TSI INTERNATIONAL SOFTWARE LTD, S-1/A, 1997-06-20

TSI INTERNATIONAL SOFTWARE LTD
S-1/A, 1997-06-20
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997

REGISTRATION NO. 333-27293
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- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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

PRE-EFFECTIVE

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

TSI INTERNATIONAL SOFTWARE LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7372 06-1132156
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)

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

45 DANBURY ROAD
WILTON, CT 06897
(203)761-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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CONSTANCE F. GALLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TSI INTERNATIONAL SOFTWARE LTD.
45 DANBURY ROAD
WILTON, CT 06897
(203)761-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

COPIES TO:
MARK C. STEVENS, ESQ. LAWRENCE S. WITTENBERG, ESQ.
JEFFREY R. VETTER, ESQ. HEATHER M. STONE, ESQ.
G. CHIN CHAO, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
FENWICK & WEST LLP HIGH STREET TOWER
TWO PALO ALTO SQUARE 125 HIGH STREET
PALO ALTO, CA 94306 BOSTON, MA 02110
(415) 494-0600 (617) 248-7000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]

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

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 JUNE 20, 1997

4,000,000 SHARES

[LOGO OF TSI SOFT APPEARS HERE]
COMMON STOCK

Of the 4,000,000 shares of Common Stock offered hereby, 3,000,000 shares are
being sold by TSI International Software Ltd. ("TSI" or the "Company") and
1,000,000 shares are being sold by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $7.00 and
$9.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price.

-----------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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 COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(2)...................... $ $ $ $
</TABLE>
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(1) Before deducting expenses payable by the Company, estimated at $700,000.

(2) Certain of the Selling Stockholders have granted to the Underwriters a 30-
day option to purchase an aggregate of up to an additional 600,000 shares
of Common Stock solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Selling
Stockholders will be $ , $ and $ , respectively.

-----------

The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that the delivery of such shares will be
made through the offices of Robertson, Stephens & Company LLC ("Robertson,
Stephens & Company"), San Francisco, California, on or about , 1997.

ROBERTSON, STEPHENS & COMPANY

SOUNDVIEW FINANCIAL GROUP, INC.

WESSELS, ARNOLD & HENDERSON

The date of this Prospectus is , 1997.
<PAGE>

The inside front cover contains a picture with a title "Integrating Islands of
Automation" at the bottom of the graphic. The graphic contains a compass in the
upper right hand corner of the picture. The picture has the Company's Mercator
product logo labeled as "Mercator" with dotted lines emanating in a spoke like
pattern to pictures of islands, each with a graphic of a piece of computer
hardware. These islands are labeled (clockwise from the upper left corner to the
lower left corner) "Customers, Suppliers, Other Partners," "EDI," "Web
Applications," "Legacy Systems," "SAP R/3," "Best of Breed Applications," and
"Data Warehouses."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>

NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES, OR AN OFFER TO, OR THE SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................ 4
Risk Factors........................................................... 6
Use of Proceeds........................................................ 17
Dividend Policy........................................................ 17
Capitalization......................................................... 18
Dilution............................................................... 19
Selected Financial Data................................................ 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 21
Business............................................................... 31
Management............................................................. 42
Certain Transactions................................................... 50
Principal and Selling Stockholders..................................... 51
Description of Capital Stock........................................... 53
Shares Eligible for Future Sale........................................ 55
Underwriting........................................................... 57
Legal Matters.......................................................... 58
Experts................................................................ 58
Additional Information................................................. 59
Index to Financial Statements.......................................... F-1
</TABLE>

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The Company was incorporated in Connecticut in 1985 and reincorporated in
Delaware in September 1993. The Company's principal executive offices are
located at 45 Danbury Road, Wilton, CT 06897 and its telephone number is (203)
761-8600. The Company has additional offices in Boca Raton, Florida,
Bannockburn, Illinois and Cobham, England.

The Company intends to furnish its stockholders with annual reports
containing financial statements certified by an independent public accounting
firm and, upon request, quarterly reports containing unaudited financial
statements for the first three quarters of each year.

TSI, the TSI logo, Mercator, Trading Partner, OnCall and KEY/MASTER are
registered trademarks, and Mercator for R/3, Trading Partner EC, Trading
Partner PC, Trading Partner PC/32 and OnCall*EDI are trademarks, of the
Company. This Prospectus also contains trademarks and trade names of other
companies.

3
<PAGE>

SUMMARY

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors," and the Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus.

THE COMPANY

TSI International Software Ltd. ("TSI" or the "Company") is a leading
provider of software and related services that enable organizations to
integrate their business applications both internally and with external
business partners. The Company's flagship product, Mercator, is a data
transformation engine which permits enterprises to exchange information between
internal systems, to implement and integrate advanced client/server
applications such as SAP's R/3 enterprise resource planning ("ERP") system and
to integrate electronic data interchange ("EDI") data and Web-based
applications with their core business systems. In addition to Mercator, the
Company's Trading Partner products permit businesses to exchange information
with business partners and to integrate EDI data with back office applications.

The evolution of enterprise computing has resulted in a proliferation of
business software applications across disparate and heterogeneous computing
systems. To improve effectiveness, efficiency and competitive positioning,
organizations are increasingly seeking to integrate and coordinate these
applications, both within the enterprise and with a growing number of external
business partners. The traditional approach to application integration -- in-
house custom development of interfaces -- is limited in its effectiveness and
is expensive, with integration costs for purchased business applications often
exceeding the cost of the applications themselves. The requirement for
integration, and the need for software tools which automate the integration
process, is increased with each new client/server, electronic commerce or Web-
based application added to the enterprise.

TSI's products provide comprehensive off-the-shelf integration solutions that
can be quickly implemented and easily maintained and that provide support for a
broad range of applications, platforms, and data types. Mercator was the first
product to be certified by SAP for use with its Application Link Enabling
("ALE") architecture, an inter-application messaging technology developed by
SAP as a standard for interfacing with R/3. Mercator addresses the need of SAP
customers to integrate R/3 with legacy and third-party applications in less
time and at lower cost than developing in-house custom interfaces. Similarly,
for external applications, the Company's Mercator and Trading Partner tools
permit customers to integrate business processes across their supply and demand
chains by leveraging the Internet and other transport mechanisms for EDI.

The Company's strategy is to be the market leader in providing solutions that
integrate business applications within the enterprise and between business
partners. Specifically, the Company seeks to extend its technology leadership
in application integration, particularly with respect to its Mercator product
line, and intends to target the market for enterprise application integration
with tools and solutions for the SAP R/3 and other enterprise applications
markets. In addition to these market and product strategies, the Company
intends to expand its existing channels of distribution, leverage its customer
base by marketing additional products and services to existing customers, and
to expand its professional services capability to augment its software
offerings.

The Company markets its products and services through its direct sales force
and a network of value added resellers ("VARs"), independent software vendors
("ISVs"), systems integrators ("SIs") and distributors. TSI has directly
licensed its products to over 6,000 customers worldwide, representing a broad
range of industries. The Company's customers include Allegiance Corporation,
American Express Travel Related Services, Inc., CIGNA Corporation, Citibank,
N.A., Federal Express Corporation, Hewlett-Packard Company, Hoechst AG,
International Business Machines Corporation, Lucent Technologies, Inc., NYNEX
Corporation and Prudential Insurance Company of America.

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company...... 3,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 1,000,000 shares
Common Stock to be outstanding after the
Offering................................ 9,045,942 shares(1)
Use of Proceeds.......................... Repayment of indebtedness and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol... TSFW
</TABLE>

SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
----------- ------- ------- ------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $11,358 $12,843 $13,934 $16,061 $19,004 $ 4,089 $ 5,508
Operating income (loss). (4,794) (1,002) 95 907 1,414 162 352
Net income (loss)....... (4,864) (1,228) (113) 823 1,228 121 313
Net income (loss) per
share(2)............... $ 0.15 $ 0.20 $ 0.02 $ 0.05
Weighted average number
of common and common
equivalent shares
outstanding(2)......... 5,654 5,984 5,695 6,426
SUPPLEMENTARY STATEMENT
OF OPERATIONS DATA(3):
Supplementary net
income................. 1,452 360
Supplementary net income
per share.............. $ .23 $ .05
Supplementary shares
used to compute
supplementary net
income per share....... 6,308 6,750
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(4) ADJUSTED(4)(5)
------- -------- --------------
(unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................... $ 79 $ 79 $19,109
Working capital................................ (158) (158) 18,872
Total assets................................... 8,721 8,721 27,751
Total stockholders' equity (deficiency)........ (2,032) (1,032) 20,588
</TABLE>
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(1) Based on shares outstanding as of May 31, 1997. Excludes (i) an aggregate
of 1,293,757 shares of Common Stock issuable upon the exercise of options
outstanding as of May 31, 1997 under the Company's 1993 Stock Option Plan
(the "1993 Plan") and the Company's 1997 Directors Stock Option Plan (the
"Directors Plan") at a weighted average exercise price of $1.44 per share,
(ii) 711,771 shares of Common Stock issuable upon exercise of outstanding
warrants that will remain outstanding upon the completion of this offering
("Warrants") at an exercise price of $2.00 per share and (iii) an aggregate
of 2,281,764 additional shares of Common Stock reserved for issuance under
the Company's 1997 Equity Incentive Plan, the Directors Plan and 1997
Employee Stock Purchase Plan.
(2) For an explanation of the determination of the number of shares used in
computing per share amounts, see Note 1 of Notes to Financial Statements.

(3) Supplementary net income per share includes the number of shares used in
computing net income per share as well as the estimated number of shares
that would be needed (based on assumed initial public offering price of
$8.00 per share) to repay certain indebtedness to be repaid with the net
proceeds from the sale of the shares of the Common Stock offered by the
Company hereby. Supplementary net income also includes interest applicable
to such borrowings. See "Use of Proceeds" and Note 1 of Notes to Financial
Statements.

(4) Gives effect to the sale of 50,000 shares of Preferred Stock on May 15,
1997 and the application of the net proceeds therefrom, as if such
transaction had occurred as of March 31, 1997.

(5) Adjusted to reflect the sale of the 3,000,000 shares offered by the Company
hereby at an assumed initial public offering price per share of $8.00 and
the application of the net proceeds therefrom, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses. See "Capitalization" and "Use of Proceeds."

Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." Except
as otherwise noted herein, all information in this Prospectus has been adjusted
to give effect to the Company's reincorporation in Delaware in September 1993,
and reflects (i) a 3-for-1 stock split to be effected immediately prior to the
consummation of this offering, (ii) the conversion, upon completion of this
offering, of all outstanding shares of Preferred Stock of the Company into an
aggregate of 2,759,715 shares of Common Stock and (iii) the exercise of certain
outstanding warrants on a net exercise basis into an aggregate of 286,227
shares of Common Stock upon completion of this offering.

5
<PAGE>

RISK FACTORS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In addition to the other information in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the Common Stock offered by this
Prospectus.

UNCERTAIN PROFITABILITY; ACCUMULATED DEFICIT

Although the Company has been profitable since 1995, the Company incurred
significant operating losses through 1993 and, at March 31, 1997, the
Company's accumulated deficit was approximately $9.7 million. There can be no
assurance that the Company's profitability will continue. The Company
introduced its Mercator product line in December 1993 and released the latest
version of this product in May 1996. The relatively recent introduction of the
Mercator product line and the relative immaturity of its market, together with
the factors described under "-- Potential Fluctuations in Quarterly Results;
Seasonality," make the prediction of future operating results impossible. The
Company's past financial performance should not be considered indicative of
future results. Although the Company has experienced growth in revenues and
net income in recent periods, there can be no assurance that revenues or net
income will continue to increase or not decrease. Future operating results
will depend on many factors, including the growth of the market for business
application integration software and related services, demand for and market
acceptance of the Company's products and related services, particularly its
Mercator products and related services, demand for and market acceptance of
the SAP R/3 system, the level of competition, the Company's success in
expanding its direct sales force, indirect distribution channels and its
professional services business, the ability of the Company to further develop
and market its products, product enhancements and new products, general
economic conditions and other factors. See "-- Potential Fluctuations in
Operating Results; Seasonality" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

The Company's quarterly and annual operating results have varied
significantly in the past and are expected to do so in the future.
Accordingly, the Company believes that period to period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. The Company's revenues and results
of operations are difficult to forecast and could be adversely affected by
many factors, including, among others: the size, timing and terms of
individual license transactions; the sales cycle for the Company's products;
demand for and market acceptance of the Company's products and related
services (particularly its Mercator products); the number of businesses
implementing the SAP R/3 system as well as the number of such businesses
requiring third party business application integration software and related
services; the Company's ability to expand, and market acceptance of, its
professional services business; the timing of expenditures by the Company in
anticipation of product releases or increased revenue; the timing of product
enhancements and product introductions by the Company and its competitors;
market acceptance of enhanced versions of the Company's existing products and
of new products; changes in pricing policies of the Company and its
competitors; variations in the mix of products and services sold by the
Company; the mix of channels through which products and services are sold; the
success of the Company in penetrating international markets; the buying
patterns and budgeting cycles of customers; personnel changes, the Company's
ability to attract and retain qualified sales, professional services and
research and development personnel and the rate at which such personnel become
productive; and general economic conditions. In particular, the ability of the
Company to achieve growth in the future will depend on its success in adding a
substantial number of sales, professional services and research and
development personnel. Competition for such personnel is intense and there can
be no assurance the Company will be able to attract and retain these
personnel.

6
<PAGE>

Licensing of the Company's software products historically has accounted for
a substantial portion of the Company's revenues, and the Company anticipates
that this trend will continue for the foreseeable future. Software license
revenues are difficult to forecast for a number of reasons. The Company
typically does not have a material backlog of unfilled orders, and revenues in
any quarter are substantially dependent on orders booked and shipped in that
quarter. The length of the sales cycles for the Company's products can vary
significantly from customer to customer and from product to product and, in
certain instances, can be as long as nine months or more. Furthermore, the
terms and conditions of individual license transactions, including prices and
discounts, may be negotiated based on volumes and commitments, and may vary
considerably from customer to customer. In addition, the Company has generally
recognized a substantial portion of its quarterly software licensing revenues
in the last month of each quarter. Accordingly, the cancellation or deferral
of even a small number of purchases of the Company's products has in the past
and could in the future have a material adverse effect on the Company's
business, operating results and financial condition.

The Company's future revenues will also be difficult to predict and the
Company has, in the past, failed to achieve its revenue expectations for
certain periods. The Company's expense levels are based, in part, on its
expectation of future revenues, and expense levels are, to a large extent,
fixed in the short term. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. If revenue
levels are below expectations for any reason, operating results are likely to
be materially and adversely affected. Net income may be disproportionately
affected by a reduction in revenue because a large portion of the Company's
expenses is related to headcount that cannot be easily reduced without
adversely affecting the Company's business. In addition, the Company currently
intends to increase its operating expenses by expanding its research and
product development staff, particularly research and development personnel to
be devoted to the Company's Mercator product line, increasing its professional
services and sales and marketing operations, expanding distribution channels
and hiring personnel in other operating areas. The Company expects to
experience a significant time lag between the date professional services,
sales and technical personnel are hired and the date such personnel become
fully productive. The timing of such expansion and the rate at which new
technical, professional services and sales personnel become productive as well
as the timing of the introduction and success of new distribution channels
could cause material fluctuations in quarterly results of operations.
Furthermore, to the extent such increased operating expenses precede or are
not subsequently followed by increased revenues, the Company's business,
operating results and financial condition could be materially and adversely
affected.

Due to the foregoing factors, it is likely that in some future quarter the
Company's revenue or operating results will not meet the expectations of
public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially and adversely affected.

While the Company has not historically experienced any significant seasonal
fluctuations in its revenues or results of operations, it is not uncommon for
software companies to experience strong fourth quarters followed by weaker
first quarters, in some cases with sequential declines in revenues or
operating profit. The Company believes that many software companies exhibit
this pattern in their sales cycles primarily due to customers' buying patterns
and budget cycles. There can be no assurance that the Company will not display
this pattern in future years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON MERCATOR PRODUCT LINE

The Company introduced its Mercator products in 1993. In recent years, a
significant portion of the Company's revenue has been attributable to licenses
of its Mercator products and related services, and the Company expects that
revenue attributable to its Mercator products and related services will
represent an increasing portion of the Company's total revenue for the
foreseeable future. The development and marketing of its Mercator product line
has required the Company to, among other things, focus its attention and
resources away from some of its traditional products, market its products to a
different customer base and shift a large portion of its development efforts
to the Mercator product line. Accordingly, the Company's

7
<PAGE>

future operating results are highly dependent on the market acceptance and
growth of its Mercator product line and enhancements thereto. There can be no
assurance that market acceptance of the Mercator product line will increase or
remain at current levels or that the Company will be able to successfully
market the Mercator product line and develop extensions and enhancements to
this product line on a long-term basis. In the event the Company's current or
future competitors release new products that provide, or are perceived as
providing, more advanced features, greater functionality, better performance,
better compatibility with other systems or lower prices than the Mercator
product line, demand for the Company's products and services would likely
decline. See "-- Risks Associated with Technological Change, Product
Enhancements and New Product Development" and "-- Competition." A decline in
demand for, or market acceptance of, the Mercator product line as a result of
competition, technological change or other factors would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Products and Services."

DEPENDENCE ON SAP R/3 SYSTEM IMPLEMENTATIONS

A substantial portion of the Company's sales of its Mercator products and
related services has been attributable to sales of Mercator for R/3 and
related services. The Company believes that its future revenue growth, if any,
will also depend in part upon continued sales of Mercator for R/3 and related
services. The Company has devoted and must continue to devote substantial
resources to identifying potential customers in the R/3 market, building
relationships with strategic partners and attracting and retaining skilled
technical, sales and professional services personnel with expertise in R/3
systems. Personnel with expertise in the R/3 system are in high demand and as
such are typically difficult to hire and retain. Regardless of the investments
the Company makes in pursuing this new market, there can be no assurance that
the Company will be successful in implementing a sales and marketing strategy
appropriate for this market or in attracting and retaining the necessary
skilled personnel.

Demand for and market acceptance of Mercator for R/3 and related services
will be dependent on the continued market acceptance of the SAP R/3 system. As
a result, any factor adversely affecting demand for or use of SAP's R/3 system
could have a material adverse effect on the Company's business, operating
results and financial condition. Implementation of the SAP R/3 system is a
costly and time-consuming process and there can be no assurance that
businesses will choose to purchase such systems. Furthermore, there can be no
assurance that businesses which may implement such systems will wish to commit
the additional resources required to implement Mercator for R/3. In addition,
SAP could in the future introduce business application integration solutions
competitive with Mercator for R/3 and related services. Moreover, any changes
in or new versions of SAP's R/3 system could materially and adversely affect
the Company's business, operating results and financial condition if the
Company were not able to successfully develop or implement any related changes
to Mercator for R/3 in a timely fashion. The Company will also be required to
maintain ALE certification for Mercator for R/3. In order to maintain such
certification, the Company's product must adhere to SAP's technical
specifications which are updated by SAP from time to time, and the Company has
no control over whether and when such specifications will be changed. Any
material change by SAP in such specifications could require the Company to
devote significant development resources to updating this product to comply
with such specifications. In such event, there can be no assurance that the
Company would be able to successfully modify Mercator for R/3 on a timely
basis, if at all, and any failure to do so could materially and adversely
affect the Company's business, operating results and financial condition.

RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE, PRODUCT ENHANCEMENTS AND NEW
PRODUCT DEVELOPMENT

8
<PAGE>

emergence of new industry standards could render existing products obsolete
and unmarketable. Accordingly, the life cycles of the Company's products are
difficult to estimate. The Company's future success will depend in part upon
its ability to anticipate changes and enhance its current products and develop
and introduce new products that keep pace with technological advancements and
address the increasingly sophisticated needs of its customers. The Company's
products may be rendered obsolete if the Company fails to anticipate or react
to change. Development of enhancements to existing products and new products
depends, in part, on the timing of releases of new versions of applications
systems by vendors, the introduction of new applications, systems or computing
platforms, the timing of changes in platforms, the release of new standards or
changes to existing standards, and changing customer requirements, among other
factors. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change, evolving industry standards and changing customer
requirements, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of
these products or product enhancements, or that its product enhancements or
new products will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. The Company has in the
past experienced delays in the introduction of product enhancements and new
products and may experience such delays in the future. Furthermore, as the
number of applications, systems and platforms supported by the Company's
products increases, the Company could experience difficulties in developing on
a timely basis product enhancements which address the increased number of new
versions of applications, systems or platforms served by its existing
products. Failure of the Company, for technological or other reasons, to
develop and introduce product enhancements or new products in a timely and
cost-effective manner or to anticipate and respond adequately to changing
market conditions, as well as any significant delay in product development or
introduction, could cause customers to delay or decide against purchases of
the Company's products, which could have a material adverse effect on the
Company's business, operating results and financial condition.

The Company may, in the future, seek to develop and market enhancements to
existing products or new products which are targeted for applications, systems
or platforms which the Company believes will achieve commercial acceptance.
These efforts could require the Company to devote significant development and
sales and marketing personnel as well as other resources to such efforts which
would otherwise be available for other purposes. There can be no assurance
that the Company will be able to successfully identify such applications,
systems or platforms, or that such applications, systems or platforms will
achieve commercial acceptance or that the Company will realize a sufficient
return on its investment. Failure of these targeted applications, systems or
platforms to achieve commercial acceptance or the failure of the Company to
achieve a sufficient return on its investment could have a material adverse
effect on the Company's business, operating results and financial condition.

In addition, the introduction or announcement by the Company, or by one or
more of its current or future competitors, of products embodying new
technologies or features could render the Company's existing products obsolete
or unmarketable. There can be no assurance that the introduction or
announcement of enhanced or new product offerings by the Company or its
current or future competitors will not cause customers to defer or cancel
purchases of existing Company products. Such deferment or cancellation of
purchases could have a material adverse effect on the Company's business,
operating results and financial condition.

DEPENDENCE UPON DEVELOPMENT OF DISTRIBUTION CHANNELS

An integral part of the Company's strategy is to expand both its direct
sales force and its indirect sales channels such as VARs, ISVs, SIs and
distributors. Although VARs, ISVs, SIs and distributors have not accounted for
a substantial percentage of the Company's total revenues historically, the
Company is increasing resources dedicated to developing and expanding its
indirect distribution channels. There can be no assurance that the Company
will be successful in expanding the number of indirect distribution channels
for its products.

9
<PAGE>

Furthermore, any new VARs, ISVs, SIs or distributors may offer competing
products, or have no minimum purchase requirements of the Company's products.
There can also be no assurance that such third parties will provide adequate
levels of services and technical support. The inability of the Company to
enter into additional indirect distribution arrangements, the failure of such
third parties to perform under agreements with the Company and to penetrate
their markets, or the inability of the Company to retain and manage VARs,
ISVs, SIs and distributors with the technical and industry expertise required
to market the Company's products successfully could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company's planned efforts to expand its use
of VARs, ISVs, SIs and distributors will be successful. To the extent that the
Company is successful in increasing its sales through indirect sales channels,
it expects that those sales will be at lower per unit prices than sales
through direct channels, and revenue to the Company for each such sale will be
less than if the Company had licensed the same product to the customer
directly.

Selling through indirect channels may limit the Company's contacts with its
customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements
may be hindered. The Company's strategy of marketing its products directly to
end-users and indirectly through VARs, ISVs, SIs and distributors may result
in distribution channel conflicts. The Company's direct sales efforts may
compete with those of its indirect channels and, to the extent different
resellers target the same customers, resellers may also come into conflict
with each other. Although the Company has attempted to manage its distribution
channels to avoid potential conflicts, there can be no assurance that channel
conflicts will not materially and adversely affect its relationships with
existing VARs, ISVs, SIs or distributors or adversely affect its ability to
attract new VARs, ISVs, SIs and distributors.

The Company also plans to expand its direct sales force. The Company's
future success will depend in part upon the ability of the Company to attract,
integrate, train, motivate and retain new sales personnel. There can be no
assurance that the Company's efforts to expand its direct sales force will be
successful or that the cost of such efforts will not exceed the revenue
generated. In addition, the Company expects to experience a significant time
lag between the date sales personnel are hired and the date such personnel
become fully productive. The Company's inability to manage its sales force
expansion effectively could have a material adverse effect on the Company's
business, operating results and financial condition.

DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN SALES, PROFESSIONAL
SERVICES AND TECHNICAL PERSONNEL

The Company's future success depends in large part on the continued service
of its key technical, professional services and sales personnel, as well as
senior management. The loss of the services of any of one or more of the
Company's key employees could have a material adverse effect on the Company's
business, operating results and financial condition. All employees are
employed at-will and the Company has no fixed-term employment agreements with
its employees. The Company's future success also depends on its ability to
attract, train and retain highly qualified sales, technical, professional
services and managerial personnel, particularly sales, professional services
and technical personnel with expertise in the SAP R/3 system. An increase in
the Company's sales staff is required to expand both the Company's direct and
indirect sales activities and to achieve revenue growth. Competition for such
personnel is intense, particularly for personnel with expertise in the SAP R/3
system, and there can be no assurance that the Company can attract, assimilate
or retain such personnel. The Company has at times experienced and continues
to experience difficulty in recruiting qualified technical and sales
personnel, and anticipates such difficulties in the future. The Company has in
the past experienced and in the future expects to continue to experience a
significant time lag between the date technical, professional services and
sales personnel are hired and the date such personnel become fully productive.
If the Company is unable to hire and train on a timely basis and subsequently
retain such personnel in the future, the Company's business, operating results
and financial condition could be materially and adversely affected.

10
<PAGE>

MANAGEMENT OF GROWTH

The Company's business has grown in recent periods, with total revenues
increasing from $13.9 million in 1994 to $16.1 million in 1995 and $19.0
million in 1996 and increasing from $4.1 million for the first quarter of 1996
to $5.5 million for the comparable period of 1997. The growth of the Company's
business has placed, and is expected to continue to place, a strain on the
Company's administrative, financial, sales and operational resources and
increased demands on its systems and controls. In particular, the Company
noted an increase in days sales outstanding from December 31, 1996 to March
31, 1997 from approximately 70 days to approximately 86 days, and an increase
in total accounts receivable from $4.4 million to $5.3 million. The Company
believes this increase resulted from difficulties in implementing a new
financial accounting system which have since been resolved, and from a lack of
sufficient collections resources in light of the Company's increased sales
levels.

To deal with these concerns, the Company has implemented or is in the
process of implementing and will be required to implement in the future a
variety of new and upgraded operational and financial systems, procedures and
controls and to hire additional administrative personnel. There can be no
assurance that the Company will be able to complete the implementation of
these systems, procedures and controls or hire such personnel in a timely
manner. The failure of the Company or its management to respond to, and
manage, its growth and changing business conditions, or to adapt its
operational, management and financial control systems to accommodate its
growth could have a material adverse effect on the Company's business,
operating results and financial condition. To promote growth in the Company's
sales and operations, the Company will also have to expand its sales and
marketing organizations, expand and develop its distribution channels, fund
increasing levels of product development and increase the size of its
training, professional services and customer support organization to
accommodate expanded operations, and there can be no assurance that the
Company will be successful in these endeavors. See "Business -- Employees" and
"Management."

DEPENDENCE ON THE INTERNET AND INTRANETS

The Company believes that demand for business application integration
solutions such as those offered by the Company will depend in part upon the
adoption by businesses and end-users of the Internet and intranets as a
platform for electronic commerce and communications both within and outside
the enterprise. The Internet and intranets are new and evolving, and there can
be no assurance of their widespread adoption, particularly for electronic
commerce and communications among businesses. Critical issues concerning the
Internet and intranets, including security, reliability, cost, ease of use and
access and quality of service, remain unresolved at this time, inhibiting
adoption by many enterprises and end-users. If the Internet and intranets are
not widely used by businesses and end-users, particularly for electronic
commerce, this could have an adverse effect on the Company's business,
operating results and financial condition.

COMPETITION

The market for the Company's products and services is extremely competitive
and subject to rapid change. Because there are relatively low barriers to
entry in the software market, the Company expects additional competition from
other established and emerging companies. The Company believes that the
competitive factors affecting the market for the Company's products and
services include product functionality and features; quality of professional
services offerings; product quality, performance and price; ease of product
implementation; quality of customer support services; customer training and
documentation; and vendor and product reputation. The relative importance of
each of these factors depends upon the specific customer environment. Although
the Company believes that its products and services currently compete
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors.

11
<PAGE>

business application integration needs. As a result, the Company must educate
prospective customers as to the advantages of the Company's products and
services as opposed to internally developed solutions and there can be no
assurance that the Company will be able to adequately educate potential
customers to the benefits provided by the Company's products and services. In
the EDI market, the Company's Trading Partner products compete with products
offered by companies offering proprietary Value-Added Network ("VAN") services
as part of their EDI solution and the Company's PC-based Trading Partner
products also compete with PC-based products offered by a number of other EDI
software vendors.

Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger
customer bases than the Company. The Company's present or future competitors
may be able to develop products comparable or superior to those offered by the
Company, adapt more quickly than the Company to new technologies, evolving
industry trends or customer requirements, or devote greater resources to the
development, promotion and sale of their products than the Company.
Accordingly, there can be no assurance that the Company will be able to
compete effectively in its markets, that competition will not intensify or
that future competition will not have a material adverse effect on the
Company's business, operating results and financial condition.

The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. The Company's competitors may
engage in pricing practices that reduce the average selling prices of the
Company's products and related services. To offset declining average selling
prices, the Company believes that it must successfully introduce and sell
enhancements to existing products and new products on a timely basis and
develop enhancements to existing products and new products that incorporate
features that can be sold at higher average selling prices. To the extent that
enhancements to existing products and new products are not developed in a
timely manner, do not achieve customer acceptance or do not generate higher
average selling prices, the Company's gross margins may decline, and such
decline could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Competition."

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's success is dependent upon its proprietary software technology.
The Company does not currently have any patents and relies principally on
trade secret, copyright and trademark laws, nondisclosure and other
contractual agreements and technical measures to protect its technology. The
Company also believes that factors such as the technological and creative
skills of its personnel, product enhancements and new product developments are
essential to establishing and maintaining a technology leadership position.
The Company enters into confidentiality and/or license agreements with its
employees, distributors and customers, and limits access to and distribution
of its software, documentation and other proprietary information. There can be
no assurance that the steps taken by the Company will prevent misappropriation
of its technology, and such protections do not preclude competitors from
developing products with functionality or features similar to the Company's
products. Furthermore, there can be no assurance that third parties will not
independently develop competing technologies that are substantially equivalent
or superior to the Company's technologies. In addition, effective copyright
and trade secret protection may be unavailable or limited in certain foreign
countries. Any failure by or inability of the Company to protect its
proprietary technology could have a material adverse effect on the Company's
business, operating results and financial condition.

12
<PAGE>

making claims against the Company could secure substantial damages, as well as
injunctive or other equitable relief which could effectively block the
Company's ability to license its products in the United States or abroad. Such
a judgment could have a material adverse effect on the Company's business,
operating results and financial condition. If it appears necessary or
desirable, the Company may seek licenses to intellectual property that it is
allegedly infringing. There can be no assurance, however, that licenses could
be obtained on commercially reasonable terms, if at all, or that the terms of
any offered licensed will be acceptable to the Company. The failure to obtain
the necessary licenses or other rights could have a material adverse effect on
the Company's business, operating results and financial condition. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with
or without merit, can be time consuming and expensive to defend and could
adversely affect the Company's business, operating results and financial
condition. There are currently no pending claims that the Company's products,
trademarks or other proprietary rights infringe upon the proprietary rights of
third parties. See "Business -- Proprietary Technology."

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

Although international revenues currently account for only approximately 10%
of the Company's total revenues, the Company intends to expand its sales and
marketing resources outside of the United States, which will require
significant management attention and financial resources. The Company also
expects to commit additional time and development resources to customizing its
products for selected international markets and to developing international
sales and support channels. None of the Company's products is currently a
"double byte" product, which is required to localize these products in certain
non-English character set markets such as Asia. The Company believes that it
will be required to develop double byte versions of its products and engage in
other localization activities. There can be no assurance that such efforts
will be successful.

International operations involve a number of additional risks, including the
impact of possible recessionary environments in economies outside the United
States, longer receivables collection periods and greater difficulty in
accounts receivable collection, unexpected changes in regulatory requirements,
dependence on independent resellers, reduced protection for intellectual
property rights in some countries, tariffs and other trade barriers, foreign
currency exchange rate fluctuations, difficulties in staffing and managing
foreign operations, the burdens of complying with a variety of foreign laws,
potentially adverse tax consequences and political and economic instability.
To the extent the Company's international operations expand, the Company
expects that an increasing portion of its international license and service
and other revenues will be denominated in foreign currencies, subjecting the
Company to fluctuations in foreign currency exchange rates. The Company does
not currently engage in foreign currency hedging transactions. However, as the
Company continues to expand its international operations, exposures to gains
and losses on foreign currency transactions may increase. The Company may
choose to limit such exposure by the purchase of forward foreign exchange
contracts or similar hedging strategies. There can be no assurance that any
currency exchange strategy would be successful in avoiding exchange-related
losses. There can be no assurance that the foregoing factors will not have a
material adverse effect on the Company's future international revenue and,
consequently, on the Company's business, operating results and financial
condition. The Company believes that its growth will require expansion of its
sales in foreign markets and expects to rely principally on resellers in those
markets, rather than substantially increase its direct sales force to serve
those markets. There can be no assurance that the Company will be able to
sustain or increase revenue derived from international sources.

RISK OF SOFTWARE DEFECTS; PRODUCT LIABILITY

Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has in the past discovered software defects in certain of its products
and may experience delays or lost revenue to correct such defects in the
future.

13
<PAGE>

Although the Company has corrected known material defects in its current
products and has not experienced material adverse effects resulting from any
such defects to date, there can be no assurance that, despite testing by the
Company, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. Any such occurrence could have a
material adverse effect upon the Company's business, operating results and
financial condition.

The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements, especially unsigned
"shrink-wrap" licenses, may not be effective under the laws of certain
jurisdictions. Consequently, the sale and support of the Company's software
entails the risk of such claims in the future. The Company currently has a
standard business owner's insurance policy but does not have insurance
specifically for software product liability risks or software errors and
omissions. Any product liability claim brought against the Company could have
a material adverse effect upon the Company's business, operating results and
financial condition.

POTENTIAL ACQUISITIONS

If appropriate opportunities present themselves, the Company intends to
acquire businesses, products or technologies that the Company believes are
strategic, although the Company currently has no understandings, commitments
or agreements with respect to any material acquisition and no material
acquisition is currently being pursued. There can be no assurance that the
Company will be able to successfully identify, negotiate or finance such
acquisitions, or to integrate such acquisitions with its current business. The
process of integrating an acquired business, product or technology into the
Company may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of the Company's business. Moreover, there can be no
assurance that the anticipated benefits of any acquisition will be realized.
Acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or amortization
expenses related to goodwill and other intangible assets, which could
materially adversely affect the Company's business, operating results and
financial condition. Any such future acquisitions of other technologies,
products or companies may require the Company to obtain additional equity or
debt financing, which may not be available or may be dilutive.

NO PRIOR MARKET; VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering. The initial public offering price
will be determined by negotiations among the Company and the representatives
of the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after this offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The market price of the shares of Common Stock is likely to be
highly volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the software or other industries, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stocks of technology
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often resulted. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition.

14
<PAGE>

CONTROL BY EXISTING STOCKHOLDERS; FACTORS INHIBITING TAKEOVER

Upon completion of this offering, officers and directors of the Company and
their affiliated entities will beneficially own approximately 48.6% of the
outstanding Common Stock of the Company (47.7% if the Underwriters' over-
allotment option is exercised in full). As a result, such persons and entities
will be able to control the management and affairs of the Company and exercise
significant influence over all matters requiring stockholder approval,
including election of directors, any merger, consolidation or sale of all or
substantially all of the Company's assets, and any other significant corporate
transaction. The concentration of ownership could have the effect of delaying
or preventing a change in control of the Company. See "Principal and Selling
Stockholders." Immediately prior to the completion of this offering, the
Company's Certificate of Incorporation will be amended and restated to include
a provision that allows the Board of Directors to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences,
privileges, and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. Preferred Stock could be
issued, without stockholder approval, that could have voting, liquidation and
dividend rights superior to that of existing stockholders. The issuance of
Preferred Stock could adversely affect the voting powers of holders of Common
Stock and the likelihood that such holders would receive dividend payments and
payments on liquidation. The Company has no current plans to issue any
Preferred Stock. In addition, Section 203 of the Delaware General Corporation
Law ("Section 203") restricts certain business combinations with any
"interested stockholder" as defined by such statute. The issuance of Preferred
Stock as well as the provisions of Section 203 could also make it more
difficult for a third party to acquire control of the outstanding voting stock
of the Company and thereby have the effect of delaying or preventing a change
in control of the Company. See "Description of Capital Stock--Delaware Anti-
Takeover Law."

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this offering will therefore incur immediate and substantial
dilution of $5.72 in the net tangible book value per share of the Common Stock
(at an assumed initial public offering price of $8.00 per share and after
deducting the estimated underwriting discount and estimated offering
expenses). To the extent that options or Warrants to purchase the Company's
Common Stock are exercised, there will be further dilution. See "Dilution."

