations, to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the directors
and officers to repay such advances if it is ultimately determined that the
directors or officers are not entitled to indemnification. The Bylaws further
provide that rights conferred under such Bylaws shall not be deemed to be
exclusive of any other right such persons may have or acquire under any
agreement, vote of stockholders or disinterested directors, or otherwise. The
Registrant believes that indemnification under its Bylaws covers at least
negligence and gross negligence.

In addition, the Registrant's Certificate of Incorporation (the
"Certificate") (Exhibit 3.1 hereto) provides that the Registrant shall
indemnify its directors and officers if such persons acted (i) in good faith,
(ii) in a manner reasonably believed to be in or not opposed to the best
interests of the Registrant, and (iii) with respect to any criminal action or
proceeding, with reasonable cause to believe such conduct was lawful. The
Certificate also provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Registrant and its stockholders. This provision in the
Certificate does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other

II-1
<PAGE>

law, such as the federal securities laws or state or federal environmental
laws. The Certificate further provides that the Registrant be authorized to
indemnify its directors and officers to the fullest extent permitted by law
through the Bylaws, agreement, vote of stockholders or disinterested
directors, or otherwise.

The Registrant intends to obtain directors' and officers' liability
insurance in connection with this Offering.

In addition, the Registrant has entered or, concurrently with this Offering,
will enter, into agreements to indemnify its directors and certain of its
officers in addition to the indemnification provided for in the Certificate
and Bylaws. These agreements will, among other things, indemnify the
Registrant's directors and certain of its officers for certain expenses
(including attorneys fees), judgments, fines and settlement amounts incurred
by such person in any action or proceeding, including any action by or in the
right of the Registrant, on account of services by that person as a director
or officer of the Registrant or as a director or officer of any subsidiary of
the Registrant, or as a director or officer of any other company or enterprise
that the person provides services to at the request of the Registrant.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the Registrant, its officers and directors and by the
Registrant of the Underwriter, for certain liabilities arising under the
Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since March 1, 1994, the Registrant has sold and issued the following
unregistered securities:

1. In December 1994, the Registrant granted a nonstatutory option to
purchase 30,612 shares of the Registrant's Common Stock to Dean N. Trojan, the
Registrant's Chief Financial Officer and Vice President, Finance and
Administration, at an exercise price of $8.82 per share. This option vests
over a three year period commencing one year following the date of grant. This
option was issued in consideration for employment services rendered to the
Registrant. No cash consideration was paid for this option.

2. In January 1996, the Registrant granted to Cameron C. Altenhof-Long, an
executive officer of the Registrant, and Patrick Arrington, a director of the
Registrant, nonstatutory options to purchase 19,592 and 14,694 shares,
respectively, of the Registrant's Common Stock, at an exercise price of $11.02
per share. Also during January 1996, the Registrant issued options to four
other employees for the purchase of an aggregate of 48,980 shares at an
exercise price of $11.02 per share. These options generally vest over a four
year period commencing one year following the date of grant, except for Mr.
Arrington's option which vests over a three year period. These options were
issued in consideration for services rendered to the Registrant. None of the
optionees paid any cash consideration for these options.

3. In December 1996, the Registrant issued an aggregate of 1,054,943 shares
of the Registrant's Common Stock to the stockholders of CDS in exchange for
all of the outstanding capital stock of CDS as well as loans payable to
certain such stockholders in the amounts payable of NLG 1,200,000.

4. In December 1996, the Registrant effected a 300-for-1 stock split. All
numbers of shares of Common Stock set forth in this Item 15 have been adjusted
to reflect this stock split.

The sales and issuances of securities in the transaction described in
paragraphs 1 and 2 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.

The issuance of securities described in paragraph 3 was deemed to be exempt
from registration under the Securities Act by virtue of Section 4(2) of the
Securities Act, as well as pursuant to Regulation S promulgated under the
Securities Act. The recipients of such securities represented their intent to
acquire the securities for investment purposes only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions.

II-2
<PAGE>

The issuance of securities described in paragraph 4 above was deemed to be
exempt from registration under the Securities Act by virtue of Section 2(3)
thereof, in that the securities were issued in transactions not involving a
"sale" of securities as such term is used in Section 2(3) of the Securities
Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization dated December 31, 1996 between
the Registrant and CDS International B.V.*
3.1 Amended and Restated Articles of Incorporation of the Registrant, as
filed with the California Secretary of State on July 12, 1995.
3.2 Certificate of Amendment of Articles of Incorporation, as filed with
the California Secretary of State on December 2, 1996.
Certificate of Incorporation of Registrant to be filed with the
3.3 Delaware Secretary of State.*
Certificate of Merger of the Registrant to to be filed with the
3.4 Delaware Secretary of State.*
3.5 Amended and Restated Bylaws of the Registrant.
4.1 Specimen stock certificate.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP.*
10.1 Colorbus, Inc. 1997 Stock Incentive Plan.*
10.2 Form of Stock Option Agreement.*
Form of Nonqualified Option Agreements for January 1996 option
10.3 grants.*
10.4 Nonqualified Stock Option Agreement dated December 19, 1994 between
the Registrant and Dean N. Trojan.*
10.5 Form of Management Agreement for Messrs. Broere and Mulder.*
10.6 Form of Indemnification Agreement.
10.7 Configurable PostScript Interpreter OEM License Agreement dated
November 11, 1992 between the Registrant and Adobe Systems
Incorporated, including Appendix No. 1 dated November 11, 1992,
Amendment No. 1 dated November 11, 1992, Amendment No. 2 dated October
1, 1995 and Appendix No. 2 dated June 26, 1996.*
10.8 FM Screening Technology License Agreement dated December 1, 1994
between the Registrant and Adobe Systems Incorporated.*
10.9 Value-Added Reseller Agreement dated February 27, 1997 between the
Registrant and Silicon Graphics, Inc.*
10.10 IRIS Support Partner Technical Support Agreement for Resellers dated
May 13, 1994 between the Registrant and Silicon Graphics, Inc.*
10.11 Agreement dated August 10, 1992 between the Registrant and Concept
Development, Inc.*
10.12 Letter Agreement dated September 11, 1992 amending Agreement dated
August 10, 1992 between the Registrant and Concept Development, Inc.*
10.13 Intellectual Property Rights Agreement dated May 1, 1995 between the
Registrant and Concept Development, Inc.*
10.14 Agreement dated April 11, 1996 between the Registrant and Xerox
Corporation.*
10.15 Product Development and Distribution Agreement dated June 1, 1996
between the Registrant and Xerox Corporation.*
10.16 Standard Sublease dated October 11, 1994 between the Registrant and
Canonie Environmental Services Corporation.*
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
10.17 Standard Business Park lease dated February 1, 1995 between the
Registrant and Connecticut General Life Insurance Company.*
10.18 Eastridge Business Park lease dated July 27, 1994 between the Registrant
and Eastridge Limited Partnership #1.*
11.1 Computation of earnings per share.*
21.1 List of Subsidiaries of the Registrant.*
23.1 Consent of KPMG Peat Marwick LLP.
Consent of Brobeck, Phleger & Harrison LLP (included in the opinion
23.2 filed as Exhibit 5.1).*
24.1 Power of Attorney (included on Page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.

(B) FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
NUMBER
------
<C> <S>
Schedule II-- Valuation and Qualifying Accounts
</TABLE>

All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or the
notes thereto.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

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

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

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on March 3, 1997.

COLORBUS, INC.

By: /s/ Paul R. Peffer
_______________________________________
Paul R. Peffer,
Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned officers and directors of Colorbus, Inc., do hereby
constitute and appoint Paul R. Peffer and Dean N. Trojan, and each of them,
our true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, or any Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(f) under the Securities Exchange
Act of 1934, as amended, with exhibits thereto, and other documents in
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 or
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 each of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

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

<S> <C> <C>
/s/ Paul R. Peffer Chief Executive Officer and March 3, 1997
____________________________________ Director (Principal Executive
Paul R. Peffer Officer)

/s/ Worth T. Probst Chairman of the Board March 3, 1997
____________________________________
Worth T. Probst

/s/ Barry Broere President, Chief Operating March 3, 1997
____________________________________ Officer and Director
Barry Broere

/s/ Kees Mulder Executive Vice President, Global March 3, 1997
____________________________________ Marketing and Strategy and
Kees Mulder Director

/s/ Patrick Arrington Director March 3, 1997
____________________________________
Patrick Arrington

/s/ Dean N. Trojan Vice President, Finance and Chief March 3, 1997
____________________________________ Financial Officer and Secretary
Dean N. Trojan (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>

II-5
<PAGE>

SCHEDULE II

COLORBUS, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
-------------------- -----------
BALANCE CHARGED
AT TO COSTS CHARGED TO BALANCE
BEGINNING AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) (2) (1) OF PERIOD
----------- --------- -------- ----------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Allowance for doubtful
accounts................ $ -- $ 43 $-- $ -- $ -- $ 43
==== ==== === ===== ==== ====
Inventory valuation
reserves................ $237 $107 $17 $ 29 $$-- $332
==== ==== === ===== ==== ====
Year ended December 31,
1995:
Allowance for doubtful
accounts................ $ 43 $123 $-- $ -- $ -- $166
==== ==== === ===== ==== ====
Inventory valuation
reserves................ $332 $201 $24 $ 53 $$-- $504
==== ==== === ===== ==== ====
Year ended December 31,
1996:
Allowance for doubtful
accounts................ $166 $214 $-- $ 14 $ -- $366
==== ==== === ===== ==== ====
Inventory valuation
reserves................ $504 $354 $-- $ 359 $$30 $469
==== ==== === ===== ==== ====
</TABLE>
- --------
(1) Represents effect of translation of foreign currencies.

(2) Represents charge-off of uncollectible accounts receivable and obsolete
inventory.

S-1
<PAGE>

EXHIBIT INDEX

<PAGE>

EXHIBIT 3.1

RESTATED AND AMENDED
ARTICLES OF INCORPORATION

Paul R. Peffer and Dean N. Trojan hereby certify that:

1. They are the President and Chief Financial Officer, respectively, of
Colorbus, Inc., a California corporation (the "Corporation").

2. The Articles of Incorporation of this Corporation are amended and
restated in full to read as follows:

The name of the Corporation is: Colorbus, Inc.

II.

The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California, other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.

III.

A. Classes of Stock. This Corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, as "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is fifty-one million (51,000,000) shares. Fifty million
(50,000,000) shares shall be Common Stock. One million (1,000,000) shares shall
be Preferred Stock.

B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby authorized to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.

-1-
<PAGE>

IV.

The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.

The Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with agents, approval of
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in
Section 204 of the California Corporations Code with respect to
actions for beach of duty to the Corporation and its shareholders.

Any repeal or modification of this Article shall be prospective
and shall not affect the rights under this Article in effect at the
time of the alleged occurrence of any act or omission to act giving
rise to liability or indemnification.

On and after the first date on which the Corporation becomes a
"listed corporation" as defined in Section 301.5 of the California
Corporations Code, no shareholder shall be entitled to cumulate votes
in the election of directors.

3. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the Board of Directors.

4. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the required vote of the shareholders
the Corporation in accordance with Section 902 of the Corporations Code. The
total number of outstanding shares of this Corporation is 6,530.5883 shares.
The number of shares voting in favor of the amendment and restatement equaled or
exceeded the vote required. The percentage vote required was more than 50%.

We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.

DATED: May 25, 1995 /s/ Paul R. Peffer
-----------------------------------------
Paul R. Peffer, President

/s/ Dean N. Trojan
------------------------------------------
Dean N. Trojan, Chief Financial Officer

-2-

<PAGE>

EXHIBIT 3.2

CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION

Paul R. Peffer and Dean N. Trojan certify that:

1. They are the President and Secretary, respectively, of Colorbus, Inc.,
a California corporation.

2. Article III of the Articles of Incorporation of this Corporation is
hereby amended to read as follows:

"III.

A. Classes of Stock. This Corporation is authorized to issue
----------------
two classes of stock to be designated, respectively, as "Common Stock"
and "Preferred Stock." The total number of shares which the
Corporation is authorized to issue is fifty-one million (51,000,000)
shares. Fifty million (50,000,000) shares shall be Common Stock. One
million (1,000,000) shares shall be Preferred Stock.

B. Rights, Preferences and Restrictions of Preferred Stock.
-------------------------------------------------------
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions),
redemption price or prices, and the liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of
them; and to increase or decrease the number of shares of any series
subsequent to the issuance of that series, but not below the number of
shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such
decrease shall resume the status they had prior to the adoption of the
resolution originally fixing the number of shares of such series.

Upon the amendment of this Article III to read as set forth
herein, each outstanding share of Common Stock shall be converted into
300 shares of Common Stock."

3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.

4. The foregoing amendment of Articles of Incorporation has been duly
approved by a majority of the shareholders of the Corporation in accordance with
Section 902 of the California
<PAGE>

Corporations Code. The total number of outstanding shares of Common Stock of
this Corporation is 6530.5882. No shares of Preferred Stock are outstanding.
The number of shares voting in favor of the amendment exceeded the vote
required. The percentage vote required was more than 50%.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.

DATED: October ___, 1996 /s/ PAUL R. PEFFER
___________________________________
Paul R. Peffer,
President

/s/ DEAN N. TROJAN
___________________________________
Dean N. Trojan
Secretary

-2-

<PAGE>

AMENDED AND RESTATED BYLAWS

COLORBUS, INC.
(a California corporation)
<PAGE>

Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - Offices........................................................................... 1
Section 1. Principal Office..................................................... 1
Section 2. Other Offices........................................................ 1

ARTICLE II - Corporate Seal................................................................... 1
Section 3. Corporate Seal....................................................... 1

ARTICLE III - Shareholders' Meetings and Voting Rights........................................ 1
Section 4. Place of Meetings.................................................... 1
Section 5. Annual Meeting....................................................... 1
Section 6. Postponement of Annual Meeting....................................... 1
Section 7. Special Meetings..................................................... 2
Section 8. Notice of Meetings................................................... 2
Section 9. Manner of Giving Notice.............................................. 4
Section 10. Quorum and Transaction of Business................................... 4
Section 11. Adjournment and Notice of Adjourned Meetings......................... 4
Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes.......... 5
Section 13. Action Without Meeting............................................... 5
Section 14. Voting............................................................... 6
Section 15. Persons Entitled to Vote or Consent.................................. 7
Section 16. Proxies.............................................................. 7
Section 17. Inspectors of Election............................................... 7

ARTICLE IV - Board of Directors............................................................... 8
Section 18. Powers............................................................... 8
Section 19. Number of Directors.................................................. 8
Section 20. Election Of Directors, Term, Qualifications.......................... 8
Section 21. Resignations......................................................... 9
Section 22. Removal.............................................................. 9
Section 23. Vacancies............................................................ 9
Section 24. Regular Meetings..................................................... 9
Section 25. Participation by Telephone........................................... 9
Section 26. Special Meetings..................................................... 9
Section 27. Notice of Meetings................................................... 10
Section 28. Place of Meetings.................................................... 10
Section 29. Action by Written Consent Without a Meeting.......................... 10
Section 30. Quorum and Transaction of Business................................... 10
Section 31. Adjournment.......................................................... 10
Section 32. Organization......................................................... 10
Section 33. Compensation......................................................... 10
Section 34. Committees........................................................... 10

ARTICLE V - Officers.......................................................................... 11
Section 35. Officers............................................................. 11
Section 36. Appointment.......................................................... 11
Section 37. Inability to Act..................................................... 12
Section 38. Resignations......................................................... 12