UNCERTAINTY AS TO USE OF PROCEEDS

Except for the repayment of amounts outstanding under its credit line, the
Company has no specific plans as to the use of a significant portion of the
net proceeds from this offering, other than general working capital purposes.
Accordingly, the Company's management will retain broad discretion to allocate
the net proceeds from this offering to uses that the stockholders may not deem
desirable and there can be no assurance that the proceeds can or will yield a
significant return. See "Use of Proceeds."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of large amounts of the Company's Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair
the Company's future ability to raise capital through offerings of its equity
securities. A substantial number of outstanding shares of Common Stock and
shares of Common Stock issuable upon the exercise of outstanding stock options
and Warrants will become available for resale in the public market at
prescribed times. Upon completion of this offering, there will be 9,045,942
shares of Common Stock of the Company outstanding. The 4,000,000 shares
offered hereby will be eligible for immediate sale in the public market
without restriction. Taking into account certain shares subject to lock-up
agreements and notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, the number of shares that will be
available for sale in the public market will be as follows: (i) approximately
81,000 shares will be eligible for immediate sale on the effective date, (ii)
approximately 3,555 shares will become eligible for sale 90 days after the
effective date pursuant to the provisions of Rule 144 or

15
<PAGE>

Rule 701, (iii) approximately 48,000 shares will be eligible for sale in
December 1997 subject to certain volume and other resale restrictions under
Rule 144, (iv) approximately 4,763,387 shares will become eligible for sale
180 days after the effective date upon the expiration of certain lock-up
agreements and, as of that date, approximately 4,076,847 of such shares will
be subject to certain volume and other resale restrictions pursuant to Rule
144, and (v) approximately 150,000 shares will become eligible for sale in May
1998, subject to certain volume and other resale restrictions pursuant to Rule
144. Within 90 days after this offering, the Company intends to register
approximately 3,586,521 shares of the Company's Common Stock reserved for
issuance upon exercise of outstanding options or for future grants or
purchases under its stock option plans and stock purchase plan.

In addition, upon completion of this offering, there will remain outstanding
Warrants to purchase 711,771 shares of Common Stock at an exercise price of
$2.00 per share. These Warrants are exercisable at any time on a net exercise
basis. Accordingly, any shares of Common Stock issuable upon such net exercise
would be available for resale in the public market, subject to public
information, volume limitation or notice provisions of Rule 144, in the case
of affiliates.

Following this offering, the holders of 2,567,169 shares of the Company's
Common Stock and holders of Warrants to purchase 711,771 shares of Common
Stock will have certain rights to register those shares of Common Stock under
the Securities Act. See "Shares Eligible for Future Sale."

16
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$21.6 million (at an assumed initial public offering price of $8.00 per share)
after deducting the estimated underwriting discount and commissions and
estimated offering expenses. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders.

The Company expects to use a portion of such proceeds for the repayment of
approximately $2.6 million of indebtedness under the Company's bank credit
line. A portion of this indebtedness bears interest at the rate of the bank's
prime lending rate plus 1.0% and the remainder bears interest at the rate of
the applicable LIBOR rate plus 3.0% (for a weighted average interest rate of
approximately 8.92% at March 31, 1997). The Company has no current specific
plans for the remainder of the net proceeds of this offering, but the Company
expects to use such net proceeds for general corporate purposes, including
working capital. A portion of the proceeds may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. The Company presently has no commitments or
understandings for any such acquisitions or investments, and is not presently
engaged in any discussions or negotiations for any such acquisitions or
investments. Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term, interest-bearing,
investment-grade obligations.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for use in its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company, general business
conditions and contractual restrictions on payment of dividends, if any. The
Company's credit agreement with its bank prohibits the payment of dividends
without the bank's written consent.

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CAPITALIZATION

The following table sets forth, as of March 31, 1997, (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis to give retroactive effect to the items referred to in footnote
(1) below and (iii) such pro forma capitalization as adjusted to give effect
to the sale of the 3,000,000 shares of Common Stock offered by the Company
hereby at an assumed offering price of $8.00 per share and the application of
the net proceeds therefrom.

<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
----------- ------------- ------------
(In thousands, except share data)
<S> <C> <C> <C>
Long-term debt:
Notes payable--bank....... 3,590 2,590 --
Equipment obligations..... 43 43 43
----------- ----------- -----------
Total long-term debt.... 3,633 2,633 43
=========== =========== ===========
Stockholders' equity
(deficiency)(2):
Preferred stock, $0.01 par
value per share;
1,638,166 shares
authorized, 860,969
shares issued and
outstanding, actual;
5,000,000 shares
authorized, no shares
issued or outstanding,
pro forma and pro forma
as adjusted.............. 9 -- --
Common stock, $0.01 par
value per share;
3,888,166 shares
authorized, 3,000,000
shares issued and
outstanding, actual;
20,000,000 shares
authorized, 6,045,942
shares issued and
outstanding, pro forma;
20,000,000 shares
authorized, 9,045,942
shares issued and
outstanding, pro forma as
adjusted(3).............. 30 60 90
Paid-in capital........... 7,888 8,867 30,457
Accumulated deficit....... (9,724) (9,724) (9,724)
Cumulative foreign
currency translation
adjustment............... (170) (170) (170)
Treasury stock at cost.... (65) (65) (65)
----------- ----------- -----------
Total stockholders'
equity (deficiency)..... (2,032) (1,032) 20,588
----------- ----------- -----------
Total capitalization.... 1,601 1,601 20,631
=========== =========== ===========
</TABLE>
- --------
(1) Gives effect to (i) the repayment of $1.0 million principal amount of
indebtedness with the proceeds of the sale of Preferred Stock on May 15,
1997, (ii) the automatic conversion of all outstanding shares of Preferred
Stock into an aggregate of 2,759,715 shares of Common Stock (including
150,000 shares of Common Stock issuable upon conversion of Preferred Stock
sold on May 15, 1997) upon the closing of this offering, and (iii) the
exercise of certain outstanding warrants, on a net exercise basis, into an
aggregate of 286,227 shares of Common Stock (based upon an assumed initial
public offering price of $8.00 per share) upon the closing of this
offering.
(2) See Note 6 of Notes to Financial Statements.

(3) Excludes (i) 1,293,757 shares of Common Stock issuable upon exercise of
stock options outstanding as of May 31, 1997 under the 1993 Plan and the
Directors Plan and (ii) 711,771 shares of Common Stock issuable upon
exercise of Warrants which will remain outstanding after the consummation
of this offering.

18
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1997,
was $(1.0 million) or approximately $(0.17) per share of Common Stock. Pro
forma net tangible book value per share represents total tangible assets of
the Company (taking into effect the sale by the Company of Preferred Stock on
May 15, 1997), less total liabilities (taking into effect the repayment of
$1.0 million of indebtedness with the proceeds from the sale of Preferred
Stock on May 15, 1997), divided by the number of shares of Common Stock
outstanding, assuming conversion of all outstanding shares of Preferred Stock
(including shares of Preferred Stock sold on May 15, 1997) into an aggregate
of 2,759,715 shares of Common Stock and the exercise of certain outstanding
warrants on a net exercise basis into an aggregate of 286,227 shares of Common
Stock upon completion of this offering. Pro forma net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the offering made hereby and the
pro forma net tangible book value per share of Common Stock immediately after
the offering.

After giving effect to the sale of 3,000,000 shares of Common Stock offered
by the Company hereby (at an assumed initial public offering price of $8.00
per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses), the pro forma net tangible book
value of the Company as of March 31, 1997 would have been $20.6 million or
approximately $2.28 per share. This represents an immediate increase in pro
forma net tangible book value of $2.45 per share to existing stockholders and
an immediate dilution of $5.72 per share to purchasers of Common Stock in this
offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $8.00
Pro forma net tangible book value per share at March 31,
1997....................................................... $(0.17)
Increase per share attributable to new investors............ 2.45
------
Pro forma net tangible book value per share after the
offering..................................................... 2.28
-----
Pro forma net tangible book value dilution per share to new
investors.................................................... $5.72
=====
</TABLE>

The following table sets forth on a pro forma basis as of March 31, 1997,
the difference between the existing stockholders and the purchasers of shares
in this offering (at an assumed initial public offering price of $8.00 per
share) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)..... 6,045,942 66.8% $ 8,927,400 27.1% $1.48
New investors................... 3,000,000 33.2 24,000,000 72.9 8.00
--------- ----- ----------- -----
Totals........................ 9,045,942 100.0% $32,927,400 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 5,045,942, or
55.8% (4,445,942, or 49.1% if the Underwriters' over-allotment option is
exercised in full) of the total shares of Common Stock outstanding
immediately after this offering, and will increase the number of shares of
Common Stock held by new investors to 4,000,000, or 44.2% (4,600,000, or
50.9% if the Underwriters' over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding immediately after
this offering. See "Principal and Selling Stockholders."
(2) Includes 2,759,715 shares of Common Stock issuable upon conversion of all
outstanding shares of Preferred Stock (including 150,000 shares of Common
Stock issuable upon conversion of Preferred Stock sold on May 15, 1997)
upon the closing of this offering and an aggregate of 286,227 shares of
Common Stock issuable upon the exercise of warrants on a net exercise
basis upon completion of this offering.

As of May 31, 1997, there were options outstanding to purchase a total of
1,293,757 shares of Common Stock at a weighted average exercise price of $1.44
per share and Warrants outstanding to purchase a total of 711,771 shares of
Common Stock at an exercise price of $2.00 per share, which Warrants will
remain outstanding after the consummation of this offering. To the extent that
any of these options or Warrants are exercised, there will be further dilution
to new investors. See "Capitalization," "Management -- Employee Benefit
Plans," "Description of Capital Stock" and Note 6 of Notes to Financial
Statements.

19
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data are qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
and Notes thereto included elsewhere in this Prospectus. The statements of
operations data presented below for each of the years in the three year period
ended December 31, 1996 and the balance sheet data as of December 31, 1995 and
1996 are derived from the financial statements of the Company, which financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, and are included elsewhere herein. The statements of
operations data presented below for the year ended December 31, 1993, and the
balance sheet data as of December 31, 1992, 1993, and 1994 are derived from
audited financial statements not included in this Prospectus. The statements
of operations data for the year ended December 31, 1992 is unaudited. The
statements of operations data presented below for the three months ended March
31, 1996 and 1997 and the balance sheet data as of March 31, 1997 are derived
from unaudited financial statements included elsewhere herein. The unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997 or any other future period.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
----------- ------- ------- ------- ------- ------- -------
(unaudited) (unaudited)
STATEMENTS OF OPERATIONS DATA: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing........................... $ 4,292 $ 5,242 $ 6,275 $ 7,553 $ 9,310 $ 1,783 $ 2,731
Service, maintenance and other............... 7,066 7,601 7,659 8,508 9,694 2,306 2,777
------- ------- ------- ------- ------- ------- -------
Total revenues.............................. 11,358 12,843 13,934 16,061 19,004 4,089 5,508
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Software licensing........................... 1,080 934 1,035 725 495 93 174
Service, maintenance and other............... 2,418 2,276 2,522 2,200 2,006 432 548
------- ------- ------- ------- ------- ------- -------
Total cost of revenues...................... 3,498 3,210 3,557 2,925 2,501 525 722
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 7,860 9,633 10,377 13,136 16,503 3,564 4,786
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Product development.......................... 3,807 2,498 2,231 3,068 3,452 779 1,073
Selling and marketing........................ 6,598 6,218 6,124 7,160 8,715 1,894 2,584
General and administrative................... 2,249 1,919 1,927 2,001 2,922 729 777
------- ------- ------- ------- ------- ------- -------
Total operating expenses.................... 12,654 10,635 10,282 12,229 15,089 3,402 4,434
------- ------- ------- ------- ------- ------- -------
Operating income (loss)....................... (4,794) (1,002) 95 907 1,414 162 352
Other income (expense), net................... (70) (226) (208) (84) (186) (41) (39)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................. $(4,864) $(1,228) $ (113) $ 823 $ 1,228 $ 121 $ 313
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(1)................ $ 0.15 $ 0.20 $ 0.02 $ 0.05
======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding(1)............. 5,654 5,984 5,695 6,426
======= ======= ======= =======
SUPPLEMENTARY STATEMENT OF OPERATIONS DATA (2):
Supplementary net income...................... $ 1,452 $ 360
======= =======
Supplementary net income per share............ $ .23 $ .05
======= =======
Supplementary shares used to compute
supplementary net income per share........... 6,308 6,750
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------- -----------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 39 $ 178 $ 450 $ 143 $ 41 $ 79
Working capital............................. (1,664) (2,195) (2,630) (2,128) (1,220) (158)
Total assets................................ 8,869 7,218 6,387 6,237 7,521 8,721
Total stockholders' (deficiency)............ (3,679) (4,306) (4,393) (3,570) (2,294) (2,032)
</TABLE>
- -------

(1) For an explanation of the determination of the number of shares used in
computing per share amounts, see Note 1 of Notes to Financial Statements.

(2) Supplementary net income per share includes the number of shares used in
computing net income per share as well as the estimated number of shares
that would be needed (based on an assumed initial public offering price of
$8.00 per share) to repay certain indebtedness to be repaid with the net
proceeds from the sale of the shares of the Common Stock offered by the
Company hereby. Supplementary net income also includes interest applicable
to such borrowings. See "Use of Proceeds" and Note 1 of Notes to
Financial Statements.

20
<PAGE>

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

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus. The following discussion should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this
Prospectus.

OVERVIEW

The Company was incorporated in Connecticut in 1985 and reincorporated in
Delaware in September 1993. In June 1991, the Company began developing its
Mercator product and in December 1993 released Version 1.0 of Mercator. The
Company released the latest version of Mercator in May 1996 and released its
Mercator for R/3 product in June 1996.

Historically, the Company has derived a majority of its revenues from
products other than Mercator, primarily its Trading Partner family of products
and its KEY/MASTER product. However, revenue related to Mercator has grown
significantly in each of the last three years and has increased as a
percentage of total revenues. The Company believes that future growth in
revenues, if any, will be mainly attributable to its Mercator product line. In
view of the relatively recent introduction of Mercator, the Company believes
it cannot accurately predict the amount of revenues that will be attributable
to such products or the life of such products. To the extent the Company's
Mercator products do not achieve market acceptance, the Company's business,
operating results and financial condition will be materially and adversely
affected.

The Company's revenues are derived principally from two sources: (i) license
fees for the use of the Company's software products and (ii) service fees for
maintenance, consulting services and training related to the Company's
software products. The Company generally recognizes revenue from software
license fees upon shipment, unless the Company has significant post-delivery
obligations, in which case revenues are recognized when such obligations are
satisfied. The Company's KEY/MASTER product is licensed under term-use
contracts rather than for a one-time license fee, and the Company recognizes
revenue from such arrangements on a present-value basis at the inception of
the contract. Revenues from consulting and training are recognized as services
are performed, and maintenance revenues are recognized ratably over the
maintenance period, typically one year. The Company does not actively market
new term-use contracts for KEY/MASTER but continues to receive KEY/MASTER
revenues, principally maintenance revenues. As a result, KEY/MASTER accounts
for a larger proportion of maintenance revenue than license revenues and
increases the percentage of the Company's total revenues represented by
services, maintenance and other revenues. The Company intends to increase the
scope of its service offerings with the goal of increasing license revenues
from sales of its products. The Company does not believe that the mix of
software licensing and service, maintenance and other revenues will change
substantially in the future.

Mercator can be used by IT professionals as well as VARs, ISVs, SIs or other
third parties who resell, embed or otherwise bundle Mercator with their
products. To date, license fee revenues have been derived principally from
direct sales of software products through the Company's direct sales force.
Although the Company believes that such direct sales will continue to account
for a significant portion of software licensing revenues, the Company intends
to increase its use of distributors and resellers. Furthermore, the Company's
planned expansion of its sales organization is expected to cause sales and
marketing expenses to increase.

The Company markets its products in North America primarily through its
direct sales and telesales organizations. Throughout the rest of the world,
the Company markets its products through distributors, resellers and direct
sales. International revenue accounted for 10.4% and 9.4% of total revenues
for 1996 and the first three months of 1997, respectively. The Company
maintains an international sales and support office

21
<PAGE>

in the United Kingdom. The Company intends to increase its international
direct sales force and focus on establishing additional international
distributor and reseller relationships. See "Risk Factors -- Risks Associated
with International Expansion."

The size of the Company's orders can range from a few thousand dollars to
over $100,000 per order. The loss or delay of large individual orders,
therefore, can have a significant impact on the revenues and other quarterly
results of the Company. In addition, the Company has generally recognized a
substantial portion of its quarterly software licensing revenues in the last
month of each quarter, and as a result, revenue for any particular quarter may
be difficult to predict in advance. Because the Company's operating expenses
are relatively fixed, a delay in the recognitions of revenue from a limited
number of license transactions could cause significant variations in operating
results from quarter to quarter and could result in significant losses. To the
extent such expenses precede, or are not subsequently followed by, increased
revenue, the Company's operating results would be materially and adversely
affected. As a result of these and other factors, operating results for any
quarter are subject to variation, and the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.

In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers.
To date, the establishment of technological feasibility of the Company's
products and general release of such software have substantially coincided. As
a result, software development costs qualifying for capitalization have been
insignificant, and therefore, the Company has not capitalized any software
development costs.

22
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain items from the Company's Statements of
Operations.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licensing.......... 45.0% 47.0% 49.0% 43.6% 49.6%
Service, maintenance and
other...................... 55.0 53.0 51.0 56.4 50.4
-------- -------- -------- ------- -------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- ------- -------
Cost of revenues:
Software licensing.......... 7.4 4.5 2.6 2.3 3.2
Service, maintenance and
other...................... 18.1 13.7 10.6 10.5 9.9
-------- -------- -------- ------- -------
Total cost of revenues.... 25.5 18.2 13.2 12.8 13.1
-------- -------- -------- ------- -------
Gross profit.................. 74.5 81.8 86.8 87.2 86.9
-------- -------- -------- ------- -------
Operating expenses:
Product development......... 16.0 19.1 18.2 19.1 19.5
Selling and marketing....... 44.0 44.6 45.9 46.3 46.9
General and administrative.. 13.8 12.5 15.3 17.8 14.1
-------- -------- -------- ------- -------
Total operating expenses.. 73.8 76.2 79.4 83.2 80.5
-------- -------- -------- ------- -------
Operating income (loss)....... 0.7 5.6 7.4 4.0 6.4
Other income (expense), net... (1.5) (0.5) (0.9) (1.0) (0.7)
-------- -------- -------- ------- -------
Net income (loss)............. (0.8)% 5.1% 6.5% 3.0% 5.7%
======== ======== ======== ======= =======
Gross profit:
Software licensing.......... 83.5% 90.4% 94.7% 94.8% 93.6%
Service, maintenance and
other...................... 67.1 74.1 79.3 81.3 80.3
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996

Revenues

Total Revenues. The Company's total revenues increased 35% from $4.1 million
in the first three months of 1996 to $5.5 million in the comparable period of
1997.

Software Licensing. Software licensing revenues increased 53% from $1.8
million in the first three months of 1996 to $2.7 million in the comparable
period of 1997, primarily as a result of a 96% increase in Mercator license
revenues.

Service, Maintenance and Other. Service, maintenance and other revenues
increased 20% from $2.3 million in the first three months of 1996 to $2.8
million in the comparable period of 1997, primarily as a result of a 136%
increase in professional services revenues primarily associated with sales of
Mercator and, to a lesser extent, an increase in Mercator maintenance revenue,
partially offset by a slight decrease in KEY/MASTER maintenance revenues.
Maintenance revenues attributable to KEY/MASTER were $1.2 million and $1.1
million for the first three months of 1996 and 1997, respectively.

Cost of Revenues

Cost of software licensing revenues consists primarily of media, manuals,
distribution costs and the cost of third party software that the Company
resells. Cost of service, maintenance and other revenues consists primarily of
personnel-related costs in providing maintenance, technical support,
consulting and training to customers. Gross margin on software licensing
revenues is higher than gross margin on service, maintenance and other
revenues, reflecting the low materials, packaging and other costs of software
products compared

23
<PAGE>

with the relatively high personnel costs associated with providing
maintenance, technical support, consulting and training services. Cost of
service, maintenance and other revenues also varies based upon the mix of
maintenance, technical support, consulting and training services.