</TABLE>

-i-
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 39. Removal.............................................................. 12
Section 40. Vacancies............................................................ 12
Section 41. Chairman of the Board................................................ 12
Section 42. Chief Executive Officer.............................................. 12
Section 43. President............................................................ 12
Section 45. Secretary............................................................ 13
Section 46. Chief Financial Officer.............................................. 13
Section 47. Compensation......................................................... 14

ARTICLE VI - Contracts, Loans, Bank Accounts, Checks and Drafts............................... 14
Section 48. Execution of Contracts and Other Instruments......................... 14
Section 49. Loans................................................................ 14
Section 50. Bank Accounts........................................................ 15
Section 51. Checks, Drafts, Etc.................................................. 15

ARTICLE VII - Certificates for Shares and Their Transfer...................................... 15
Section 52. Certificate for Shares............................................... 15
Section 53. Transfer on the Books................................................ 15
Section 54. Lost, Destroyed and Stolen Certificates.............................. 15
Section 55. Issuance, Transfer and Registration of Shares........................ 16

ARTICLE VIII - Inspection of Corporate Records................................................ 16
Section 56. Inspection by Directors.............................................. 16
Section 57. Inspection by Shareholders........................................... 16
Section 58. Written Form......................................................... 17

ARTICLE IX - Miscellaneous.................................................................... 17
Section 59. Fiscal Year.......................................................... 17
Section 60. Annual Report........................................................ 17
Section 61. Record Date.......................................................... 18
Section 62. Bylaw Amendments..................................................... 18
Section 63. Construction and Definition.......................................... 18

ARTICLE X - Indemnification................................................................... 18
Section 64. Indemnification of Directors, Officers,
Employees And Other Agents.............................................. 18

ARTICLE XI - Loans of Officers and Others..................................................... 22
Section 65. Certain Corporate Loans and Guaranties............................... 22

</TABLE>

-ii-
<PAGE>

AMENDED AND RESTATED BYLAWS
OF
COLORBUS, INC.
(A CALIFORNIA CORPORATION)

ARTICLE I

Offices
-------

Section 1. Principal Office. The principal executive office of the
----------------
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the board of directors shall fix and designate a principal business office in
the State of California.

Section 2. Other Offices. Additional offices of the corporation shall
-------------
be located at such place or places, within or outside the State of California,
as the Board of Directors may from time to time authorize.

ARTICLE II

Corporate Seal
--------------

Section 3. Corporate Seal. If the Board of Directors adopts a
--------------
corporate seal such seal shall have inscribed thereon the name of the
corporation and the state and date of its incorporation. If and when a seal is
adopted by the Board of Directors, such seal may be engraved, lithographed,
printed, stamped, impressed upon or affixed to any contract, conveyance,
certificate for shares or other instrument executed by the corporation.

ARTICLE III

Shareholders' Meetings and Voting Rights
----------------------------------------

Section 4. Place of Meetings. Meetings of shareholders shall be held
-----------------
at the principal executive office of the corporation, or at any other place,
within or outside the State of California, which may be fixed either by the
Board of Directors or by the written consent of all persons entitled to vote at
such meeting, given either before or after the meeting and filed with the
Secretary of the Corporation.

Section 5. Annual Meeting. The annual meeting of the shareholders of
--------------
the corporation shall be held on any date and time which may from time to time
be designated by the Board of Directors. At such annual meeting, directors
shall be elected and any other business may be transacted which may properly
come before the meeting.

Section 6. Postponement of Annual Meeting. The Board of Directors and
------------------------------
the President shall each have authority to hold at an earlier date and/or time,
or to postpone to a later date and/or time, the annual meeting of shareholders.
<PAGE>

Section 7. Special Meetings.
----------------

(a) Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the
Board of Directors, the President, or the holders of shares entitled to
cast not less than ten percent (10%) of the votes at the meeting.

(b) (i) Upon written request to the Chairman of the Board of
Directors, the President or the Secretary of the corporation by any person
or persons (other than the Board of Directors) entitled to call a special
meeting of the shareholders, such officer forthwith shall cause notice to
be given to the shareholders entitled to vote, that a meeting will be held
at a time requested by the person or persons calling the meeting, such time
to be not less than thirty-five (35) nor more than sixty (60) days after
receipt of such request. Such request to such officer shall set forth, as
to each matter such person proposes to bring before the special meeting:
(i) a brief description of the business desired to be brought before the
special meeting and the reasons for conducting such business at the special
meeting, (ii) the name and address, as they appear on the corporation's
books, of the person proposing such business, if applicable, (iii) the
class and number of shares of the corporation which are beneficially owned
by such person, if applicable, (iv) any material interest of the person in
such business and (v) any other information that is required to be provided
by the shareholder pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). If such notice is not given
within twenty (20) days after receipt of such request, the person or
persons calling the meeting may give notice thereof in the manner provided
by law or in these bylaws. Nothing contained in this Section 7 shall be
construed as limiting, fixing or affecting the time or date when a meeting
of shareholders called by action of the Board of Directors may be held.

Section 8. Notice of Meetings. Except as otherwise may be required by
------------------
law and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that meeting
(see Section 15 below), by the Secretary, assistant secretary or other person
charged with that duty, not less than ten (10) (or, if sent by third class mail,
thirty (30)) nor more than sixty (60) days before such meeting.

Notice of any meeting of shareholders shall state the date, place and hour
of the meeting and,

(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;

(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given,
intends to present for action by the shareholders;

(c) in the case of any meeting at which directors are to be elected,
the names of the nominees intended at the time of the notice to be
presented by management for election; and

(d) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:

(1) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest);

-2-
<PAGE>

(2) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 902 (relating to amending the
Articles of Incorporation of the corporation);

(3) a proposal to approve a transaction within the provisions of
California Corporations Code, Sections 181 and 1201 (relating to
reorganization);

(4) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 1900 (winding up and
dissolution);

(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to
certain plans providing for distribution not in accordance with the
liquidation rights of preferred shares, if any).

At a special meeting, notice of which has been given in accordance
with this Section, action may not be taken with respect to business, the
general nature of which has not been stated in such notice.

At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. Subject
to Section 8(d) above, to be properly brought before an annual meeting,
business must be: (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(ii) otherwise properly brought before the meeting by or at the direction
of the Board of Directors, or (iii) otherwise properly brought before the
meeting by a shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than one
hundred twenty (120) calendar days in advance of the date specified in the
corporation's proxy statement released to shareholders in connection with
the previous year's annual meeting of shareholders; provided, however, that
in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy
statement, notice by the shareholder to be timely must be so received a
reasonable time before the solicitation is made. A shareholder's notice to
the secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the shareholder proposing
such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the shareholder, (iv) any material interest
of the shareholder in such business and (v) any other information that is
required to be provided by the shareholder pursuant to Regulation 14A under
the 1934 Act, in his capacity as a proponent to a shareholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a shareholder proposal in the proxy statement and form of proxy for a
shareholder's meeting, shareholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this
paragraph. The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph,
and, if he should so determine, he shall so declare at the meeting that any
such business not properly brought before the meeting shall not be
transacted.

-3-
<PAGE>

Section 9. Manner of Giving Notice. Notice of any meeting of
-----------------------
shareholders shall be given either personally or by first-class mail, or, if the
corporation has outstanding shares held of record by 500 or more persons
(determined as provided in California Corporations Code Section 605) on the
record date for such meeting, third-class mail, or telegraphic or other written
communication, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.

If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.

Section 10. Quorum and Transaction of Business.
----------------------------------

(a) At any meeting of the shareholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a
quorum. If a quorum is present, the affirmative vote of the majority of
shares represented at the meeting and entitled to vote on any matter shall
be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by law or by the Articles of Incorporation,
and except as provided in subsection (b) below.

(b) The shareholders present at a duly called or held meeting of the
shareholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, provided that any action taken (other than adjournment)
is approved by at least a majority of the shares required to constitute a
quorum.

(c) In the absence of a quorum, no business other than adjournment
may be transacted, except as described in subsection (b) above.

Section 11. Adjournment and Notice of Adjourned Meetings. Any meeting
--------------------------------------------
of shareholders may be adjourned from time to time, whether or not a quorum is
present, by the affirmative vote of a majority of shares represented at such
meeting either in person or by proxy and entitled to vote at such meeting.

In the event any meeting is adjourned, it shall not be necessary to give
notice of the time and place of such adjourned meeting pursuant to Sections 8
and 9 of these bylaws; provided that if any of the following three events occur,
such notice must be given:

(a) announcement of the adjourned meeting's time and place is not
made at the original meeting which it continues or

-4-
<PAGE>

(b) such meeting is adjourned for more than forty-five (45) days from
the date set for the original meeting or

At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.

Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes.
-----------------------------------------------------------

(a) Subject to subsection (b) of this Section, the transactions of
any meeting of shareholders, however called and noticed, and wherever held,
shall be as valid as though made at a meeting duly held after regular call
and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the persons entitled to vote
but not present in person or by proxy signs a written waiver of notice or a
consent to holding of the meeting or an approval of the minutes thereof.

(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be
transacted or transacted at nor the purpose of the meeting; provided that
in the case of proposals described in subsection (d) of Section 8 of these
bylaws, the general nature of such proposals must be described in any such
waiver of notice and such proposals can only be approved by waiver of
notice, not by consent to holding of the meeting or approval of the
minutes.

(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.

(d) A person's attendance at a meeting shall constitute waiver of
notice of and presence at such meeting, except when such person objects at
the beginning of the meeting to transaction of any business because the
meeting is not lawfully called or convened and except that attendance at a
meeting is not a waiver of any right to object to the consideration of
matters which are required by law or these bylaws to be in such notice
(including those matters described in subsection (d) of Section 8 of these
bylaws), but are not so included if such person expressly objects to
consideration of such matter or matters at any time during the meeting.

Section 13. Action Without Meeting. Any action which may be taken at
----------------------
any meeting of shareholders may be taken without a meeting and without prior
notice if written consents setting forth the action so taken are signed by the
holders of the outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.

Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors; provided
that any vacancy on the Board of Directors (other than a vacancy created by
removal) which has not been filled by the Board of Directors may be filled by
the written consent of a majority of outstanding shares entitled to vote for the
election of directors.

Any written consent may be revoked pursuant to California Corporations Code
Section 603(c) prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
Such revocation must be in writing and will be effective upon its receipt by the
Secretary.

-5-
<PAGE>

If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction within
the provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any), the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.

Notwithstanding any other provision of these Bylaws, upon the closing of an
underwritten public offering of this corporation's Common Stock pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended, no action shall be taken by the shareholders of the corporation, except
at an annual or special meeting of the shareholders called in accordance with
the Bylaws of the corporation.

Section 14. Voting. Voting at any meeting of shareholders need not be
------
by ballot; provided, however, that elections for directors must be by ballot if
balloting is demanded by a shareholder at the meeting and before the voting
begins.

Every person entitled to vote at an election for directors may cumulate the
votes to which such person is entitled, i.e., such person may cast a total
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such person's shares are entitled, and may cast said
total number of votes for one or more candidates in such proportions as such
person thinks fit; provided, however, no shareholder shall be entitled to so
cumulate such shareholder's votes unless the candidates for which such
shareholder is voting have been placed in nomination prior to the voting and a
shareholder has given notice at the meeting, prior to the vote, of an intention
to cumulate votes; and provided further, that on and after the first date upon
which the corporation becomes a "listed corporation" as defined in Section 301.5
of the California Corporations Code, no shareholder shall be entitled to so
cumulate such shareholder's votes. In any election of directors, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.

Except as may be otherwise provided in the Articles of Incorporation or by
law, and subject to the foregoing provisions regarding the cumulation of votes,
each shareholder shall be entitled to one vote for each share held.

Any shareholder may vote part of such shareholder's shares in favor of a
proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.

No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in subsection 8(d) of these bylaws
unless the general nature of such business was stated in the notice of meeting
or in any written waiver of notice.

-6-
<PAGE>

Section 15. Persons Entitled to Vote or Consent. The Board of Directors
-----------------------------------
may fix a record date pursuant to Section 60 of these bylaws to determine which
shareholders are entitled to notice of and to vote at a meeting or consent to
corporate actions, as provided in Sections 13 and 14 of these bylaws. Only
persons in whose name shares otherwise entitled to vote stand on the stock
records of the corporation on such date shall be entitled to vote or consent.

If no record date is fixed:

(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day notice is given or, if
notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held;

(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which
the first written consent is given;

(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th)
day prior to the date of such other action, whichever is later.

A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting;
provided, however, that the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.

Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.

Section 16. Proxies. Every person entitled to vote or execute consents
-------
may do so either in person or by one or more agents authorized to act by a
written proxy executed by the person or such person's duly authorized agent and
filed with the Secretary of the corporation; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.

Section 17. Inspectors of Election. Before any meeting of shareholders,
----------------------
the Board of Directors may appoint any persons, other than nominees for office,
to act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request
of one or more shareholders or proxies, the majority of shares represented in
person or proxy shall determine whether one (1) or three (3) inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.

These inspectors shall:

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<PAGE>

(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;

(b) Receive votes, ballots, or consents;

(d) Count and tabulate all votes or consents;

(e) Determine when the polls shall close;

(f) Determine the result; and

(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.

ARTICLE IV

Board of Directors
------------------

Section 18. Powers. Subject to the provisions of law or any limitations
------
in the Articles of Incorporation or these bylaws, as to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised, by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.

Section 19. Number of Directors. The authorized number of directors of
-------------------
the corporation shall be not less than a minimum of five (5) nor more than a
maximum of nine (9) (which maximum number in no case shall be greater than two
times said minimum, minus one). The exact number of directors shall be set
within these limits from time to time by the approval of the Board of Directors.

Any amendment of these bylaws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the minimum
number of directors to less than five (5), cannot be adopted if votes cast
against its adoption at a meeting or the shares not consenting to it in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote.

No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.

Section 20. Election Of Directors, Term, Qualifications. The directors
-------------------------------------------
shall be elected at each annual meeting of shareholders to hold office until the
next annual meeting. Each director, including a director elected or appointed
to fill a vacancy, shall hold office either until the expiration of the term for
which elected or appointed and until a successor has been elected and qualified,
or until his death, resignation or removal. Directors need not be shareholders
of the corporation.

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<PAGE>

Section 21. Resignations. Any director of the corporation may resign
------------
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.

Section 22. Removal. The Board of Directors may declare vacant the
-------
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.

The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.

Section 23. Vacancies. A vacancy or vacancies on the Board of Directors
---------
shall be deemed to exist in case of the death, resignation or removal of any
director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director. The shareholders may elect a
director at any time to fill any vacancy not filled by the directors. Any such
election by written consent, other than to fill a vacancy created by removal,
requires the consent of a majority of the outstanding shares entitled to vote.
Any such election by written consent to fill a vacancy created by removal
requires the consent of all of the outstanding shares entitled to vote.

If, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the shareholders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the shares outstanding at that time and having
the right to vote for such directors may call a special meeting of shareholders
to be held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.

Section 24. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such times, places and dates as fixed in these bylaws
or by the Board of Directors; provided, however, that if the date for such a
meeting falls on a legal holiday, then the meeting shall be held at the same
time on the next succeeding full business day. Regular meetings of the Board of
Directors held pursuant to this Section 24 may be held without notice.

Section 25. Participation by Telephone. Members of the Board of
--------------------------
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in person
at such meeting.

Section 26. Special Meetings. Special meetings of the Board of
----------------
Directors for any purpose may be called by the Chairman of the Board, the
President or the Secretary of the corporation or by any two (2) directors.