Cost of Software Licensing. Cost of software licensing revenues increased
87% from $93,000 in the first three months of 1996 to $174,000 in the
comparable period of 1997, primarily due to increased sales of software
licenses. Software licensing gross margin remained relatively constant at 95%
and 94% in the first three months of 1996 and 1997, respectively.

Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues increased 27% from $432,000 in the first three months of 1996
to $548,000 in the comparable period of 1997, primarily due to increased
professional services rendered, particularly Mercator-related services.
Service, maintenance and other gross margin remained relatively constant at
81% and 80% in the first three months of 1996 and 1997, respectively.

Operating Expenses

Product Development. Product development expenses include expenses
associated with the development of new products and enhancements to existing
products and consist primarily of salaries, recruiting and other personnel-
related expenses, depreciation of development equipment, supplies, travel and
allocated facilities and communications costs. Product development expenses
increased 38% from $779,000 in the first three months of 1996 to $1.1 million
in the comparable period of 1997, primarily due to increased product
development activities relating to the Company's Mercator product line.
Product development expenses as a percentage of total revenue did not change
significantly in the first three months of 1997 as compared to the first three
months of 1996. The Company believes that a significant level of research and
development expenditures is required to remain competitive. Accordingly, the
Company anticipates that it will continue to devote substantial resources to
research and development. The Company expects that the dollar amount of
research and development expenses will increase through at least the remainder
of 1997. To date, all research and development expenditures have been expensed
as incurred.

Selling and Marketing. Selling and marketing expenses consist of sales and
marketing personnel costs, including sales commissions, recruiting, travel,
advertising, public relations, seminars, trade shows, product descriptive
literature and allocated facilities and communications costs. Selling and
marketing expenses increased 36% from $1.9 million in the first three months
of 1996 to $2.6 million in the comparable period of 1997, primarily due to the
increased number of sales and marketing personnel to address Mercator
marketing opportunities and increased expenditures for Mercator-related
marketing programs. Selling and marketing expenses as a percentage of total
revenues did not change significantly in the first three months of 1997 as
compared to the first three months of 1996. The Company expects to continue
hiring additional sales and marketing personnel and to increase promotional
expenses through at least the remainder of 1997 to address Mercator marketing
opportunities and anticipates that sales and marketing expenses will increase
in absolute dollar amount.

General and Administrative. General and administrative expenses consist
primarily of salaries, recruiting and other personnel-related expenses for the
Company's administrative, executive and finance personnel as well as outside
legal and audit costs. General and administrative expenses increased 7% from
$729,000 in the first three months of 1996 to $777,000 in the comparable
period of 1997, primarily due to increased administrative expenses to support
the Company's growth. General and administrative expenses as a percentage of
total revenue decreased to 14% in the first three months of 1997 from 18% for
the comparable period of 1996, primarily due to increased revenues during the
first three months of 1997. The Company believes that the dollar amount of its
general and administrative expenses will increase as the Company expands its
administrative staff and incurs additional costs (including directors' and
officers' liability insurance, investor relations programs and increased
professional fees) related to being a public company.

24
<PAGE>

Other Income (Expense), Net

Other income represents interest income earned on the Company's term-use
contracts and was negligible in the first three months of 1996 and 1997. Other
expense represents the Company's borrowing expenses and its provision for
income taxes. Borrowing expenses were $63,000 in the first three months of
1997 as compared to $79,000 for the first three months of 1996. Due to the
utilization of net operating loss carryforwards, the provisions for income
taxes for the quarters ended March 31, 1997 and 1996 were not significant.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Revenues

Total Revenues. Total revenues increased 18% from $16.1 million in 1995 to
$19.0 million in 1996.

Software Licensing. Software licensing revenues increased 23% from $7.6
million in 1995 to $9.3 million in 1996, primarily due to a 74% increase in
Mercator license revenues, partially offset by a decrease in licenses of the
Company's mainframe-based Trading Partner and KEY/MASTER products.

Service, Maintenance and Other. Service, maintenance and other revenues
increased 14% from $8.5 million in 1995 to $9.7 million in 1996, primarily due
to a 53% increase in professional services revenues, particularly professional
services associated with Mercator and, to a lesser extent, an increase in
Mercator maintenance revenue, offset by a slight decrease in maintenance
revenue related to the Company's mainframe-based Trading Partner and
KEY/MASTER products. Maintenance revenues attributable to KEY/MASTER were $4.9
million and $4.6 million for 1995 and 1996, respectively.

Cost of Revenues

Cost of Software Licensing. Cost of software licensing revenues decreased
32% from $725,000 in 1995 to $495,000 in 1996, primarily due to termination of
amortization relating to the Company's acquisition of Foretell Corp. Software
licensing gross margin increased from 90% in 1995 to 95% in 1996, primarily
due to termination of such amortization.

Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues decreased 9% from $2.2 million in 1995 to $2.0 million in 1996.
The decrease was primarily due to a decrease in the number of support
personnel related to the Company's mainframe-based Trading Partner and
KEY/MASTER products. Service, maintenance and other gross margin increased
from 74% in 1995 to 79% in 1996, primarily due to the decrease in such support
personnel.

Operating Expenses

Product Development. Product development expenses increased 13% from $3.1
million in 1995 to $3.5 million in 1996, primarily due to increased headcount
associated with the development of Mercator. Product development expenses
represented 19% and 18% of total revenues for 1995 and 1996, respectively.

Selling and Marketing. Selling and marketing expenses increased 22% from
$7.2 million in 1995 to $8.7 million in 1996. This increase was primarily due
to the increased number of sales and marketing personnel required to address
Mercator marketing opportunities and increased spending on Mercator-related
marketing programs. Selling and marketing expenses represented 44% and 46% of
total revenues for 1995 and 1996, respectively.

General and Administrative. General and administrative expenses increased
46% from $2.0 million in 1995 to $2.9 million in 1996. The increase was
primarily due to increased management and MIS staff, increased provision for
bad debts and increased depreciation. General and administrative expenses
represented 13% and 15% of total revenues for 1995 and 1996, respectively.

25
<PAGE>

Other Income (Expense), Net

Other income decreased from $370,000 in 1995 to $135,000 in 1996 due to a
one-time benefit in 1995 of $177,000 from the settlement of a lawsuit in the
Company's favor and a decrease in the amount of interest earned on term
license contracts. Borrowing expenses decreased from $420,000 in 1995 to
$286,000 in 1996 due to reduced borrowing levels. Due to the utilization of
net operating loss carryforwards, the provisions for income taxes for 1996 and
1995 were not significant.

Taxes

At December 31, 1996, the Company had federal net operating loss
carryforwards of $8.6 million, all of which expire through 2009. Due to the
"change in ownership" provisions of the Internal Revenue Code of 1986, the
availability of net operating loss carryforwards and research tax credits to
offset federal taxable income in future periods could be subject to an annual
limitation if a change in ownership for income tax purposes should occur. See
Note 8 of Notes to Financial Statements.

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

Revenues

Total Revenues. Total revenues increased 15% from $13.9 million in 1994 to
$16.1 million in 1995.

Software Licensing. Software licensing revenues increased 20% from $6.3
million in 1994 to $7.6 million in 1995. The increase in software licensing
revenues was primarily due to a 125% increase in Mercator license revenues,
partially offset by a decrease in licenses of the Company's mainframe-based
Trading Partner and KEY/MASTER products.

Service, Maintenance and Other. Service, maintenance and other revenues
increased 11% from $7.7 million in 1994 to $8.5 million in 1995. The increase
in service, maintenance and other revenues was primarily due to increases in
revenues for annual maintenance and professional services relating to the
Company's Mercator and Trading Partner products.

Cost of Revenues

Cost of Software Licensing. Cost of software licensing revenues decreased
30% from $1.0 million in 1994 to $725,000 in 1995. The decrease was primarily
due to lower costs related to the roll-out of the Company's OnCall*EDI product
that occurred in 1994, for which the Company accrued $400,000 in 1994.
Software licensing gross margin increased from 84% in 1994 to 90% in 1995,
primarily due to lower costs related to the roll-out of the Company's
OnCall*EDI product.

Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues decreased 13% from $2.5 million in 1994 to $2.2 million in
1995. The decrease was primarily due to a reduction of staff supporting the
Company's mainframe-based Trading Partner and KEY/MASTER products. Service,
maintenance and other gross margin increased from 67% in 1994 to 74% in 1995,
primarily due to such staff reduction.

Operating Expenses

Product Development. Product development expenses increased 38% from $2.2
million in 1994 to $3.1 million in 1995, primarily due to expenses related to
the development of Mercator, particularly increased headcount devoted to
product development activities. Product development expenses represented 16%
and 19% of total revenues in 1994 and 1995, respectively.

Selling and Marketing. Selling and marketing expenses increased 17% from
$6.1 million in 1994 to $7.2 million in 1995. This increase was primarily due
to an increase in sales commissions associated with increased revenues,
increased marketing activities and the establishment of a dedicated business
development group. Selling and marketing expenses represented 44% and 45% of
total revenues for 1994 and 1995, respectively.

26
<PAGE>

General and Administrative. General and administrative expenses increased 4%
from $1.9 million in 1994 to $2.0 million in 1995. This increase was primarily
due to increased personnel and expenses relating to the Company's internal
systems. General and administrative expenses represented 14% and 13% of total
revenues for 1994 and 1995, respectively.

Other Income (Expense), Net

Other income increased from $268,000 in 1994 to $370,000 in 1995 due to a
one-time benefit in 1995 of $177,000 from the settlement of a lawsuit in the
Company's favor offset by a decrease in the amount of interest earned on term-
use contracts. Borrowing expenses decreased from $467,000 in 1994 to $420,000
in 1995 due to lower borrowing levels and lower interest rates due to its new
credit agreement. Due to the utilization of net operating loss carryforwards,
the provisions for income taxes for 1996 and 1995 were not significant.

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited quarterly statement of
operations data for each of the nine quarters in the period ended March 31,
1997, as well as such data expressed as a percentage of the Company's total
revenues for the periods indicated. This data has been derived from unaudited
financial statements that have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the information. The Company's quarterly results have in the
past been and may in the future be subject to significant fluctuations. As a
result, the Company believes that results of operations for interim periods
should not be relied upon as any indication of the results to be expected in
any future period. See "Risk Factors -- Potential Fluctuations in Operating
Results; Seasonality."

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing..... $1,733 $1,961 $1,921 $1,938 $1,783 $1,878 $2,597 $3,052 $2,731
Service, maintenance
and other............. 2,164 2,066 2,149 2,129 2,306 2,358 2,449 2,581 2,777
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 3,897 4,027 4,070 4,067 4,089 4,236 5,046 5,633 5,508
------ ------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Software licensing..... 197 201 143 184 93 88 128 186 174
Service, maintenance
and other............. 707 665 389 439 432 467 505 602 548
------ ------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues. 904 866 532 623 525 555 633 788 722
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 2,993 3,161 3,538 3,444 3,564 3,681 4,413 4,845 4,786
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Product development.... 680 852 788 748 779 831 882 960 1,073
Selling and marketing.. 1,681 2,033 1,611 1,835 1,894 2,001 2,194 2,626 2,584
General and administra-
tive.................. 481 402 514 604 729 628 761 804 777
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating ex-
penses................ 2,842 3,287 2,913 3,187 3,402 3,460 3,837 4,390 4,434
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss). 151 (126) 625 257 162 221 576 455 352
Other income (expense),
net.................... (59) 129 (57) (97) (41) (35) (58) (52) (39)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 92 $ 3 $ 568 $ 160 $ 121 $ 186 $ 518 $ 403 $ 313
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing..... 44.5% 48.7% 47.2% 47.7% 43.6% 44.3% 51.5% 54.2% 49.6%
Service, maintenance
and other............. 55.5 51.3 52.8 52.3 56.4 55.7 48.5 45.8 50.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Software licensing..... 5.1 5.0 3.5 4.5 2.3 2.1 2.5 3.3 3.2
Service, maintenance
and other............. 18.1 16.5 9.6 10.8 10.5 11.0 10.0 10.7 9.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenues. 23.2 21.5 13.1 15.3 12.8 13.1 12.5 14.0 13.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 76.8 78.5 86.9 84.7 87.2 86.9 87.5 86.0 86.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Product development.... 17.4 21.2 19.4 18.4 19.1 19.6 17.5 17.0 19.5
Selling and marketing.. 43.1 50.5 39.6 45.1 46.3 47.2 43.5 46.6 46.9
General and administra-
tive.................. 12.4 9.9 12.5 14.9 17.8 14.9 15.1 14.3 14.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating ex-
penses................ 72.9 81.6 71.5 78.4 83.2 81.7 76.1 77.9 80.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). 3.9 (3.1) 15.4 6.3 4.0 5.2 11.4 8.1 6.4
Other income (expense),
net.................... (1.3) 3.2 (1.4) (2.4) (1.0) (0.8) (1.1) (0.9) (0.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 2.4% 0.1% 14.0% 3.9% 3.0% 4.4% 10.3% 7.2% 5.7%
===== ===== ===== ===== ===== ===== ===== ===== =====
Gross profit:
Software licensing..... 88.6% 89.8% 92.6% 90.5% 94.8% 95.3% 95.1% 93.9% 93.6%
Service, maintenance
and other............. 67.3 67.8 81.9 79.4 81.3 80.2 79.4 76.7 80.3
</TABLE>

The Company's revenues and operating expenses increased sequentially in each
quarter of 1996 and software licensing revenues decreased in the first quarter
of 1997. The Company believes the decrease in software licensing revenues was
primarily due to the buying patterns and budgeting cycles of its customers.
The increases in revenues and operating expenses during 1996 were primarily
attributable to the increase in Mercator-related revenues as well as Mercator-
related product development and sales and marketing expenses. While the
Company has not historically experienced any significant seasonal fluctuations
in its revenues or results of operations, it is not uncommon for software
companies to experience strong fourth quarters followed by weaker first
quarters, in some cases with sequential declines in revenues or operating
profit. The Company believes that many software companies exhibit this pattern
in their sales cycles primarily due to customers' buying patterns and budget
cycles. There can be no assurance that the Company will not display this
pattern in future years.

28
<PAGE>

the success of the Company in penetrating international markets; the buying
patterns and budgeting cycles of customers; personnel changes, difficulty in
attracting and retaining qualified sales, professional services and research
and development personnel and the rate at which such personnel become
productive; and general economic conditions. In particular, the ability of the
Company to achieve growth in the future will depend on its success in adding a
substantial number of sales, professional services and research and
development personnel. Competition for such personnel is intense and there can
be no assurance the Company will be able to attract and retain these
personnel.

The Company's future revenues will also be difficult to predict and the
Company has, in the past, failed to achieve its revenue expectations for
certain periods. The Company's expense levels are based, in part, on its
expectation of future revenues, and expense levels are, to a large extent,
fixed in the short term. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. If revenue
levels are below expectations for any reason, operating results are likely to
be materially and adversely affected. Net income may be disproportionately
affected by a reduction in revenues because a large portion of the Company's
expenses is related to headcount that cannot be easily reduced without
adversely affecting the Company's business. In addition, the Company currently
intends to increase its operating expenses by expanding its research and
product development staff, particularly research and development personnel to
be devoted to the Company's Mercator product line, increasing its professional
services and sales and marketing operations, expanding distribution channels
and hiring personnel in other operating areas. The Company expects to
experience a significant time lag between the date professional services,
sales and technical personnel are hired and the date such personnel become
fully productive. The timing of such expansion and the rate at which new
technical, professional services and sales personnel become productive as well
as the timing of the introduction and success of new distribution channels
could cause material fluctuations in quarterly results of operations.
Furthermore, to the extent such increased operating expenses precede or are
not subsequently followed by increased revenues, the Company's business,
operating results and financial condition could be materially and adversely
affected.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations to date primarily through private
sales of equity securities, totaling approximately $8.1 million (as of March
31, 1997), and its $4.0 million bank line of credit and cash generated from
operations. On May 15, 1997, the Company raised an additional $1.0 million
through the sale of Preferred Stock to Mitsui & Co., Ltd. and two other
foreign investors. Operating activities provided (used) net cash of $1.3
million, $1.3 million, $730,000 and $(546,000) during 1994, 1995, 1996 and the
first quarter of 1997, respectively. The Company generated net cash from 1994
through 1996 primarily as a result of its improved profitability during these
periods.

Investing activities (used) net cash of $(237,000), $(354,000), $(828,000)
and $(198,000) during 1994, 1995, 1996 and the first quarter of 1997,
respectively, primarily to fund capital expenditures needed to support
expansion of the Company's business. Financing activities generated (used) net
cash of $(818,000), $(1.3 million), $(102,000) and $787,000, for 1994, 1995,
1996 and the first quarter of 1997, respectively, from (repayments) borrowings
of debt. Since December 31, 1996, the Company has experienced an increase in
accounts receivable. In March 1997, additional borrowings were required to
fund higher levels of receivables. As of March 31, 1997, the Company had
outstanding borrowings of $3.6 million under its $4.0 million bank line of
credit. See "Risk Factors--Management of Growth."

As of March 31, 1997, the Company had debt obligations consisting of $3.6
million in borrowings outstanding under its bank line of credit and $115,000
of capital lease obligations. The Company repaid $1.0 million of outstanding
indebtedness under its bank line of credit in May 1997 with the proceeds from
the sale of Preferred Stock in May 1997. At December 31, 1996, the Company
also had commitments under operating lease agreements totalling $4.8 million
through 2012, including $787,000 for 1997. See Note 10 of Notes to Financial
Statements.

29
<PAGE>

Capital expenditures have been, and future capital expenditures are
anticipated to be, primarily for facilities, equipment and computer software
to support expansion of the Company's operations. As of March 31, 1997, the
Company had no material commitments for capital expenditures. The Company's
bank line of credit generally limits capital expenditures to $400,000 per
quarter.

At March 31, 1997, the Company had $79,000 in cash. The Company typically
operates with a relatively small amount of cash at the end of any quarter and
meets any of its additional cash needs with its bank line of credit that
expires in November 1998. The maximum amount that can be borrowed under the
bank line of credit is $4.0 million, with borrowings limited to a percentage
of eligible accounts receivable and term contracts, plus the amount of the
bank line of credit guaranteed by the Connecticut Development Authority
($600,000 as of March 31, 1997). Borrowings may take the form of prime rate
loans (which bear interest at the bank's prime rate plus 1.0%) or LIBOR rate
loans (which bear interest at the applicable LIBOR rate plus 3.0%) and, at
March 31, 1997, the weighted average interest rate on amounts outstanding
under this credit line was 8.92%. The Company's obligations under this credit
line are secured by substantially all of the Company's assets. The bank line
of credit contains certain financial covenants and also prohibits cash
dividends, mergers and acquisitions. The Company is currently in compliance
with these covenants. See Note 5 of Notes to Financial Statements.