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<PAGE>

Section 27. Notice of Meetings. Notice of the date, time and place of
------------------
all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone or telegraph to each director, at least forty-eight
(48) hours before the meeting, or sent in writing to each director by first-
class mail, charges prepaid, at least four (4) days before the meeting. Such
notice may be given by the Secretary of the corporation or by the person or
persons who called a meeting. Such notice need not specify the purpose of the
meeting. Notice of any meeting of the Board of Directors need not be given to
any director who signs a waiver of notice of such meeting, or a consent to
holding the meeting or an approval of the minutes thereof, either before or
after the meeting, or who attends the meeting without protesting prior thereto
or at its commencement such director's lack of notice. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.

Section 28. Place of Meetings. Meetings of the Board of Directors may
-----------------
be held at any place within or without the state which has been designated in
the notice of the meeting or, if not stated in the notice or there is no notice,
designated in the bylaws or by resolution of the Board of Directors.

Section 29. Action by Written Consent Without a Meeting. Any action
-------------------------------------------
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.

Section 30. Quorum and Transaction of Business. A majority of the
----------------------------------
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Articles of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting, as provided in
Section 31 of these bylaws.

Section 31. Adjournment. Any meeting of the Board of Directors, whether
-----------
or not a quorum is present, may be adjourned to another time and place by the
affirmative vote of a majority of the directors present. If the meeting is
adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.

Section 32. Organization. The Chairman of the Board shall preside at
------------
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.

Section 33. Compensation. Directors and members of committees may
------------
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.

Section 34. Committees. The Board of Directors may, by resolution
----------
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or

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<PAGE>

more directors, to serve at the pleasure of the Board of Directors. The Board
of Directors, by a vote of the majority of authorized directors, may designate
one or more directors as alternate members of any committee, to replace any
absent member at any meeting of such committee. Any such committee shall have
authority to act in the manner and to the extent provided in the resolution of
the Board of Directors, and may have all the authority of the Board of Directors
in the management of the business and affairs of the corporation, except with
respect to:

(a) the approval of any action for which shareholders' approval or
approval of the outstanding shares also is required by the California
Corporations Code;

(b) the filling of vacancies on the Board of Directors or any of its
committees;

(d) the adoption, amendment or repeal of these bylaws;

(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;

(f) a distribution to shareholders, except at a rate or in a periodic
amount or within a price range determined by the Board of Directors; or

(g) the appointment of other committees of the Board of Directors or
the members thereof.

Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on
a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of such a meeting need be given. Such
regular meetings need not be held if the committee shall so determine at any
time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by the
same persons as stated in Sections 25 and 26 of these bylaws for meetings of the
Board of Directors. The provisions of Sections 24, 27, 28, 29, 30 and 31 of
these bylaws shall apply to committees, committee members and committee meetings
as if the words "committee" and "committee member" were substituted for the word
"Board of Directors", and "director", respectively, throughout such sections.

ARTICLE V

Officers
--------

Section 35. Officers. The corporation shall have a Chairman of the
--------
Board, a Chief Executive Officer or a President or both, a Secretary, a Chief
Financial Officer and such other officers with such titles and duties as the
Board of Directors may determine. Any two or more offices may be held by the
same person.

Section 36. Appointment. All officers shall be chosen and appointed by
-----------
the Board of Directors; provided, however, the Board of Directors may empower
the chief executive officer of the corporation to appoint such officers, other
than Chairman of the Board, President, Secretary or Chief

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<PAGE>

Financial Officer, as the business of the corporation may require. All officers
shall serve at the pleasure of the Board of Directors, subject to the rights, if
any, of an officer under a contract of employment.

Section 37. Inability to Act. In the case of absence or inability to
----------------
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.

Section 38. Resignations. Any officer may resign at any time upon
------------
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The
acceptance of any such resignation shall not be necessary to make it effective
unless otherwise specified in such notice.

Section 39. Removal. Any officer may be removed from office at any
-------
time, with or without cause, but subject to the rights, if any, of such officer
under any contract of employment, by the Board of Directors or by any committee
to whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.

Section 40. Vacancies. A vacancy occurring in any office for any cause
---------
may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.

Section 41. Chairman of the Board. The Chairman of the Board, if there
---------------------
be such an officer, shall, if present, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors or prescribed by these
bylaws. If no Chief Executive Officer is appointed, the Chairman of the Board
is the general manager and chief executive officer of the corporation, and shall
exercise all powers of the Chief Executive Officer described in Section 43
below.

Section 42. Chief Executive Officer. The Chief Executive Officer shall
-----------------------
be the officer primarily responsible for implementing the policies and
directives of the Board of Directors. The Chief Executive Officer shall have
the general powers and duties of management usually vested in the office of the
president of a corporation and such other powers and duties as may be prescribed
by the Board or by applicable law. The Chief Executive Officer shall preside at
all meetings of the shareholders and in the absence of the Chairman of the
Board, or if there be none, at all meetings of the Board.

Section 43. President. The President, subject to the control of the
---------
Board of Directors and the Chief Executive Officer, shall be the general manager
and chief operating officer of the Corporation. In the absence or disability of
the Chief Executive Officer, the President shall perform all of the duties of
the Chief Executive Officer and, when so acting, shall have all the powers of,
and be subject to all restrictions upon, the Chief Executive Officer.

Section 44. Vice Presidents. In the absence or disability of the
---------------
President, in the event of a vacancy in the office of President, or in the event
such officer refuses to act, the Vice President shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject

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<PAGE>

to all the restrictions on, the President. If at any such time the corporation
has more than one vice president, the duties and powers of the President shall
pass to each vice president in order of such vice president's rank as fixed by
the Board of Directors or, if the vice presidents are not so ranked, to the vice
president designated by the Board of Directors. The vice presidents shall have
such other powers and perform such other duties as may be prescribed for them
from time to time by the Board of Directors or pursuant to Sections 35 and 36 of
these bylaws or otherwise pursuant to these bylaws.

Section 45. Secretary. The Secretary shall:
---------

(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board
of Directors, if any. Such minutes shall be kept in written form.

(b) Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if
any, a record of the corporation's shareholders, showing the names and
addresses of all shareholders, and the number and classes of shares held by
each. Such records shall be kept in written form or any other form capable
of being converted into written form.

(c) Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal executive office is not in California,
at its principal business office in California, an original or copy of
these bylaws, as amended.

(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as
required by law or by these bylaws.

(e) Keep the seal of the corporation, if any, in safe custody.

(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time
by the Board of Directors or these bylaws.

If any assistant secretaries are appointed, the assistant secretary, or one
of the assistant secretaries in the order of their rank as fixed by the Board of
Directors or, if they are not so ranked, the assistant secretary designated by
the Board of Directors, in the absence or disability of the Secretary or in the
event of such officer's refusal to act or if a vacancy exists in the office of
Secretary, shall perform the duties and exercise the powers of the Secretary and
discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.

Section 46. Chief Financial Officer. The Chief Financial Officer shall:
-----------------------

(a) Be responsible for all functions and duties of the treasurer of
the corporation.

(b) Keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.

(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and
custody of, and be responsible for, all monies and other valuables of the
corporation and be responsible for deposit of all such monies

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<PAGE>

in the name and to the credit of the corporation with such depositaries as
may be designated by the Board of Directors or a duly appointed and
authorized committee of the Board of Directors.

(d) Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly
appointed and authorized committee of the Board of Directors.

(e) Render to the chief executive officer and the Board of Directors
a statement of the financial condition of the corporation if called upon to
do so.

(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and
exercise such other powers and perform such other duties as may be
prescribed by the Board of Directors or these bylaws.

If any assistant financial officer is appointed, the assistant financial
officer, or one of the assistant financial officers, if there are more than one,
in the order of their rank as fixed by the Board of Directors or, if they are
not so ranked, the assistant financial officer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
in the event of such officer's refusal to act, perform the duties and exercise
the powers of the Chief Financial Officer, and shall have such powers and
discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.