The Company believes that the net proceeds from this offering, together with
its current cash and cash equivalent balances, its line of credit and net cash
generated by operations, will be sufficient to meet its anticipated cash needs
for working capital, capital expenditures and business expansion for at least
the next 12 months. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's operating requirements, the Company may
seek additional debt or equity financing. There can be no assurance that such
financing will be available on terms acceptable to the Company. The sale of
additional equity or debt securities could result in dilution to the Company's
stockholders.

30
<PAGE>

BUSINESS

INTRODUCTION

TSI is a leading provider of software and related services that enable
organizations to integrate their business applications both internally and
with external business partners. The Company's flagship product, Mercator, is
a data transformation engine which permits enterprises to exchange information
between internal systems, implement and integrate advanced client/server
applications such as SAP's R/3 ERP system and to integrate EDI data and Web-
based applications with their core business systems. To date, the Company has
directly licensed its products to over 6,000 customers worldwide, representing
a broad range of industries. The Company's customers include Allegiance
Corporation, American Express Travel Related Services, Inc., CIGNA
Corporation, Citibank, N.A., Federal Express Corporation, Hewlett-Packard
Company, Hoechst AG, International Business Machines Corporation, Lucent
Technologies, Inc., NYNEX Corporation and Prudential Insurance Company of
America.

INDUSTRY BACKGROUND

As enterprise computing has evolved, corporations have deployed systems and
software in an effort to improve business processes, reduce costs and increase
organizational effectiveness. Organizations are now faced with a proliferation
of software applications and an increasingly heterogeneous and disparate
computing environment across the enterprise. At the same time, organizations
are increasingly seeking to integrate their various business processes and the
applications that support them through such initiatives as business process
reengineering, supply chain management projects and Web-based electronic
commerce. For many organizations, these factors have made it increasingly
critical yet substantially more difficult to provide application-to-
application interoperability and to share information within and beyond the
enterprise.

The number of applications deployed throughout the enterprise has increased
dramatically, now including both enterprise-wide systems such as SAP's R/3 and
function-specific applications such as sales force automation or customer
support. In addition to purchasing applications from independent software
vendors, most organizations continue to run customized, internally developed
solutions for specific applications. The proliferation of both internally
developed and third party applications has both increased the need to
integrate applications and has greatly complicated the integration process.

As the number of applications has increased, the number and variety of the
computing platforms and systems on which they run has also grown
significantly. The evolution of computing from mainframes to client/server and
then to the Internet and corporate intranets has not led to the emergence of a
single preferred platform, but rather has resulted in a coexistence among new
and legacy architectures. The number of technology architectures being
supported is, in fact, increasing. According to Sentry Market Research, the
typical large organization has an average of 13 different operating systems
and 10 different Database Management Systems ("DBMSs") today, as compared with
6 different operating systems and 5 different DBMSs in 1993. This diversity
compounds the difficulty faced by organizations in providing application-to-
application integration.

In addition to these technological trends within the enterprise, the number
of externally linked business partners is increasing. Many corporations,
seeking to improve their market responsiveness, competitive position and
internal efficiency are creating extended "virtual" organizations among
suppliers and customers using electronic commerce technology. Electronic
commerce, which combines standards for exchanging data such as EDI with low-
cost methods for data transport such as the Internet, now accounts for a wide
variety of business transactions including, among others, electronic payments,
purchase orders, invoices, health claims and mortgage applications. The
proliferation of partners, each with its own internal systems and
applications, and the increased demand for creating electronic information
flows across both the supply and demand chains, have exacerbated the
difficulty in integrating applications between business partners.

Historical approaches to integrating applications have been expensive,
difficult to implement and maintain, and limited in their effectiveness. For
example, the costs of integrating R/3 with existing systems

31
<PAGE>

often equals or exceeds the cost of the R/3 application software itself.
Similarly, the cost of integrating EDI with an organization's business
applications often can be the largest single cost component of implementing
EDI solutions. Traditionally, organizations have approached the integration
problem on a case-specific basis, writing individual programs to allow
applications to share information for a specific task or use. Such custom
coding is time consuming, prone to error, inflexible and difficult to maintain
over time. In addition, an individual solution coded for one specific
application generally cannot be used for other integration needs. As the
number of potential interfaces grows with each new application, the inability
to leverage these home-grown solutions becomes increasingly problematic.
Although some software tools are available to assist developers with the
integration task, most are "point" solutions designed for specific platforms,
applications, DBMSs or data formats and typically require custom coding to
create complete solutions.

As a result, organizations require a new approach to integrating business
applications, both within the enterprise and with external business partners.
A comprehensive, off-the-shelf solution is needed that can be rapidly
implemented and easily maintained, does not require custom interface programs,
and supports a heterogenous mix of platforms, architectures, databases and
third-party applications.

TSI'S SOLUTION

TSI develops and markets software products and related services that allow
organizations to facilitate the exchange of information between enterprise
applications as well as with external business partners. Key benefits of the
TSI solution include:

Comprehensive Internal and External Solution. TSI delivers comprehensive
solutions for integrating business applications both within the enterprise and
between business partners. Mercator achieves this by transforming the business
data from any application so that it can be used by other applications without
modifying the applications, without regard to the number of applications
involved, and despite differing data structures, syntax or business rules. In
addition, Mercator is scaleable to support mission-critical enterprise
integration requirements. The Company's EDI solutions permit its customers to
exchange information with business partners and to integrate EDI data with
back office applications. The Company provides external integration solutions
which leverage the Internet as a transport mechanism for EDI and allow
enterprises to integrate Web-based applications and transactions with existing
enterprise systems.

Broad Application, Platform and Data Type Support. To satisfy the wide-
ranging needs of large organizations, TSI's solutions provide comprehensive
application, platform and data type support. Mercator can be used to integrate
internally developed as well as third party systems regardless of the vendor
of an application, the tools or programming language in which the application
is written or the standards on which the application is based. Mercator links
applications running on a wide variety of operating systems running on popular
PC and UNIX systems, such as HP, Sun Solaris and RS/6000, as well as IBM
mainframes and Digital, AS/400 and Stratus hardware. Mercator transforms data
in any format, including user defined, proprietary formats, industry standard
formats such as EDI, IDocs (SAP applications) and HL7 (healthcare standard for
clinical information), and the Company's EDI solutions support the full range
of EDI standards, both national and international.

Pre-Packaged R/3 Solution. The Company's Mercator for R/3 product is an off-
the-shelf solution enabling customers of SAP's R/3 to more easily integrate
R/3 modules with legacy and third-party applications. Mercator for R/3 was the
first product to be certified by SAP for use with its ALE architecture, the
standard SAP has developed for interfacing with R/3. Mercator for R/3 extends
TSI's core Mercator product by providing tools to automatically capture R/3
data definitions and adapters for integrating with R/3's inter-application
messaging system. Mercator for R/3 allows enterprises to preserve the value of
legacy data, utilize best-of-breed software applications and reduce the cost
of implementing R/3 in distributed computing environments.

32
<PAGE>

Ease of Implementation. The Company's Mercator and Trading Partner products
are off-the-shelf products which install easily and are designed to provide a
rapid return on investment. With Mercator, information technology ("IT")
professionals use a graphical user environment to create complete data
transformation solutions without the need to write custom interfaces or tailor
individual modules of code. Mercator provides a set of pre-built "plug-ins,"
including adapters for specific applications, transactions, DBMSs, and
messaging systems, in order to simplify development of business application
integration solutions. The Company's EDI products enable users to be
"commerce-ready" with little or no customization required.

STRATEGY

The Company's strategy is to be the leading supplier of software solutions
and related services for integrating business applications within the
enterprise and between business partners. Key elements of the Company's
strategy include:

Leverage and Extend Technology Leadership. TSI intends to continue to extend
its leading application integration technologies. Mercator for R/3 was the
first product certified by SAP for ALE. The Company continually seeks to
leverage its core Mercator technology by developing pre-packaged solutions for
additional third party applications, data formats, DBMSs, messaging systems
and computing platforms. The Company is the leading provider of Windows-based
EDI software and has recently introduced Trading Partner PC/32, the first EDI
product designed for Windows 95 and Windows NT.

Target the Enterprise Application Market. The Company believes that
significant opportunity exists for software solutions which enable enterprise
wide ERP systems to be integrated with other applications throughout the
organization. In addition to its core Mercator products, the Company currently
markets Mercator for R/3 for users of SAP's R/3 and intends to develop and
market additional pre-packaged versions of Mercator with functionality
targeted specifically at other popular enterprise application suites.

Expand Distribution Channels. In addition to its direct sales force, TSI is
creating marketing programs to focus on third-party vendors of application
software, connectivity tools, systems integration services and other products
and services which complement the Company's core capabilities. The Company
believes that such relationships can provide market visibility for the
Company's products, additional sales opportunities, and an additional source
of services and technical support for the Company's customers. TSI intends to
expand these third-party channels in both domestic and international markets
in addition to continuing to expand its direct sales force.

Leverage Customer Base. The Company intends to market its products and
services in order to expand their use within existing customer accounts. The
Company believes significant opportunity exists to increase the number of
Mercator licenses sold to its existing Mercator and Trading Partner customers.
In addition, the Company believes that its customers are increasingly pursuing
emerging applications such as Web-based electronic commerce and data
warehousing initiatives and that this provides an opportunity to use Mercator
to integrate these new applications with existing enterprise systems.

Expand Professional Services Capability. As the Company's solutions have
become more central to mission critical applications, there has been an
increased demand for comprehensive service offerings to complement the
Company's products. The Company intends to increase the number of its service
professionals and the scope of its service offerings with the goal of
maximizing license revenues from sales of its products. The Company expects
its service offerings to be focused on opportunities and projects which the
Company believes can lead to widespread deployments of Mercator within an
enterprise. The Company intends to augment its own service offerings by
seeking strategic relationships with major system integrators and other
service providers.

33
<PAGE>

PRODUCTS AND SERVICES

The Company's business application integration products include two software
product lines, the Mercator family and the Trading Partner family. The
following table depicts the Company's current business application integration
product offerings and suggested list prices:

<TABLE>
<CAPTION>
ORIGINAL MOST
PRODUCT NAME RELEASE DATE RECENT RELEASE US SUGGESTED LIST PRICE (1)
------------------------------------- ------------ -------------- ---------------------------
<C> <C> <C> <S>
MERCATOR PRODUCTS:

Mercator:
Authoring System.................. 12/93 5/96 $3,000/seat
Execution Engines................. 12/93 5/96 from $600 Windows/DOS to
$50,000 mainframe
Mercator for R/3..................... 6/96 6/96 from $37,500/system

TRADING PARTNER PRODUCTS:

Trading Partner PC................... 6/88 2/97 $1,495
Trading Partner PC/32................ 10/96 10/96 $1,995
Trading Partner Kits................. 10/92 various from $295
Trading Partner EC................... 11/90 10/95 $75,000
</TABLE>
- --------
(1) The terms and conditions, including sales prices and discounts from list
prices, of individual license transactions may be negotiated based on
volumes and commitments and may vary considerably from customer to
customer.

Mercator Products

The Company's flagship Mercator family of products is an integrated set of
tools used by IT professionals to integrate data between different business
applications. Mercator was initially released in December 1993 and, as of
March 31, 1997, had been licensed to more than 870 customers worldwide.

Mercator. Mercator enables application integration by transforming or
mapping data between and among the unique data formats of business
applications. It provides a Windows-based Authoring System which is used to
define data formats and mapping solutions, and separate run-time Execution
Engines for map execution. Complete data transformations can be created
without writing custom interface programs. Mercator requires no pre-processing
of data prior to mapping, can transform data between multiple sources and
destinations in a single process, and supports map execution on a wide range
of platforms. Customers who deploy a map to run on multiple platforms also
license an Execution Engine for each platform. The Company currently offers
Execution Engines for Window 3.1, Windows 95, Windows NT, PC DOS, SCO UNIX,
HP-UX, Sun Solaris/OS, AIX, Alpha NT, Digital UNIX, VAX VMS, Open VMS, OS/400,
Stratus FTX, VOS and Continuum, MVS, and MVS/CICS.

Mercator for R/3. Initially released in June 1996, Mercator for R/3 is a
version of Mercator that includes specific extensions to meet the needs of R/3
integration. Mercator for R/3 was the first software product to be certified
by SAP for use with its ALE architecture. Mercator for R/3 extends the core
Mercator product by providing tools to automatically capture R/3 data
definitions, and adapters for integrating with R/3's inter-application
messaging system. In addition, Mercator for R/3 provides data transformation
support for other R/3 data conversion and interfacing requirements including
the initial conversion of data to R/3 from existing systems and interfaces
with data warehouses.

Trading Partner Products

The Company's Trading Partner products consist of a set of EDI management
software products and include Trading Partner PC, a Windows-based product, and
Trading Partner EC, a mainframe-based product.

34
<PAGE>

The Trading Partner products can be sold as stand-alone EDI products, but are
often sold in conjunction with Mercator products to enable businesses to both
manage their EDI relationships and to integrate their EDI data into enterprise
applications. Trading Partner products allow customers to communicate with
their partners through direct connections, VANs or the Internet.

Trading Partner PC. Introduced in 1989, Trading Partner PC was the first
Windows-based EDI translator in the United States and has been licensed to
more than 5,000 businesses worldwide. In October 1996, TSI introduced Trading
Partner PC/32, the first Windows 95 desktop solution in the market. The
Company has developed more than 100 "kits" which support a particular trading
partner's EDI specifications and provide "plug and play" solutions for EDI
trading. The Company markets kits for many major EDI trading partners
including Compaq Computer Corporation, International Business Machines
Corporation, J.C. Penney Company, Inc., Sears, Roebuck and Company, Target
Stores and Wal-Mart Stores, Inc. The Company's OnCall*EDI products are a
series of EDI kits for electronic purchasing for the health care provider
market and has been licensed to more than 1,100 hospitals.

Trading Partner EC. Trading Partner EC is a mainframe-based EDI translation
product which provides EDI management capability for companies with large EDI
programs. It includes Mercator as its core data transformation engine and
offers the user the means to integrate EDI data directly into applications
without the need to write custom interface programs commonly required by other
translator products. Using Mercator, customers who plan to migrate their EDI
program from the mainframe can do so without incurring additional cost and
effort for recreating their EDI interfaces. Trading Partner EC and its
predecessor product have been licensed to more than 200 businesses worldwide.

KEY/MASTER

In addition to the Company's applications integration products described
above, the Company's licenses and supports KEY/MASTER, a legacy data entry
product which is used on mainframe terminals or PCs on local area networks,
and is the leading software product for automating the key entry of high
volume, repetitive data from business documents. KEY/MASTER has been licensed
to more than 900 customers worldwide. Because KEY/MASTER is a mature product,
revenues derived from KEY/MASTER are primarily maintenance-related and the
Company expects in the future to make only minor investments in KEY/MASTER to
meet the needs of its current installed base.

Services

Professional Services. TSI offers consulting and professional services to
customers who wish to have the Company's professionals plan, design or
implement their application integration projects. The Company intends to
expand the number of service professionals and the scope of the services
offered as it continues to address the enterprise application integration
needs of large organizations. The Company believes that enterprises
implementing the R/3 system in particular represent a significant opportunity
for the Company to market its professional services in support of Mercator for
R/3.

Training. In order to assure that its customers are successful in using its
products, TSI provides training in its four training centers or at customer
locations. The Company offers a number of courses ranging from two to five
days in length with educational content including basic product functionality
and hands-on use of the product. The Company recommends that its Mercator
customers attend a basic three-day training course and believes that a
majority of its Mercator customers elect to participate in such training.

CUSTOMERS

As of March 31, 1997, TSI had directly licensed its software to more than
6,000 customers worldwide. Numerous others have licensed the Company's
products through VARs, ISVs, SIs or other third parties who distribute its
products to business partners to facilitate the integration of their
respective business applications.

35
<PAGE>

The Company's customer base includes businesses from many industries,
including finance, banking, healthcare, technology, government, retail,
manufacturing, automotive, oil and gas, utilities, communications, insurance
and transportation. The following is a partial list of the Company's end user
and third party Mercator customers:

END USER CUSTOMERS
_________________________________ VARS, ISVS AND SIS
_________________________________

Blue Cross Blue Shield of Actra Business Systems LLC
Massachusetts Allegiance Corporation
Canadian National Railway Company American Express Travel Related
CIGNA Corporation Services, Inc.
Deere & Company American Software, Inc.
Dun & Bradstreet ARI Services Network, Inc.
Eastman Kodak Company Axolotl Corp.
First Chicago NBD Corporation CEBRA Inc.
General Mills, Inc. Citibank, N.A.
Georgia-Pacific Corporation Compaq Computer Corporation
Hoechst AG Connect, Inc.
Home Savings of America Federal Express Corporation
LitleNet, Inc. GTE Data Services Incorporated
Lucent Technologies Inc. HBO & Company
Nestle Canada, Inc. Hewlett-Packard Company
NYNEX Corporation International Business Machines
Petroleos de Venezuela, S.A. Corporation
Prudential Insurance Company of Pivotpoint, Inc.
America RS Information Systems, Inc.
Royal Canadian Mounted Police S2 Systems, Inc.
Sara Lee Hosiery, Inc. Software Consulting Partners, Inc.
The Toronto Dominion Bank

SALES AND MARKETING

Sales

TSI markets its products and services through both direct and third party
channels. The Company's goal is to achieve broad market penetration by
pursuing multiple channels of distribution.

As of March 31, 1997, the Company's sales organization consisted of 49
employees. The Company's direct field sales force focuses on sales of Mercator
and Trading Partner products to Fortune 1000 companies. The Company also
maintains a telesales organization as part of its direct sales force which
generally targets smaller businesses. The field sales force also includes
alternate channel managers who are responsible for sales through third
parties. The sales organization includes systems engineers who assist with
both pre- and post-sales activities.

An important part of the Company's sales strategy is to continue to develop
its indirect distribution channels such as VARs, ISVs, SIs and distributors.
As of March 31, 1997, approximately 45 third parties had agreements with the
Company to resell, embed or otherwise bundle the Company's products with their
offerings in the United States. See "Risk Factors -- Dependence Upon
Development of Distribution Channels."

The Company markets its products and services outside of North America
through a sales office located in the United Kingdom and through indirect
channels. Although revenues from international customers were approximately
10% of the Company's total revenues during 1996 and the first quarter of 1997,
the international market is important to the Company, and it intends to expand
its sales and marketing efforts

36
<PAGE>

outside North America by adding distributors and additional sales staff. See
"Risk Factors--Risks Associated with International Expansion."

Marketing

TSI utilizes a wide variety of marketing programs which are intended to
attract potential customers and to promote the Company and its brand names.
The Company uses a mix of market research, analyst updates, seminars, direct
mail, print advertising, tradeshows, speaking engagements, public relations,
customer newsletters, and Web site marketing in order to achieve these goals.
The marketing department also produces collateral material for distribution to
prospects including demonstrations, presentation materials, white papers,
brochures, fact sheets, and materials that are specific to the area of
interest. The Company also hosts an annual user conference for its customers
and maintains an Alliance Program designed to support its channel partners
with a variety of programs, incentives, support plans and an annual
conference. As of March 31, 1997, there were 10 employees in the Company's
marketing organization.