Section 47. Compensation. The compensation of the officers shall be
------------
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.

ARTICLE VI

Contracts, Loans, Bank Accounts, Checks and Drafts
--------------------------------------------------

Section 48. Execution of Contracts and Other Instruments. Except as
--------------------------------------------
these bylaws may otherwise provide, the Board of Directors or its duly appointed
and authorized committee may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authorization may be general or
confined to specific instances. Except as so authorized or otherwise expressly
provided in these bylaws, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.

Section 49. Loans. No loans shall be contracted on behalf of the
-----
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness and liabilities of the corporation. Such
authorization may be general or confined to specific instances.

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<PAGE>

Section 50. Bank Accounts. The Board of Directors or its duly appointed
-------------
and authorized committee from time to time may authorize the opening and keeping
of general and/or special bank accounts with such banks, trust companies, or
other depositaries as may be selected by the Board of Directors, its duly
appointed and authorized committee or by any officer or officers, agent or
agents, of the corporation to whom such power may be delegated from time to time
by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.

Section 51. Checks, Drafts, Etc. All checks, drafts or other orders
-------------------
for the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation, and in such manner, as shall be
determined from time to time by resolution of the Board of Directors or its duly
appointed and authorized committee. Endorsements for deposit to the credit of
the corporation in any of its duly authorized depositaries may be made, without
counter-signature, by the President or any vice president or the Chief Financial
Officer or any assistant financial officer or by any other officer or agent of
the corporation to whom the Board of Directors or its duly appointed and
authorized committee, by resolution, shall have delegated such power or by hand-
stamped impression in the name of the corporation.

ARTICLE VII

Certificates for Shares and Their Transfer
------------------------------------------

Section 52. Certificate for Shares. Every holder of shares in the
----------------------
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.

In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the amount
paid thereon.

Section 53. Transfer on the Books. Upon surrender to the Secretary or
---------------------
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.

Section 54. Lost, Destroyed and Stolen Certificates. The holder of any
---------------------------------------
certificate for shares of the corporation alleged to have been lost, destroyed
or stolen shall notify the corporation by making

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<PAGE>

a written affidavit or affirmation of such fact. Upon receipt of said affidavit
or affirmation the Board of Directors, or its duly appointed and authorized
committee or any officer or officers authorized by the board so to do, may order
the issuance of a new certificate for shares in the place of any certificate
previously issued by the corporation and which is alleged to have been lost,
destroyed or stolen. However, the Board of Directors or such authorized
committee, officer or officers may require the owner of the allegedly lost,
destroyed or stolen certificate, or such owner's legal representative, to give
the corporation a bond or other adequate security sufficient to indemnify the
corporation and its transfer agent and/or registrar, if any, against any claim
that may be made against it or them on account of such allegedly lost, destroyed
or stolen certificate or the replacement thereof. Said bond or other security
shall be in such amount, on such terms and conditions and, in the case of a
bond, with such surety or sureties as may be acceptable to the Board of
Directors or to its duly appointed and authorized committee or any officer or
officers authorized by the Board of Directors to determine the sufficiency
thereof. The requirement of a bond or other security may be waived in
particular cases at the discretion of the Board of Directors or its duly
appointed and authorized committee or any officer or officers authorized by the
Board of Directors so to do.

Section 55. Issuance, Transfer and Registration of Shares. The Board of
---------------------------------------------
Directors may make such rules and regulations, not inconsistent with law or with
these bylaws, as it may deem advisable concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the corporation.
The Board of Directors may appoint a transfer agent or registrar of transfers,
or both, and may require all certificates for shares of the corporation to bear
the signature of either or both.

ARTICLE VIII

Inspection of Corporate Records
-------------------------------

Section 56. Inspection by Directors. Every director shall have the
-----------------------
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its sub
sidiaries. Such inspection may be made by the director in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.

Section 57. Inspection by Shareholders.
--------------------------

(a) Inspection of Corporate Records.
-------------------------------

(1) A shareholder or shareholders holding at least five percent
in the aggregate of the outstanding voting shares of the corporation
or who hold at least one percent of such voting shares and have filed
a Schedule 14B with the United States Securities and Exchange
Commission relating to the election of directors of the corporation
shall have an absolute right to do either or both of the following:

(A) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five
business days' prior written demand upon the corporation; or

(B) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and
upon the tender of its usual charges for such a list (the amount
of which charges shall be stated to the shareholder by the

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<PAGE>

transfer agent upon request), a list of the shareholders' names
and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record
date for which it has been compiled or as of a date specified by
the shareholder subsequent to the date of demand.

(2) The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate
at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's
interest as a shareholder or holder of a voting trust certificate.

(3) The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and of any committees
of the Board of Directors of the corporation and of each of its
subsidiaries shall be open to inspection, copying and making extracts
upon written demand on the corporation of any shareholder or holder of
a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's
interests as a shareholder or as a holder of such voting trust
certificate.

(4) Any inspection, copying, and making of extracts under this
subsection (a) may be done in person or by agent or attorney.

(b) Inspection of Bylaws. The original or a copy of these bylaws
--------------------
shall be kept as provided in Section 44 of these bylaws and shall be open
to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is not in
California, and the corporation has no principal business office in the
state of California, a current copy of these bylaws shall be furnished to
any shareholder upon written request.

Section 58. Written Form. If any record subject to inspection pursuant
------------
to Section 57 above is not maintained in written form, a request for inspection
is not complied with unless and until the corporation at its expense makes such
record available in written form.

ARTICLE IX

Miscellaneous
-------------

Section 59. Fiscal Year. Unless otherwise fixed by resolution of the
-----------
Board of Directors, the fiscal year of the corporation shall end on the 31st day
of December in each calendar year.

Section 60. Annual Report.
-------------

(a) Subject to the provisions of Section 60(b) below, the Board of
Directors shall cause an annual report to be sent to each shareholder of
the corporation in the manner provided in Section 9 of these bylaws not
later than one hundred twenty (120) days after the close of the
corporation's fiscal year. Such report shall include a balance sheet as of
the end of such fiscal year and an income statement and statement of
changes in financial position for such fiscal year, accompanied by any
report thereon of independent accountants or, if there is no such report,
the certificate of an authorized officer of the corporation that such
statements were prepared without audit from the books and records of the
corporation. When there are more than 100 shareholders of record of the
corporation's shares, as determined by Section 605 of the California
Corporations

-17-
<PAGE>

Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report,
provided that if the corporation has a class of securities registered under
Section 12 of the United States Securities Exchange Act of 1934, that Act
shall take precedence. Such report shall be sent to shareholders at least
fifteen (15) days prior to the next annual meeting of shareholders after
the end of the fiscal year to which it relates.

(b) If and so long as there are fewer than 100 holders of record of
the corporation's shares, the requirement of sending of an annual report to
the shareholders of the corporation is hereby expressly waived.

Section 61. Record Date. The Board of Directors may fix a time in the
-----------
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no record
date is fixed, the provisions of Section 15 of these bylaws shall apply with
respect to notice of meetings, votes, and consents and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolutions relating
thereto, or the sixtieth (60th) day prior to the date of such other action or
event, whichever is later.

Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation,
by agreement or by law.

Section 62. Bylaw Amendments. Except as otherwise provided by law or
----------------
Section 19 of these bylaws, these bylaws may be amended or repealed by the Board
of Directors or by the affirmative vote of a majority of the outstanding shares,
including, if applicable, the affirmative vote of a majority of the outstanding
shares of each class or series entitled by law or the Articles of Incorporation
to vote as a class or series on the amendment or repeal or adoption of any bylaw
or bylaws.

Section 63. Construction and Definition. Unless the context requires
---------------------------
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.

Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.

ARTICLE X

Indemnification
---------------

Section 64. Indemnification of Directors, Officers, Employees And Other
-----------------------------------------------------------
Agents.
- ------

(a) Directors and Executive Officers. The corporation shall
--------------------------------
indemnify its directors and executive officers to the fullest extent not
prohibited by the California General Corporation Law; provided, however,
-------- -------
that the corporation may limit or extend the extent of such indemnification
by individual contracts with its directors and executive officers; and,
provided,
--------

-18-
<PAGE>

further, that the corporation shall not be required to indemnify any
-------
director or executive officer in connection with any proceeding (or part
thereof) initiated by such person or any proceeding by such person against
the corporation or its directors, officers, employees or other agents
unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the board of directors of the
corporation or (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation
under the California General Corporation Law.

(b) Other Officers, Employees and Other Agents. The corporation
------------------------------------------
shall have the power to indemnify its other officers, employees and other
agents as set forth in the California Corporations Code.

(c) Determination by the Corporation. Promptly after receipt of a
--------------------------------
request for indemnification hereunder (and in any event within 90 days
thereof) a reasonable, good faith determination as to whether
indemnification of the director or executive officer is proper under the
circumstances because such director or executive officer has met the
applicable standard of care shall be made by:

(1) a majority vote of a quorum consisting of directors who are
not parties to such proceeding;

(2) if such quorum is not obtainable, by independent legal
counsel in a written opinion; or

(3) approval or ratification by the affirmative vote of a
majority of the shares of this corporation represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required
quorum) or by written consent of a majority of the outstanding shares
entitled to vote; where in each case the shares owned by the person to
be indemnified shall not be considered entitled to vote thereon.

(d) Good Faith.
----------

(1) For purposes of any determination under this bylaw, a
director or executive officer shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in the best
interests of the corporation and its shareholders, and, with respect
to any criminal action or proceeding, to have had no reasonable cause
to believe that his conduct was unlawful, if his action is based on
information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or
presented by:

(A) one or more officers or employees of the corporation
whom the director or executive officer believed to be reliable
and competent in the matters presented;

(B) counsel, independent accountants or other persons as to
matters which the director or executive officer believed to be
within such person's professional competence; and

-19-
<PAGE>

(C) with respect to a director, a committee of the Board
upon which such director does not serve, as to matters within
such committee's designated authority, which committee the
director believes to merit confidence; so long as, in each case,
the director or executive officer acts without knowledge that
would cause such reliance to be unwarranted.

(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in the best interests of the corporation and its shareholders or
that he had reasonable cause to believe that his conduct was unlawful.

(3) The provisions of this paragraph (d) shall not be deemed to
be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct
set forth by the California General Corporation Law.

(e) Expenses. The corporation shall advance, prior to the final
--------
disposition of any proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such
person to repay said amounts if it shall be determined ultimately that such
person is not entitled to be indemnified under this bylaw or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (f) of this bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding (or, if no such quorum exists, by independent legal counsel in a
written opinion) that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in the
best interests of the corporation and its shareholders.

(f) Enforcement. Without the necessity of entering into an express
-----------
contract, all rights to indemnification and advances to directors and
executive officers under this bylaw shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a
contract between the corporation and the director or executive officer.
Any right to indemnification or advances granted by this bylaw to a
director or executive officer shall be enforceable by or on behalf of the
person holding such right in the forum in which the proceeding is or was
pending or, if such forum is not available or a determination is made that
such forum is not convenient, in any court of competent jurisdiction if (i)
the claim for indemnification or advances is denied, in whole or in part,
or (ii) no disposition of such claim is made within ninety (90) days of
request therefor. The claimant in such enforcement action, if successful
in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the California General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its board of
directors, independent legal counsel or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the California General Corporation Law, nor an
actual determination by the corporation (including its board of directors,
independent legal counsel or its shareholders) that the claimant has not met
such applicable

-20-
<PAGE>

standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.

(g) Nonexclusivity of Rights. To the fullest extent permitted by the
------------------------
corporation's Articles of Incorporation and the California General
Corporation Law, the rights conferred on any person by this bylaw shall not
be exclusive of any other right which such person may have or hereafter
acquire under any statute, provision of the Articles of Incorporation,
bylaws, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its
directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent permitted by the California General
Corporation Law and the corporation's Articles of Incorporation.

(h) Survival of Rights. The rights conferred on any person by this
------------------
bylaw shall continue as to a person who has ceased to be a director or
executive officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.

(i) Insurance. The corporation, upon approval by the board of
---------
directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this bylaw.

(j) Amendments. Any repeal or modification of this bylaw shall only
----------
be prospective and shall not affect the rights under this bylaw in effect
at the time of the alleged occurrence of any action or omission to act that
is the cause of any proceeding against any agent of the corporation.

(k) Employee Benefit Plans. The corporation shall indemnify the
----------------------
directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of
employee benefit plans to the fullest extent permitted by the California
General Corporation Law.

(l) Saving Clause. If this bylaw or any portion hereof shall be
-------------
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive
officer to the fullest extent permitted by any applicable portion of this
bylaw that shall not have been invalidated, or by any other applicable law.

(m) Certain Definitions. For the purposes of this bylaw, the
-------------------
following definitions shall apply:

(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation,
prosecution, defense, settlement and appeal of any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative.

(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other
costs and expenses of any nature or kind incurred in connection with
any proceeding, including expenses of establishing a right to
indemnification under this bylaw or any applicable law.

-21-
<PAGE>

(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee
or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued.

(4) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the
corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other
enterprise.

ARTICLE XI

Loans of Officers and Others
----------------------------

Section 65. Certain Corporate Loans and Guaranties. If the corporation
--------------------------------------
has outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money or
property to, or guarantee the obligations of, any officer of the corporation or
its parent or any subsidiary, whether or not a director of the corporation or
its parent or any subsidiary, or adopt an employee benefit plan or plans
authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that such
a loan or guaranty or plan may reasonably be expected to benefit the
corporation.

-22-

<PAGE>

EXHIBIT 10.3

INDEMNIFICATION AGREEMENT

THIS AGREEMENT (the "Agreement") is made and entered into this ____
---------
day of _______________, 1997 between Colorbus, Inc., a Delaware corporation (the
"Company") and ____________________ ("Indemnitee").
------- ----------

WITNESSETH THAT:

WHEREAS, Indemnitee performs a valuable service for the Company; and

WHEREAS, the Board of Directors of the Company have adopted a
Certificate of Incorporation (the "Certificate") permitting the Board of
-----------
Directors to indemnify the officers and directors of the Company; and

WHEREAS, the Certificate and Section 145 of the Delaware General
Corporation Law, as amended ("Law"), by their nonexclusive nature permit
---
contracts between the Company and the officers and directors of the Company with
respect to indemnification of such officers and directors; and

WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
---------------
which may be incurred by its officers and directors in the performance of their
obligations as officers and directors of the Company; and

WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded the Company's officers and directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and

WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer and/or a director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;

NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or a director after the date hereof, the parties hereto agree as
follows:

1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
XI of the Certificate, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:

(a) Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in
<PAGE>

this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.

(b) Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.

(c) Indemnification for Expenses of a Party Who is Wholly or
--------------------------------------------------------
Partly Successful. Notwithstanding any other provision of this Agreement, to
- -----------------
the extent that Indemnitee is, by reason of his Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.

2
<PAGE>

2. ADDITIONAL INDEMNITY.
--------------------

(a) Subject only to the exclusions set forth in Section 2(b)
hereof, the Company hereby further agrees to hold harmless and indemnify
Indemnitee against any and all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with any
Proceeding (including an action by or on behalf of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of his Corporate Status; provided, however, that with respect
to actions by or on behalf of the Company, indemnification of Indemnitee against
any judgments shall be made by the Company only as authorized in the specific
case upon a determination that Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; and

(b) No indemnity pursuant to this Section 2 shall be paid by the
Company:

(i) In respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;

(ii) On account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;

(iii) On account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct; or

(iv) If a final decision by a court having jurisdiction in
the matter shall determine that such indemnification is not lawful.