TECHNOLOGY

The Company's core Mercator technology provides a platform for creating data
transformation solutions which satisfy application integration requirements
across a variety of computing environments. The architecture of the Mercator
platform is based on object concepts, providing reusability, interoperability
and scaleability during the design process and in the resulting solutions. The
Mercator platform permits the Company to efficiently construct and deliver
integration solutions for specific markets and also allows ISVs and SIs to
embed Mercator functionality within their own offerings.

The central components of the Mercator platform are a Windows-based
Authoring System for creating data transformation "maps" and one or more run-
time Execution Engines for map execution. A map is an executable module that
describes the required transformation and re-ordering of data between source
and destination objects such as files, databases, applications and messages.
The Authoring System provides an intuitive drag-and-drop environment for
defining the source and destination data objects, defining the rules for
mapping the sources to the destinations, and building the resulting map
object. Map objects built using Mercator can be ported automatically to any of
19 different execution environments.

37
<PAGE>

[Set forth on this page is an oval shaped graphic. Within the oval are two
rectangular boxes each with a caption heading, top to bottom, "Authoring System"
and "Execution Engine." Also within the oval is an oval with a caption "Map
Object" with a line from each of the boxes. The oval has an additional oval,
labeled "Transaction Workflow Management *" surrounding it and three additional
ovals below the oval, connected by lines, labeled "Adapters," "Importers" and
"Application Solutions," from left to right, respectively.]

[FLOWCHART OF THE MERCATOR PLATFORM APPEARS HERE]

* Available in the second half of 1997

Descriptions of source and destination objects are entered by the user
through Mercator's graphical interface. To simplify data definition, the
Company provides pre-packaged objects for a number of commonly used data
standards and the Company also provides importers for creating objects from
higher level (meta) data definitions. Data object definitions within Mercator
include information regarding their format, structure and business rules,
which eliminates the need to explicitly identify the context of a data object
during map construction and maintains the logical integrity of the resulting
mapping solution.

Once the source and destination objects have been defined, the user creates
maps by specifying the rules for transforming data from the sources to the
destinations. For many mapping tasks, the user need only "drag" a source
object and "drop" it on the destination object. Multiple data sources can be
transformed to multiple destinations in a single mapping operation. The user
has point-and-click access to a variety of pre-built functions to enhance the
mapping rules including support for selection, extraction, computation,
logical operations, parsing, substitution, re-ordering, validation and
conversion.

Using Mercator's Authoring System, map objects are built and tested in the
Windows environment. The resulting Mercator map can be implemented using a
Mercator Execution Engine appropriate to the target platform. Target platforms
currently supported include Windows 3.1, Windows 95, Windows NT, PC DOS, SCO
UNIX, HP-UX, Sun Solaris/OS, AIX, Alpha NT, Digital UNIX, VAX VMS, Open VMS,
OS/400, Stratus FTX and VOS, MVS, and MVS/CICS.

The Company provides adapters and importers which interface to and from
specific databases, messaging systems, and applications enabling connectivity
to a specific source or destination that can be defined directly within a
mapping operation. Adapters are currently available for ODBC-compliant
databases, Oracle7 databases, and SAP's ALE. The Company is developing
adapters for additional databases and messaging systems including MQSeries,
IBM's enterprise messaging software. Importers are currently available for
COBOL copybooks, database tables for ODBC-compliant and Oracle7 databases, and
R/3 IDocs. In addition, the Company provides pre-packaged data objects for
national and international standards for EDI and data definitions for specific
industries such as healthcare and transportation.

38
<PAGE>

Mercator was architected so that adapters and importers can be added without
modifying the core Mercator technology. Mercator for R/3, for example, is a
packaged offering which leverages the core Mercator Authoring System and
Execution Engines by providing adapters for communicating with SAP's ALE
architecture and importers for R/3 data definitions ("IDocs"). Other TSI
products also leverage Mercator's core technology. The underlying EDI
translation support for OnCall*EDI is provided by Mercator and Trading Partner
EC incorporates Mercator as the data integration component for integrating EDI
data with existing applications. In addition, TSI customers can use Mercator
to create their own applications where embedded data transformation is a
requirement.

PRODUCT DEVELOPMENT

Since inception, TSI has made substantial investments in research and
development through both internal development and technology acquisition. The
Company expects that most of its enhancements to existing products and new
products will be developed internally. However, the Company will evaluate on
an ongoing basis externally developed technologies for integration into its
product lines.

The Company expects that a substantial majority of its research and
development activities will be related to developing enhancements and
extensions to its Mercator and Trading Partner product lines. Following
Mercator's introduction, product development was initially driven by demand
for additional mapping functionality and support for additional execution
platforms. Later, development focus shifted to automating Mercator support for
specific sources and destinations through an expanded set of adapters and
importers, and development of additional pre-packaged integration solutions
for specific markets.

During the second half of 1997, the Company intends to add a graphical
transaction workflow management tool to the core set of Mercator capabilities.
This tool is designed to support graphical design and specification of
transaction workflows, sources and destinations for maps, triggering events,
and options for map execution. In addition, the Company is currently beta
testing a scaleable client/server offering for electronic commerce which is
based on Mercator technology. The Company intends to release this product in
the second half of 1997. Shipment of the product for selected hardware and
software platforms is expected to occur during the fourth quarter of 1997.

As of March 31, 1997, there were 40 employees in the Company's research and
development organization, more than half of which was dedicated to Mercator.
The Company's product development expenditures for 1994, 1995, 1996 and the
first quarter of 1997 were $2.2 million, $3.1 million, $3.4 million and $1.1
million, respectively. The Company expects that it will continue to commit
significant resources to product development in the future. To date, all
product development expenses have been expensed as incurred.

The market for the Company's products and services is characterized by
extremely rapid technological change, frequent new product introductions and
enhancements, evolving industry standards, and rapidly changing customer
requirements. The introduction of products incorporating new technologies and
the emergence of new industry standards could render existing products
obsolete and unmarketable. The Company's future success will depend in part
upon its ability to anticipate changes and enhance its current products and
develop and introduce new products that keep pace with technological
advancements and address the increasingly sophisticated needs of its
customers. See "Risk Factors -- Risks Associated with Technological Change,
Product Enhancements and New Product Development."

CUSTOMER SUPPORT

TSI believes that a high level of customer service and support is important
to its success, and the Company provides a range of support services to its
customers. The Company maintains product and technology experts on call at all
times and has support call centers located at its offices in Wilton,
Connecticut; Bannockburn, Illinois; and Boca Raton, Florida in the United
States and in its United Kingdom office. The Company is currently installing
an automated Company-wide help desk system to augment its customer support
efforts. This system is currently expected to be implemented during the third
quarter of 1997.

39
<PAGE>

COMPETITION

In the business application integration market, the Company's Mercator
products and related services compete primarily against solutions developed
internally by individual businesses to meet their specific business
application integration needs. As a result, the Company must educate
prospective customers as to the advantages of the Company's products and
services as opposed to internally developed solutions and there can be no
assurance that the Company will be able to adequately educate potential
customers to the benefits provided by the Company's products and services. In
the EDI market, the Company's Trading Partner products compete with products
offered by companies offering proprietary VAN services as part of their EDI
solution and the Company's PC-based Trading Partner products also compete with
PC-based products offered by a number of other EDI software vendors.

PROPRIETARY TECHNOLOGY

40
<PAGE>

can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology, and such protections do not preclude
competitors from developing products with functionality or features similar to
the Company's products. Furthermore, there can be no assurance that third
parties will not independently develop competing technologies that are
substantially equivalent or superior to the Company's technologies. In
addition, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries. Any failure by or inability of the
Company to protect its proprietary technology could have a material adverse
effect on the Company's business, operating results and financial condition.

Although the Company does not believe its products infringe the proprietary
rights of any third parties, there can be no assurance that infringement
claims will not be asserted against the Company or its customers in the
future. Furthermore, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation, either
as plaintiff or defendant, would cause the Company to incur substantial costs
and divert management resources from productive tasks whether or not such
litigation is resolved in the Company's favor, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Parties making claims against the Company could secure substantial
damages, as well as injunctive or other equitable relief which could
effectively block the Company's ability to license its products in the United
States or abroad. Such a judgment could have a material adverse effect on the
Company's business, operating results and financial condition. If it appears
necessary or desirable, the Company may seek licenses to intellectual property
that it is allegedly infringing. There can be no assurance, however, that
licenses could be obtained on commercially reasonable terms, if at all, or
that the terms of any offered licensed will be acceptable to the Company. The
failure to obtain the necessary licenses or other rights could have a material
adverse effect on the Company's business, operating results and financial
condition. As the number of software products in the industry increases and
the functionality of these products further overlaps, the Company believes
that software developers may become increasingly subject to infringement
claims. Any such claims, with or without merit, can be time consuming and
expensive to defend and could adversely affect the Company's business,
operating results and financial condition. There are currently no pending
claims that the Company's products, trademarks or other proprietary rights
infringe upon the proprietary rights of third parties. See "Risk Factors --
Dependence on Proprietary Technology."

EMPLOYEES

As of March 31, 1997, the Company had 151 full-time employees, including 40
in research and development, 34 in professional services and customer support,
59 in sales and marketing and 18 in finance and administration. The Company's
employees are not represented by any union and the Company believes that its
relations with employees are good. See "Risk Factors -- Dependence on Key
Personnel; Need to Attract and Retain Sales, Professional Services and
Technical Personnel."

FACILITIES

TSI's principal executive offices are located in Wilton, Connecticut and
consist of approximately 19,000 square feet under a lease expiring in 2001.
The Company also leases approximately 12,000 square feet of office space in
Bannockburn, Illinois which is used primarily for its telesales operations,
approximately 8,500 square feet of office space in Boca Raton, Florida, which
is used primarily for research and development activities and approximately
3,200 square feet of office space in the United Kingdom. All of the Company's
offices have fully-equipped training centers. The Company believes that its
existing facilities are adequate to support its current needs and that, if
needed, suitable additional facilities will be available on commercially
reasonable terms.

41
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
-------------------------------- --- ----------------------------------------
<S> <C> <C>
Constance F. Galley(1).......... 55 President and Chief Executive Officer
and Director
Eric A. Amster.................. 43 Vice President, Sales
Robert Bouton................... 56 Vice President, Marketing
Ira A. Gerard................... 49 Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Paul Lemme...................... 62 Vice President, Professional Services
James Monks..................... 41 Vice President, International Operations
David Raye...................... 36 Vice President, Operations
Edward J. Watson................ 59 Executive Vice President, Business
Development
Saydean Zeldin.................. 56 Vice President, Research and Development
Stewart K.P. Gross(1)(2)........ 37 Director
Ernest E. Keet(1)(2)............ 56 Director
John J. Pendray(1)(2)........... 57 Director
Dennis G. Sisco(1)(2)........... 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee

Constance F. Galley has been President, Chief Executive Officer and a
director of the Company since 1985, when the Company commenced operating as an
independent entity. Prior to 1985, Ms. Galley directed the Company's Marketing
and Development Operations when the Company was part of the Dun & Bradstreet
Corporation. Ms. Galley is a member of the Board of Directors of the software
division of ITAA and is the Chairperson of SACIA, the Business Council of
Southwestern Connecticut. Ms. Galley holds a Bachelor of Arts degree in
Chemistry from Duke University.

Eric A. Amster has been Vice President, Sales since joining the Company in
December 1995. From February 1992 until December 1995, Mr. Amster was employed
by General DataComm Industries, Inc., a data communications company, where he
served most recently as Vice President of U.S. Federal and Commercial Sales.
Mr. Amster holds a Bachelor of Science degree in Computer Science from the
University of Maryland.

Robert Bouton has been Vice President, Marketing since joining the Company
in March 1992. Prior to March 1992, Mr. Bouton served in various sales and
marketing capacities in the software industry, including Vice President,
Marketing for CGI Systems. Mr. Bouton holds a Bachelor of Science degree in
Electrical Engineering from Cornell University.

Ira A. Gerard has been Vice President, Finance and Administration, Chief
Financial Officer and Secretary since joining the Company in October 1995.
From March 1994 to October 1995, Mr. Gerard served as Vice President and Chief
Financial Officer of Adage Systems International, Inc., an ERP software
company. From July 1993 to March 1994, Mr. Gerard was an independent
consultant. From December 1989 until July 1993, Mr. Gerard was employed by
Gestetner PLC, a photocopier and photographic equipment company, where he
served most recently as Vice President, Finance and Operations. Mr. Gerard
holds a Bachelor of Arts degree in Economics from Union College and a Master
of Business Administration from Harvard University.

42
<PAGE>

Paul Lemme has been the Vice President, Professional Services since joining
the Company in April 1990. Prior to 1990, Mr. Lemme was President of P. Lemme
& Associates, an EDI implementation consulting company. Mr. Lemme is the
author of the book "EDI Success." Mr. Lemme attended The State University of
Iowa.

James Monks has been Vice President, International Operations of the Company
since May 1997 and was Director, International Operations of the Company from
May 1992 until May 1997. From May 1989 until May 1992, Mr. Monks served as the
Company's Director of European Operations and from April 1985 until May 1989,
Mr. Monks served as the Company's U.K. Manager. Prior to April 1985, Mr. Monks
held various technical support and management positions with the Company when
the Company was a part of the Dun & Bradstreet Corporation. Mr. Monks holds an
Honours Degree in Sports Science and Geography from the University of
Loughborough, U.K.

David Raye has been the Vice President, Operations of the Company since June
1994. From August 1992 until May 1994, Mr. Raye served as Vice President,
KEY/MASTER Operations. From August 1991 until July 1992, Mr. Raye served as
the Company's Director of Operations. Prior to August 1991, Mr. Raye served in
various management capacities in the software industry including Director of
Marketing for Information Sciences and Senior Product Marketing Manager for
On-Line Software, International. Mr. Raye holds a Bachelor of Science degree
in Marketing from Rutgers University and a Master of Business Administration
from St. John's University, New York.

Edward J. Watson has been Executive Vice President, Business Development of
the Company since June 1994. From January 1994 until June 1994, Mr. Watson
managed the Company's PC Division. From November 1990 until January 1994, Mr.
Watson was a consultant to the Company and a General Partner of DownEast
Partners, a consulting company. Prior to 1990, Mr. Watson served in various
management capacities in the software industry, including President of TSI
International (the predecessor of the Company) and Higher Order Software. Mr.
Watson is married to Ms. Saydean Zeldin, the Vice President, Research and
Development of the Company. Mr. Watson attended Oxford University.

Saydean Zeldin has been Vice President, Research and Development of the
Company since October 1994. From November 1990 to October 1994, Ms. Zeldin was
a consultant to the Company and a general partner at DownEast Partners, a
consulting company. Prior to 1990, Ms. Zeldin served in several senior
engineering positions in the software industry, including serving as Founder
and President of Touchstone Engineering, a software company that developed a
management planning system using artificial intelligence technology, and
Founder and Executive Vice President of Higher Order Software. Ms. Zeldin was
also responsible for the re-entry guidance development of the Apollo flight
software at the Instrumentation Laboratory, a laboratory of MIT. Ms. Zeldin is
married to Mr. Watson, the Executive Vice President, Business Development of
the Company. Ms. Zeldin holds a Bachelor of Arts degree in Physics from Temple
University.

Stewart K.P. Gross has served as a director of the Company since April 1993.
Mr. Gross is a Managing Director of E.M. Warburg Pincus & Co., LLC and has
been employed by E.M. Warburg Pincus & Co., LLC since 1987. Prior to 1987, Mr.
Gross was employed at Morgan Stanley & Co. Mr. Gross is a director of Vanstar
Corporation, BEA Systems and several privately-held companies.

Ernest E. Keet has served as a director of the Company since April 1985. Mr.
Keet is the Chief Executive Officer and a director of Axolotl Corp. and from
May 1995 until December 1996, was the President of Axolotl Corp. Mr. Keet has
been the President and a member of the Board of Directors of Vanguard Atlantic
Ltd. since April 1984. Mr. Keet also served as the Chairman and Chief
Executive Officer of ECsoft Ltd. from November 1989 to April 1994.

John J. Pendray has served as a director of the Company since April 1985.
Mr. Pendray has been an Executive in Residence at George Mason University
since November 1996. Prior to joining George Mason University, Mr. Pendray was
the President of the International Group at Cincinnati Bell Information
Systems from March 1993 to August 1996. From July 1992 to March 1993, Mr.
Pendray was an independent consultant. From 1985 until July 1992, Mr. Pendray
was a senior partner at Vanguard Atlantic, Ltd.

43
<PAGE>

Dennis G. Sisco has served as a director of the Company since January 1990.
From December 1988 until February 1997, Mr. Sisco was the President of D&B
Enterprises, Inc. (now Cognizant Enterprises, Inc.). From December 1988 until
February 1997, Mr. Sisco had also been employed by Cognizant Corporation and
its predecessor The Dun & Bradstreet Corporation, most recently as an
Executive Vice President. Mr. Sisco is also a director of the Gartner Group,
Inc., Oacis Healthcare Holdings Corporation and Aspect Development, Inc.

Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. Executive officers are chosen
by, and serve at the discretion of, the Board of Directors. The current
directors were elected pursuant to a stockholders' agreement pursuant to which
certain stockholders agreed to vote their shares to elect Messrs. Gross, Keet,
Pendray and Sisco and Ms. Galley to the Board of Directors. This agreement
will be terminated upon the closing of this offering. Except for Mr. Watson
and Ms. Zeldin, there are no family relationships among any of the Company's
directors or executive officers.

DIRECTOR COMPENSATION

The Company reimburses the members of its Board for expenses associated with
their attendance at Board meetings and at Board Committee meetings. None of
the members of the Board is entitled to receive fees for attendance at Board
meetings or at Board Committee meetings.

In May 1997, the Company adopted and the Company's stockholders approved the
1997 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 225,000 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company, or any parent or
subsidiary of the Company are eligible to receive stock options under the
Directors Plan. Each eligible director who is or becomes a member of the Board
on or after May 10, 1997 will automatically be granted an option for 15,000
shares. Accordingly, each of Messrs. Gross, Keet, Pendray and Sisco received
options to purchase 15,000 shares of Common Stock in May 1997. Upon each one-
year anniversary of the date such director is granted the 15,000 share option,
he or she will receive an additional option grant for 3,750 shares, provided
such director has served continuously as a member of the Board. Each 15,000
share option granted under the Directors Plan will vest over four years as to
25% of the shares on the last day of each twelve-month period following the
date such 15,000 share option was granted. Each 3,750 share option granted
under the Directors Plan will vest as to 100% of the shares on the last day of
the twelve month period following the date such 3,750 share option was
granted. Each option granted under the Directors Plan prior to the effective
date of this offering will be granted at a per share exercise price equal to
the fair market value of a share of the Company's Common Stock as determined
by the Board. Each option granted after the effective date of this offering
will be granted at a per share exercise price equal to the closing price of a
share of the Company's Common Stock on the Nasdaq National Market on the date
of grant. Options granted under the 1997 Plan generally expire three months
after the termination of the optionee's service to the Company or a parent or
subsidiary of the Company, except in the case of death or disability, in which
case the options may be exercised up to 12 months following the date of death
or termination of service. In the event of a merger, consolidation or certain
other change of control transactions, the vesting of all outstanding options
granted pursuant to the Directors Plan will accelerate and become exercisable
in full prior to the close of such corporate transaction. The Directors Plan
will terminate in May 2007, unless terminated earlier in accordance with the
provisions of the Directors Plan.

44
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during 1996 by (i)
the Company's chief executive officer and (ii) the Company's four other most
highly compensated executive officers whose salary exceeded $100,000 and who
were serving as executive officers at the end of that year (together, the
"Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS(2) COMPENSATION OPTIONS
- --------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Constance F. Galley
President, Chief Executive
Officer and Director............ $165,000 $50,000 $ 5,031(3) --
Edward J. Watson
Executive Vice President,
Business Development............ $150,000 $20,000 $ 2,922(3) --
Ira A. Gerard
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary........... $146,000 $20,000 $ 6,516(3) --
Saydean Zeldin
Vice President, Research and
Development..................... $130,000 $20,000 $ 2,922(3) 36,000
Eric A. Amster
Vice President, Sales........... $125,000 -- $85,951(4) 36,000
</TABLE>
- --------
(1) See "-- Compensation Agreements."
(2) Bonus amounts are reported in the year paid.
(3) Represents the portion of health, life and disability insurance premiums
paid by the Company.
(4) Includes sales commissions paid to Mr. Amster by the Company in the amount
of $80,982 in 1996 and $4,918 for the portion of health, life and
disability insurance premiums paid by the Company.

The following table sets forth information regarding option grants pursuant
to the 1993 Plan during 1996 to each of the Named Officers.

OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1996(2) PER SHARE(3) DATE 5% 10%
- ---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Constance F. Galley(5).. -- -- -- -- -- --
Edward J. Watson........ -- -- -- -- -- --
Ira A. Gerard........... -- -- -- -- -- --
Saydean Zeldin.......... 36,000 24% $1.67 11/25/06 $409,122 $686,998
Eric A. Amster.......... 36,000 24% $1.67 11/25/06 409,122 686,998
</TABLE>
- --------
(1) Options granted in 1996 vest as to twenty-five percent (25%) of the shares
covered by such option each year following the date of grant, subject to
acceleration under certain circumstances. Under the 1993 Plan, the Board
or a committee of the Board retains discretion, subject to 1993 Plan
limits, to modify the terms of outstanding options. The options have a
term of ten years if the grantee is based in the United States and a term
of seven years if the grantee is based in the United Kingdom subject to
earlier termination in certain situations related to termination of
employment. See "-- Employee Benefit Plans."

45
<PAGE>

(2) Based on a total of 150,000 options granted to all employees during 1996.
(3) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board on the date
of the grant. The Company's Common Stock was not publicly traded at the
time of the option grants.
(4) Potential realizable values are calculated based on the fair market value
of the Common Stock at the date of grant (which is assumed to be the
assumed initial public offering price of $8.00 per share) and minus the
exercise price. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock price. There can be no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value will
be realized from the option grants made to the executive officers.
(5) On May 8, 1997, Ms. Galley was granted an option under the 1993 Plan to
purchase 112,500 shares of Common Stock at an exercise price of $6.67 per
share. This option expires on May 8, 2007.

The following table sets forth information concerning unexercised options
held at December 31, 1996 with respect to each of the Named Officers. No
options were exercised by the Named Officers during 1996.

AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
END AT FISCAL YEAR-END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Constance F. Galley...... 142,461 28,500 $189,948 $ 38,000
Edward J. Watson......... 120,000 36,000 $160,000 $ 48,000
Ira A. Gerard............ 36,000 108,000 $ 48,000 $144,000
Saydean Zeldin........... 45,375 79,125 $ 60,500 $ 57,500
Eric A. Amster........... 18,000 90,000 $ 24,000 $ 72,000
</TABLE>
- --------
(1) Based on the fair market value of the option shares at December 31, 1996
($1.67 as determined by the Board of Directors) less the exercise price.

COMPENSATION AGREEMENTS

The Company has entered into agreements with the following executive
officers of the Company: Constance Galley, the Company's President and Chief
Executive Officer; Ira Gerard, the Company's Vice President, Finance and
Administration and Chief Financial Officer; Eric Amster, the Company's Vice
President, Sales; Edward Watson, the Company's Executive Vice President, New
Business Development; and Saydean Zeldin, the Company's Vice President,
Research and Development.

Ms. Galley's agreement provides for an annual base salary of $225,000. Ms.
Galley is also eligible to receive an annual bonus based upon the Company
achieving certain financial objectives for such year. This agreement may be
terminated by the Company at any time for any reason. If Ms. Galley is
terminated without cause, she will continue to receive her base salary for a
one-year period following such termination. In the event that the Company is
acquired by a company that does not continue to employ Ms. Galley, she will
continue to receive her base salary for a one-year period following such
termination.

Mr. Gerard's agreement provides for an initial annual base salary of
$146,000 and a grant of an option to purchase an aggregate of 144,000 shares
of Common Stock. Mr. Gerard currently receives a base salary of $160,000. Mr.
Gerard is eligible to receive a bonus of up to $25,000 per year for meeting
corporate objectives for such year. This agreement may be terminated by the
Company at any time for any reason. If Mr. Gerard is terminated without cause,
he will continue to receive his base salary for a six-month period following
such termination. In the event that the Company is acquired by a company that
does not continue to employ Mr. Gerard, he will continue to receive his base
salary for a six-month period following such termination.

Mr. Amster's agreement provides for an annual base salary of $125,000 and a
grant of an option to purchase an aggregate of 72,000 shares of Common Stock.
Mr. Amster is eligible to receive a bonus and

46
<PAGE>

commissions of up to $145,000 per year upon meeting revenue related goals for
such year. This agreement may be terminated by the Company at any time for any
reason. If Mr. Amster is terminated without cause, he will continue to receive
his base salary for a six-month period following such termination.

Mr. Watson's agreement provides for an initial annual base salary of
$150,000. Mr. Watson currently receives a base salary of $160,000. This
agreement may be terminated by the Company at any time for any reason. If Mr.
Watson is terminated without cause, he will continue to receive his base
salary for a six-month period following such termination. In the event that
the Company is acquired by a company that does not continue to employ Mr.
Watson, he will continue to receive his base salary for a one-year period
following such termination.

Ms. Zeldin's agreement provides for an initial annual base salary of
$130,000. Ms. Zeldin currently receives a base salary of $155,000. This
agreement may be terminated by the Company at any time for any reason. If Ms.
Zeldin is terminated without cause, she will continue to receive her base
salary for a six-month period following such termination. In the event that
the Company is acquired by a company that does not continue to employ Ms.
Zeldin, she will continue to receive her base salary for a one-year period
following such termination.

EMPLOYEE BENEFIT PLANS

1997 Equity Incentive Plan. In May 1997, the Board adopted and the Company's
stockholders approved the 1997 Equity Incentive Plan (the "1997 Plan"), under
which 1,125,000 shares of the Company's Common Stock are reserved for
issuance. In addition to the 1,125,000 shares reserved for issuance
thereunder, shares that are reserved for issuance but that are not subject to
options under the 1993 Plan and shares that are subject to outstanding options
which either terminate without being exercised or that are repurchased by the
Company at the original issue price will be available for issuance under the
1997 Plan. No options have been issued under the 1997 Plan. The 1997 Plan will
become effective on the effective date of the Registration Statement of which
this Prospectus is a part and will terminate in May 2007, unless terminated
earlier in accordance with the provisions of the 1997 Plan. The 1997 Plan
authorizes the award of options, opportunities to purchase restricted stock
and stock bonuses (an "Award"). The 1997 Plan is administered by a committee
appointed by the Board, currently the Compensation Committee, consisting of
Messrs. Keet, Sisco, Pendray and Gross, all of whom are non-employee directors
under applicable federal securities laws and "outside directors" as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Compensation Committee has the authority to construe and
interpret the 1997 Plan and any agreement made thereunder, grant Awards and
make all other determinations necessary or advisable for the administration of
the 1997 Plan.

The 1997 Plan provides for the grant of both incentive stock options
("ISOs") that qualify under Section 422 of the Code and nonqualified stock
options ("NQSOs"). ISOs may be granted only to employees of the Company or of
a parent or subsidiary of the Company. NQSOs may be granted to employees,
officers, directors, consultants, independent contractors and advisors of the
Company or any parent or subsidiary of the Company, provided such consultants,
independent contractors, and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction ("Eligible Service Providers"). The per share exercise price of
ISOs must be at least equal to the fair market value of a share of the
Company's Common Stock on the date of grant unless the option is an ISO
granted to a stockholder owning 10% or more of the Company's capital stock in
which case the exercise price must be at least 110% of the fair market value
of the Company's Common Stock. The per share exercise price of NQSOs must be
at least 85% of the fair market value of the Company's Common Stock. The
maximum term of options granted under the 1997 Plan is ten years if the
grantee is based in the United States and a maximum term of seven years if the
grantee is based in the United Kingdom, unless the option is an ISO granted to
a stockholder owning 10% or more of the Company's stock in which case the
maximum term is five years. Options granted under the 1997 Plan may not be
transferred in any manner other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of the optionee only by
the optionee. Options granted under the 1997

47
<PAGE>

Plan generally expire three months after the termination of the optionee's
service to the Company or a parent or subsidiary of the Company, except in the
case of death or disability, in which case the options may be exercised up to
12 months following the date of death or termination of service. No person may
receive more than 300,000 shares in any calendar year pursuant to the grant of
Awards under the 1997 Plan. New employees, however, are eligible to receive
Awards up to a total of 450,000 shares in the calendar year in which they are
hired.

Opportunities to purchase shares of the Company's Common Stock ("Restricted
Stock Awards"), and awards of shares of the Company's Common Stock ("Stock
Bonuses"), either of which may be subject to a right of repurchase in favor of
the Company or other restrictions on ownership or transfer, may be given to
Eligible Service Providers. The Compensation Committee which is the
administrator of the 1997 Plan has the authority to determine the restrictions
applicable to the stock. The purchase price of Common Stock sold pursuant to a
Restricted Stock Award must be at least 85% of the fair market value of the
shares on the date of grant. Awards that are granted below 100% of fair market
value are limited under the 1997 Plan. No Eligible Service Provider may
receive more than 150,000 shares pursuant to such Awards under the 1997 Plan
and no more than 300,000 shares may be issued pursuant to such Awards for the
term of the 1997 Plan.

In the event of a merger, consolidation or certain other changes of control
transactions, any outstanding Awards will accelerate by one-year's vesting or
such additional acceleration of vesting as the Compensation Committee in its
discretion may decide, and may be assumed or replaced by the successor
corporation. In lieu of such assumption or replacement, but in addition to the
one-year's additional vesting or such additional acceleration of vesting, the
successor corporation may substitute equivalent Awards or provide
substantially similar consideration to Eligible Service Providers as is
provided to stockholders.

1993 Stock Option Plan. Under the 1993 Plan, 1,558,431 shares of Common
Stock are or have been reserved for issuance under currently outstanding
options. In May 1997 when the 1997 Plan was adopted, the Board resolved that
no further options shall be granted under the 1993 Plan following the closing
of this offering. However, all outstanding options will remain outstanding
until exercised or until they terminate or expire in accordance with their
terms. The terms of options granted under the 1993 Plan and the administration
of the plan are substantially the same as those that pertain to the 1997 Plan.

Profit Participation Plan. The Board maintains the TSI International
Software Ltd. Profit Participation Plan (the "Profit Plan") which allows the
Board at the end of the Company's year-end audit to vote to contribute a
portion of the Company's profits to a profit participation pool which does not
include executive officers or directors of the Company. Distributions from the
pool are usually made to eligible employees in two equal installments, one
distribution upon completion of the fiscal year-end audit and the second
distribution at the end of the next fiscal year. All employees who are
employed by the Company at the end of the fiscal year and who are employed at
the time of the distributions are eligible to receive such a distribution.
Employees who are not employed by the Company for the full fiscal year are
eligible to receive pro-rated distributions based upon the number of months
worked in such fiscal year. Payments under the profit participation pool
amounted to $35,000, $100,000 and $150,000 in 1994, 1995 and 1996,
respectively.

1997 Employee Stock Purchase Plan. In May 1997, the Board adopted and the
Company's stockholders approved the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved a total of 750,000 shares of the Company's
Common Stock for issuance thereunder. The Purchase Plan will become effective
upon the effective date of the Registration Statement of which this Prospectus
is a part and will permit eligible employees to acquire shares of the
Company's Common Stock through payroll deductions. Eligible employees may
select a rate of payroll deduction between 2% and 15% of their compensation
and are subject to certain maximum purchase limitations described in the
Purchase Plan. Each offering under the Purchase Plan will be for a period of
12 months (the "Offering Period") and will consist of two six-month purchase
periods (each a "Purchase Period"). The purchase price for the Company's
Common Stock purchased under the Purchase Plan is 85% of the lesser of the
closing price of the Company's Common Stock on the first day of the applicable
Offering Period and the last day of the applicable Purchase Period. For the
purposes of the first

48
<PAGE>

Offering Period, eligible employees will be able to acquire shares at 85% of
the lesser of the price at which the shares are offered to the public in this
offering or the closing price of the shares on the last day of the applicable
purchase period in the first Offering Period. The first Offering Period is
expected to begin on the first business day following the effective date of
this Registration Statement and to end on July 31, 1998. The Board of
Directors has the power to set the beginning of any Offering Period and to
change the duration of Offering and Purchase Periods. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

During 1996, the Company had no separate compensation or stock option
committee or other board committee performing equivalent functions, and these
functions were performed by the Company's Board of Directors of which
Constance F. Galley, President and Chief Executive Officer of the Company, was
and is a member. In May 1997, the Company's Board of Directors appointed a
Compensation Committee which currently consists of Stewart K.P. Gross, Ernest
E. Keet, John J. Pendray and Dennis G. Sisco, each a non-employee director of
the Company.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY

As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that (i) the Company is required to indemnify
its directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) to the fullest extent permitted by the
Delaware General Corporation Law, the Company is required to advance all
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding (subject to certain exceptions), (iii) the rights
conferred in the Bylaws are not exclusive, (iv) the Company may, in its
discretion indemnify or advance expenses to persons whom the Company is not
obligated to indemnify or advance expenses; (v) the Company is authorized to
enter into indemnification agreements with its directors, officers, employees
and agents or any person serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including employee benefit plans and (vi) the
Company may not retroactively amend the Bylaw provisions relating to
indemnification.

The Company intends to enter into Indemnification Agreements with each of
its current directors and executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Company's Bylaws and to provide additional
procedural protections. At present, there is no pending litigation or
proceeding involving a director, officer or employee of the Company regarding
which indemnification is sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification.

As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director to the fullest extent permitted by the Delaware General
Corporation Law.

As authorized by the Company's Bylaws, the Company, with approval of the
Board, is seeking, and expects to obtain, directors' and officers' liability
insurance.

In so far as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.

49
<PAGE>

CERTAIN TRANSACTIONS

Since January 1, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of any class of voting
securities of the Company or members of such person's immediate family had or
will have a direct or indirect material interest other than (i) the
compensation agreements which are described in "Management," and (ii) the
transactions described below.

From November 1990 until October 1994, Saydean Zeldin, the Company's Vice
President, Research and Development, was a consultant to the Company and a
General Partner at DownEast Partners, a consulting company. Payments to
DownEast Partners for the year ended December 31, 1994 were $122,000.
Edward Watson, the Company's Executive Vice President, Business Development,
was a General Partner of DownEast Partners until January 1994.

From August 1992 to April 1994, the Company subleased its Bannockburn,
Illinois office facility from a subsidiary of The Dun & Bradstreet Corporation
(predecessor to Cognizant Corporation), a holder of more than 5% of the
Company's outstanding capital stock. Payments under the sub-lease were $66,100
for the year ended December 31, 1994. The Company also subleased $130,000 of
furniture and fixtures from the same subsidiary of The Dun & Bradstreet
Corporation (predecessor to Cognizant Corporation). The transaction was
accounted for as a capital lease and bore interest at 9% and required monthly
payments of $4,100 through August 1995.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors and principal stockholders and their affiliates will
be approved by a majority of the Board, including a majority of the
independent and disinterested directors of the Board, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.

50
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of May 31,
1997, and as adjusted to reflect the sale of shares offered hereby, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) each of the Company's directors, (iii) each
Named Officer (see "Management-- Executive Compensation"), (iv) all executive
officers and directors as a group and (v) each Selling Stockholder.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1) (2)
EXECUTIVE OFFICERS, DIRECTORS ----------------------- NUMBER OF -------------------------
AND 5% STOCKHOLDERS NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ----------------------------- ------------ ---------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Stewart K.P. Gross ..... 2,284,905 35.5 % -- 2,284,905 24.2%
Warburg, Pincus Capital
Company, L.P. (3)
Ernest E. Keet ......... 1,979,970 32.7 178,189 1,801,781 19.9
Vanguard Atlantic, Lim-
ited (4)
Cognizant Corporation
(5).................... 1,280,229 20.4 651,653 628,576 6.8
Constance F. Galley (6). 411,207 6.6 -- 411,207 4.5
Ira A. Gerard (7)....... 36,000 * -- 36,000 *
Eric A. Amster (8)...... 18,000 * -- 18,000 *
Edward J. Watson (9).... 136,500 2.2 -- 136,500 1.5
Saydean Zeldin (10)..... 56,625 * -- 56,625 *
John J. Pendray (11).... 198,057 3.3 46,875 151,182 1.7
Dennis G. Sisco......... -- * -- -- *
All executive officers
and directors as a
group
(9 persons) (12)....... 5,121,264 72.3 225,064 4,896,200 48.6
OTHER SELLING STOCKHOLD-
ERS
- ------------------------
Richard Bankosky (13)... 72,705 1.2 22,499 50,206 *
David Raye (14)......... 46,776 * 407 46,369 *
Information Partners
Capital Fund, L.P.
(15)................... 167,616 2.8 100,377 67,239 *
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days of
May 31, 1997, upon exercise of options or warrants and such securities
are reflected in the above table. Shares of Common Stock subject to
options and warrants that are exercisable within 60 days of May 31, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
600,000 shares from certain Selling Stockholders is not exercised. If the
Underwriters' over-allotment options is exercised in full, the Selling
Stockholders will sell an additional 600,000 shares.
(3) Includes 382,281 shares of Common Stock issuable to Warburg, Pincus
Capital Company, L.P. ("Warburg") upon exercise of Warrants. Warburg,
Pincus & Co. is the sole General Partner of Warburg and has a 20%
interest in the profits of Warburg. E.M. Warburg, Pincus & Co., LLC, a
New York limited liability company, manages Warburg. Lionel I. Pincus is
the managing partner of Warburg, Pincus & Co. and the managing member of
E. M. Warburg, Pincus & Co., LLC and may be deemed to

51
<PAGE>

control both such entities. The members of E.M. Warburg, Pincus & Co., LLC
are substantially the same as the partners of Warburg, Pincus & Co. Mr.
Gross, a director of the Company, is a Managing Director and member of
E.M. Warburg, Pincus & Co., LLC and a general partner of Warburg, Pincus &
Co. As such, Mr. Gross may be deemed to have an indirect pecuniary
interest (within the meaning of Rule 16a-1 under the Exchange Act) in an
indeterminate portion of the shares beneficially owned by Warburg. Mr.
Gross disclaims beneficial ownership of these shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934. The address of Mr.
Gross and Warburg is 466 Lexington Avenue, New York, N.Y. 10017.
(4) Includes 1,559,325 shares of Common Stock held of record by Vanguard
Atlantic, Ltd. ("Vanguard") and 135,543 shares of Common Stock held of
record by Mr. Keet. Also includes shares of Common Stock issuable to
Vanguard upon exercise of a warrant which will be exercised on a net
exercise basis into 285,102 shares of Common Stock. Mr. Keet, a director
of the Company, is the President of Vanguard and may be deemed to
beneficially own the shares owned by such entity. Mr. Keet disclaims
beneficial ownership of such shares except to the extent of his indirect
pecuniary interest therein. The address of Vanguard is 304 Main Avenue,
Suite 290, Norwalk, Connecticut 06851 and the address of Mr. Keet is 619
Marina Boulevard, San Francisco, CA 94123.