3. CONTRIBUTION. If the indemnification provided in Sections 1 and
------------
2 is unavailable and may not be paid to Indemnitee for any reason other than
those set forth in paragraphs (i), (ii) and (iii) of Section 2(b), then in
respect to any Proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such Proceeding), the Company shall contribute to the
amount of Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with

3
<PAGE>

the events which resulted in such Expenses, judgments, fines or settlement
amounts, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Indemnitee on the other hand
shall be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such Expenses, judgments, fines or settlement
amounts. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 3 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.

4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
-----------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.

5. ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of
-----------------------
this Agreement, the Company shall advance all reasonable Expenses incurred by or
on behalf of Indemnitee in connection with any Proceeding by reason of
Indemnitee's Corporate Status within ten days after the receipt by the Company
of a statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay pursuant to this
Section 5 shall be unsecured and interest free. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this Section 5
shall be subject to the condition that, if, when and to the extent that the
Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed, within
thirty (30) days of such determination, by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).

4
<PAGE>

6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
-------------------------------------------------------------

(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.

(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined) in
a written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee (unless Indemnitee shall request that such determination be made
by the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided in Clause (ii) below), or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (B) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, said Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee, or (C) if so
directed by said Disinterested Directors, by the stockholders of the Company;
and, if it is determined that Indemnitee is entitled to indemnification, payment
to Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any Independent Counsel, member of
the Board of Directors, or stockholder of the Company shall act reasonably and
in good faith in making a determination under the Agreement of the Indemnitee's
entitlement to indemnification. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.

(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall

5
<PAGE>

not have occurred, the Independent Counsel shall be selected by the Board of
Directors, and the Company shall give written notice to Indemnitee advising him
of the identity of the Independent Counsel so selected. If a Change in Control
shall have occurred, the Independent Counsel shall be selected by Indemnitee
(unless Indemnitee shall request that such selection be made by the Board of
Directors, in which event the preceding sentence shall apply), and Indemnitee
shall give written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
-------------------
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a
written objection is made and substantiated, the Independent Counsel selected
may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
8(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).

(d) The Company shall not be required to obtain the consent of
the Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability.

6
<PAGE>

7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
----------------------------------------------

(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.

(b) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 7(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 6(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.

(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement (with or without court approval),
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.

7
<PAGE>

(d) For purposes of any determination of good faith, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Enterprise (as hereinafter defined),
including financial statements, or on information supplied to Indemnitee by the
officers and directors of the Enterprise in the course of their duties, or on
the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act,
of any director, officer, agent or employee of the Enterprise shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement. The provisions of this Section 7(d) shall not be deemed
to be exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of conduct set
forth in this Agreement.

8. REMEDIES OF INDEMNITEE.
----------------------

(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 or 7 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of
the American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 8(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.

(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the

8
<PAGE>

Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.

(d) In the event that Indemnitee, pursuant to this Section 8,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 16 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee to
recover under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery, as the case may be.

(e) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.

9. NONEXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
----------------------------------------------------------

(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the Law,
whether by statute or judicial decision, permits greater indemni fication than
would be afforded currently under the Certificate and this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change. No right or remedy herein
conferred is intended to be exclusive of any other right or remedy, and every
other right and remedy

9
<PAGE>

shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.

(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.

10. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.

11. DURATION OF AGREEMENT. All agreements and obligations of the
---------------------
Company contained herein shall continue during the period Indemnitee is an
officer and/or a director of the Company (or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall

10
<PAGE>

continue in effect regardless of whether Indemnitee continues to serve as an
officer and/or a director of the Company or any other enterprise at the
Company's request.

12. SECURITY. To the extent requested by the Indemnitee and approved
--------
by the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.

13. ENFORCEMENT.
-----------

(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer and/or a director of the
Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as an officer and/or a director of the Company.

(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.

14. DEFINITIONS. For purposes of this Agreement:
-----------

(a) "Change in Control" means a change in control of the Company
-----------------
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
---
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date of this Agreement (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Act, as amended) other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then outstanding securities (other
than any such person or any affiliate thereof that is such a 15% beneficial
owner as of the date hereof) without the prior approval of at least two-thirds
of the members of the Board of Directors in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization, as a

11
<PAGE>

consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
other than as a result of an event described in clause (a)(ii) of this Section
16, individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors. A Change in Control shall not be deemed to
have occurred under item (i) above if the "person" described under item (i) is
entitled to report its ownership on Schedule 13G promulgated under the Act and
such person is able to represent that it acquired such securities in the
ordinary course of its business and not with the purpose nor with the effect of
changing or influencing the control of the Company, nor in connection with or as
a participant in any transaction having such purpose or effect. If the "person"
referred to in the previous sentence would at any time not be entitled to
continue to report such ownership on Schedule 13G pursuant to Rule 13d-
1(b)(3)(i)(B) of the Act, then a Change in Control shall be deemed to have
occurred at such time.

(b) "Corporate Status" describes the status of a person who is
----------------
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.

(c) "Disinterested Director" means a director of the Company
----------------------
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.

(d) "Enterprise" shall mean the Company and any other
----------
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.

(e) "Expenses" shall include all reasonable attorneys' fees,
--------
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.

(f) "Independent Counsel" means a law firm, or a member of a
-------------------
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent:
(i) the Company or Indemnitee in any matter material to either such party (other
than with respect to matters concerning

12
<PAGE>

the Indemnitee under this Agreement, or of other indemnitees under similar
indemnification agreements), or (ii) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. The Company
agrees to pay the reasonable fees of the Independent Counsel referred to above
and to fully indemnify such counsel against any and all Expenses, claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.

(g) "Proceeding" includes any threatened, pending or completed
----------
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was an officer and/or a director of the Company, by
reason of any action taken by him or of any inaction on his part while acting as
an officer and/or a director of the Company, or by reason of the fact that he is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; in each case whether or not he is acting or serving in any such
capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under
this Agreement.

15. SEVERABILITY. If any provision or provisions of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent
permitted by law; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.

16. MODIFICATION AND WAIVER. No supplement, modification,
-----------------------
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.

13
<PAGE>

17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The
failure to so notify the Company shall not relieve the Company of any obligation
which it may have to the Indemnitee under this Agreement or otherwise.

18. NOTICES. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:

(a) If to Indemnitee, to:

-------------------------------------
Colorbus, Inc.
18261 McDurmott West
Irvine, California 92614

(b) If to the Company, to:
Colorbus, Inc.
18261 McDurmott West
Irvine, California 92614
Attention: Chief Executive Officer

or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.

19. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.

20. HEADINGS. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.

21. GOVERNING LAW. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.

14
<PAGE>

22. GENDER. Use of the masculine pronoun shall be deemed to include
------
usage of the feminine pronoun where appropriate.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.

COLORBUS, INC.,
a Delaware corporation

By_______________________________________
Paul R. Peffer
Chief Executive Officer

-----------------------------------------
_____________________________, Indemnitee

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Colorbus, Inc.:

The audits referred to in our report dated January 24, 1997, included the
related financial statement schedule as of December 31, 1996, and for each of
the years in the three year period ended December 31, 1996, included in the
registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such 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.

We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Orange County, California
March 3, 1997

<PAGE>

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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,326
<SECURITIES> 0
<RECEIVABLES> 5,320
<ALLOWANCES> (366)
<INVENTORY> 2,518
<CURRENT-ASSETS> 11,031
<PP&E> 3,643
<DEPRECIATION> (1,795)
<TOTAL-ASSETS> 12,879
<CURRENT-LIABILITIES> 8,570
<BONDS> 0
0
0
<COMMON> 1,942
<OTHER-SE> 1,989
<TOTAL-LIABILITY-AND-EQUITY> 12,879
<SALES> 0
<TOTAL-REVENUES> 42,264
<CGS> 23,692
<TOTAL-COSTS> 40,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349
<INCOME-PRETAX> 1,008
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</TABLE>