(5) Includes 237,585 shares of Common Stock issuable upon exercise of
Warrants. Cognizant Corporation's address is 200 Nyala Farms, Westport,
Connecticut 06880.
(6) Includes 146,961 shares of Common Stock subject to options and 25,005
shares of Common Stock issuable upon exercise of Warrants.
(7) Represents 36,000 shares of Common Stock subject to options.
(8) Represents 18,000 shares of Common Stock subject to options.
(9) Includes 124,500 shares of Common Stock subject to options and 6,000
shares of Common Stock issuable upon exercise of Warrants.
(10) Represents 56,625 shares of Common Stock subject to options.
(11) Includes 1,200 shares of Common Stock subject to options, 30,000 shares
of Common Stock held of record by his wife Linda L. Pendray, 6,000 shares
of Common Stock held of record by each of his children Michael D.
Pendray, Andrew S. Pendray and Stephen L. Pendray. Mr. Pendray disclaims
beneficial ownership of the shares held by his wife and children.

(12) Includes an aggregate of 380,286 shares of Common Stock subject to
options and 650,871 shares of Common Stock issuable upon exercise of
Warrants and 285,102 shares of Common Stock issuable upon the exercise of
a warrant on a net exercise basis.

(13) Includes shares of Common Stock issuable upon exercise of a warrant which
will be exercised, on a net exercise basis, into 1,125 shares of Common
Stock.

(14) Includes 46,125 shares of Common Stock subject to options.

(15) The address of Information Partners Capital Fund, L.P. is Two Copley
Place, Boston, Massachusetts 02116.

52
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, par value $0.01 per
share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share.
Upon the consummation of this offering, and assuming the conversion of each
outstanding share of Preferred Stock into Common Stock, there will be
outstanding 9,045,942 shares of Common Stock and Warrants to purchase 711,771
shares of Common Stock.

COMMON STOCK

Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not provided for in the Company's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The Common Stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock and any participating Preferred
Stock outstanding at that time after payment of liquidation preferences, if
any, on any outstanding Preferred Stock and payment of other claims of
creditors. Each outstanding share of Common Stock is, and all shares of Common
Stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Preferred Stock
(the "Convertible Preferred"), will be converted into shares of Common Stock.
See Note 6 of Notes to Financial Statements for a description of the
Convertible Preferred. The Board is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of additional shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and
any qualifications, limitations or restrictions thereon, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding), without any further vote or action by
the stockholders. The Board may authorize the issuance of Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. Thus, the issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no current plan to issue any shares of
Preferred Stock.

WARRANTS

As of March 31, 1997, the Company had outstanding nine Warrants to purchase
shares of the Company's reserved, but unissued shares of Series D Convertible
Preferred Stock. These Warrants, seven of which will survive the closing of
this offering, will become exercisable into an aggregate of 711,771 shares of
Common Stock. These Warrants have an exercise price of $2.00 per share of
Common Stock and expire in June and August, 2002. These Warrants are also
exerciseable on a net exercise basis.

REGISTRATION RIGHTS

Certain investors holding an aggregate of 2,567,169 shares of Common Stock
and Warrants to purchase 711,771 shares of Common Stock of the Company have
certain "demand" rights to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred and upon exercise of such Warrants to
the extent any of such shares are not included in this offering (the
"Registrable Securities") under the Securities Act. If requested by holders of
more than 50% of the Registrable Securities then outstanding, the Company must
file a registration statement under the Securities Act covering all
Registrable Securities requested to be registered. The Company is required to
effect two such "demand" registrations pursuant to these registration rights.
The "demand" rights of any particular holder of Registrable Securities will
expire three years after the consummation of the Company's initial public
offering.

53
<PAGE>

In addition, holders of Registrable Securities have certain "piggyback"
registration rights. If the Company proposes to register any of its securities
under the Securities Act other than in connection with the Company's employee
benefit plans or a corporate reorganization, the holders of Registrable
Securities may require the Company to include all or a portion of their shares
in such registration, although the managing underwriter, if any, of any such
offering has certain rights to limit the number of Registrable Securities
proposed to be included in such registration.

Further, if requested by holders of more than 50% of the then outstanding
Registrable Securities (assuming there is a reasonably anticipated aggregate
offering price to the public of at least $500,000), the Company must file a
registration statement on Form S-3 with respect to the resale of such
Registrable Securities when such form becomes available to the Company,
subject to certain conditions.

All expenses incurred in connection with the above registrations (other than
the underwriters' and brokers' discounts and commissions) will be borne by the
Company.

The Company's obligation to register the Registrable Securities will
terminate when all such Registrable Securities have been registered and sold
or are no longer outstanding.

DELAWARE ANTI-TAKEOVER LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-Takeover Law") regulating corporate
takeovers. The Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq National Market,
from engaging, under certain circumstances, in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with
any "interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date
that such stockholder became an "interested stockholder." A Delaware
corporation may "opt out" of the Anti-Takeover Law with an express provision
in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
The Company has not "opted out" of the provisions of the Anti-Takeover Law.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is The Bank
of New York.

LISTING

The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "TSFW."

54
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Sales of substantial amounts of Common Stock of the Company in the public
market after the lapse of existing resale restrictions could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate of the Company)
would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of: (i) one percent of the number of shares
of Common Stock then outstanding (which will equal approximately 90,459 shares
immediately after this offering); or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an affiliate of the Company), is entitled to
sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Unless
otherwise restricted, "144(k) shares" may therefore be sold immediately upon
the completion of this offering.

Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait until 90 days after the
date of this Prospectus before selling such shares.

Upon completion of this offering, the Company will have outstanding
approximately 9,045,942 shares of Common Stock. In addition to the 4,000,000
shares of Common Stock offered hereby, as of the effective date of the
Registration Statement of which this Prospectus forms a part (the "Effective
Date"), there will be an additional 5,045,942 shares of Common Stock
outstanding, all of which are "restricted" shares (the "Restricted Shares")
under the Securities Act. Certain stockholders of the Company are subject to
lock-up agreements providing that they will not directly or indirectly offer,
sell, pledge, contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Robertson,
Stephens & Company LLC. Taking into account the lock-up agreements and
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, the numbers of shares that will be available for
sale in the public market will be as follows: (i) 81,000 Restricted Shares
will be eligible for sale as of the Effective Date, (ii) approximately 3,555
Restricted Shares will become eligible for sale 90 days after the Effective
Date pursuant to the provisions of Rule 144 or Rule 701, (iii) approximately
48,000 Restricted Shares will be eligible for sale in December 1997 subject to
certain volume and other resale restrictions under Rule 144, (iv)
approximately 4,763,387 Restricted Shares will become eligible for sale 180
days after the Effective Date upon expiration of certain lock-up agreements
and,
as of that date, approximately 4,076,847 of such shares will be subject to
certain volume and other resale restrictions pursuant to Rule 144, and (v)
approximately 150,000 Restricted Shares will become eligible for sale in May
1998, subject to certain volume and other resale restrictions pursuant to Rule
144. In addition, upon completion of this offering, there will remain
outstanding Warrants to purchase 711,771 shares of Common Stock at an exercise
price of $2.00 per share. These Warrants are exercisable at any time on a net
exercise

55
<PAGE>

basis. Accordingly, any shares of Common Stock issuable upon such net exercise
would be available for resale in the public market, subject to public
information, volume limitation or notice provisions of Rule 144, in the case
of affiliates.

At May 31, 1997, options to purchase 1,293,757 shares of Common Stock were
outstanding, of which options approximately 612,057 shares were then
exercisable. Immediately after this offering, the Company intends to file a
registration statement on Form S-8 under the Securities Act covering an
aggregate of 3,586,521 shares of Common Stock reserved for issuance pursuant
to outstanding options under the 1993 Plan, and outstanding options or shares
reserved for issuance under the 1997 Plan, Directors Plan and Purchase Plan.
As a result of such registration, shares of Common Stock issuable upon
exercise of options and pursuant to the Purchase Plan will be available for
sale in the public market, subject to Rule 144 volume limitations applicable
to affiliates and subject to lock-up agreements. Beginning 180 days after the
Effective Date, 708,882 shares issuable upon the exercise of vested options
will be eligible for sale in the public market, if such options are exercised.

56
<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, SoundView Financial Group, Inc. and
Wessels, Arnold & Henderson, L.L.C. (the "Representatives"), have severally
agreed with the Company and the Selling Stockholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC........................................
SoundView Financial Group, Inc...........................................
Wessels, Arnold & Henderson, L.L.C.......................................
---------
Total.................................................................. 4,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount
of proceeds to be received by the Company as set forth on the cover page of
this Prospectus.

Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus
for this offering, to purchase up to 600,000 additional shares of Common
Stock, at the same price per share as the Company and the Selling Stockholders
will receive for the 4,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage of such additional shares that the number of shares of Common
Stock to be purchased by it shown in the above table represents as a
percentage of the 4,000,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those
on which the 4,000,000 shares are being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.

Pursuant to the terms of lock-up agreements, all officers, directors and
certain security holders of the Company have agreed with the Representatives
for a period of 180 days after the effective date of this Prospectus that they
will not, subject to certain exceptions, directly or indirectly offer to sell,
contract to sell, or otherwise sell, dispose of, pledge, grant any rights with
respect to, any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock, or any securities convertible into or exchangeable
for shares of Common Stock, now owned or hereafter acquired directly by such
holders or with respect to which they have the power of disposition, without
the prior written consent of Robertson, Stephens & Company,

57
<PAGE>

which may, in its sole discretion and at any time without notice, release all
or any portion of the securities subject to lock-up agreements. See "Shares
Eligible for Future Sale." In addition, the Company also has agreed that
during the 180 days following the effective date of this Prospectus the
Company will not, without the prior written consent of Robertson, Stephens &
Company, subject to certain exceptions, offer, issue, sell, contract to sell,
or otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sales of shares in this offering, the issuance of Common Stock upon
the exercise of outstanding options and the Company's issuance of options
under existing employee and director stock option plans.

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 was determined through negotiations among the Company and the
Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.

The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.

The Underwriters have reserved approximately 190,000 shares of Common Stock
for sale, at the initial public offering price, to directors, officers and
employees of the Company, their business affiliates and related parties, in
each case as such persons have expressed an interest in purchasing such shares
in the offering. The number of shares of Common Stock available for sale to
the general public will be reduced to the extent such persons purchase such
reserved shares of Common Stock. Any reserved shares of Common Stock not so
purchased will be offered by the Underwriters to the general public on the
same basis as the other shares of Common Stock offered pursuant to the
offering.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Fenwick & West LLP, Palo
Alto, California. Certain legal matters will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.

EXPERTS

The 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 included in this Prospectus and elsewhere in the registration
statement, have been included in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

58
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedule thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedule thereto. Statements contained in this Prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the exhibits and schedule
thereto may be inspected without charge at the offices of the Commission at
Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies of all
or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon the payment
of the fees prescribed by the Commission.

59
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996 and (unaudited) March 31,
1997..................................................................... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and (unaudited) for the three months ended March 31, 1996 and 1997.. F-4
Statements of Stockholders' (Deficiency) as of December 31, 1994, 1995 and
1996 and (unaudited) as of March 31, 1997................................ F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and (unaudited) for the three months ended March 31, 1996 and 1997.. F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
TSI International Software Ltd.:

We have audited the accompanying balance sheets of TSI International
Software Ltd. (the "Company") as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' (deficiency) and cash flows
for each of the years in the three year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TSI International Software
Ltd. as of December 31, 1996 and 1995, 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
Stamford, Connecticut
April 14, 1997,
except for note 6,
which is as of May 15, 1997

F-2
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- MARCH 31,
1995 1996 1997
------------ ------------ ------------
(unaudited--
note 6)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................... $ 142,500 $ 41,300 $ 79,400 $ 79,400
Accounts receivable,
less allowances of
$158,100, $319,900 and
(unaudited) $288,800... 2,932,400 4,380,900 5,296,500 5,296,500
Current portion of
investment in licensing
contracts receivable,
net of unearned finance
income of $126,100,
$84,200 and (unaudited)
$72,100 (note 3)....... 982,500 742,000 773,800 773,800
Prepaid expenses and
other current assets... 300,800 388,000 499,200 499,200
------------ ------------ ---------- -----------
Total current assets.. 4,358,200 5,552,200 6,648,900 6,648,900
Furniture, fixtures and
equipment, net (note 4).. 913,000 1,304,400 1,351,300 1,351,300
Investment in licensing
contracts receivable, net
of unearned finance
income of $91,900,
$50,100 and (unaudited)
$51,000, less current
portion (note 3)......... 896,400 551,600 600,200 600,200
Other assets.............. 69,600 113,100 120,500 120,500
------------ ------------ ---------- -----------
$ 6,237,200 $ 7,521,300 $8,720,900 $ 8,720,900
============ ============ ========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable........ $ 439,100 $ 694,800 $ 611,000 $ 611,000
Accrued expenses (note
9)..................... 1,266,500 1,486,500 1,610,200 1,610,200
Current portion of
deferred maintenance
revenue................ 4,780,200 4,591,200 4,585,400 4,585,400
------------ ------------ ---------- -----------
Total current
liabilities.......... 6,485,800 6,772,500 6,806,600 6,806,600
Long-term debt (note 5)... 2,840,100 2,790,100 3,590,100 2,590,100
Other long-term
liabilities.............. 79,300 27,400 42,600 42,600
Deferred maintenance
revenue, less current
portion.................. 401,600 225,000 313,400 313,400
------------ ------------ ---------- -----------
Total liabilities..... 9,806,800 9,815,000 10,752,700 9,752,700
------------ ------------ ---------- -----------
Stockholders' (deficiency)
(note 6):
Convertible preferred
stock ($8,219,000
aggregate liquidation
preference)............ 8,600 8,600 8,600 --
Common stock (3,888,166
shares authorized, par
value $.01)............ 30,000 30,000 20,000 60,500
Additional paid-in
capital................ 7,888,800 7,888,800 7,898,800 8,866,900
Accumulated deficit..... (11,264,500) (10,036,600) (9,723,900) (9,723,900)
Cumulative foreign
currency translation
adjustment............. (167,500) (119,500) (170,300) (170,300)
Treasury stock, at cost. (65,000) (65,000) (65,000) (65,000)
------------ ------------ ---------- -----------
Total stockholders'
(deficiency)......... (3,569,600) (2,293,700) (2,031,800) (1,031,800)
------------ ------------ ---------- -----------
$ 6,237,200 $ 7,521,300 $8,720,900 $ 8,720,900
============ ============ ========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing.... $ 6,275,500 $ 7,552,900 $ 9,309,500 $1,782,500 $2,731,100
Service, maintenance
and other............ 7,658,500 8,508,500 9,694,400 2,306,000 2,776,800
----------- ----------- ----------- ---------- ----------
Total revenues...... 13,934,000 16,061,400 19,003,900 4,088,500 5,507,900
----------- ----------- ----------- ---------- ----------
Cost of revenues:
Software licensing.... 1,034,700 724,900 494,800 93,300 173,500
Service, maintenance
and other............ 2,522,000 2,200,800 2,005,700 431,400 548,200
----------- ----------- ----------- ---------- ----------
Total cost of reve-
nues............... 3,556,700 2,925,700 2,500,500 524,700 721,700
----------- ----------- ----------- ---------- ----------
Gross profit............ 10,377,300 13,135,700 16,503,400 3,563,800 4,786,200
----------- ----------- ----------- ---------- ----------
Operating expenses:
Product development... 2,231,400 3,067,600 3,452,300 779,300 1,073,400
Selling and marketing. 6,123,800 7,159,800 8,715,200 1,893,800 2,583,700
General and adminis-
trative.............. 1,926,900 2,001,200 2,921,500 728,300 777,200
----------- ----------- ----------- ---------- ----------
Total operating ex-
penses............. 10,282,100 12,228,600 15,089,000 3,401,400 4,434,300
----------- ----------- ----------- ---------- ----------
Operating income.... 95,200 907,100 1,414,400 162,400 351,900
Borrowing expenses (note
5)..................... (467,200) (419,800) (285,500) (78,500) (63,100)
Interest income......... 268,100 193,200 135,200 40,200 30,500
Other income (note 11).. -- 176,900 -- -- --
----------- ----------- ----------- ---------- ----------
Income (loss) before
income taxes....... (103,900) 857,400 1,264,100 124,100 319,300
Provision for income
taxes (note 8)......... 8,800 34,600 36,200 3,000 6,600
----------- ----------- ----------- ---------- ----------
Net income (loss)... $ (112,700) $ 822,800 $ 1,227,900 $ 121,100 $ 312,700
=========== =========== =========== ========== ==========
Net income (loss) per
share.................. $ (.02) $ .15 $ .20 $ .02 $ .05
=========== =========== =========== ========== ==========
Weighted average number
of common and common
equivalent shares out-
standing............... 5,623,608 5,653,795 5,984,375 5,694,987 6,426,073
=========== =========== =========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

STATEMENTS OF STOCKHOLDERS' (DEFICIENCY)

<TABLE>
<CAPTION>
SERIES A, B, C
AND E
CONVERTIBLE CUMULATIVE
PREFERRED STOCK COMMON STOCK FOREIGN TREASURY STOCK
---------------- ----------------- ADDITIONAL CURRENCY -------------------
PAR PAR PAID-IN ACCUMULATED TRANSLATION
SHARES VALUE SHARES VALUE CAPITAL DEFICIT ADJUSTMENT SHARES VALUE TOTAL
-------- ------ --------- ------- ---------- ------------ ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993........... 860,969 $8,600 3,000,000 $30,000 $8,025,500 $(11,974,600) $(169,300) (185,388) $(225,700) $(4,305,500)
Stock options
exercised...... -- -- -- -- (1,700) -- -- 750 2,000 300
Net loss........ -- -- -- -- -- (112,700) -- -- -- (112,700)
Change in
foreign
currency
adjustment..... -- -- -- -- -- -- 24,900 -- -- 24,900
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at
December 31,
1994........... 860,969 8,600 3,000,000 30,000 8,023,800 (12,087,300) (144,400) (184,638) (223,700) (4,393,000)
Stock options
exercised...... -- -- -- -- (135,000) -- -- 71,160 158,700 23,700
Net income...... -- -- -- -- -- 822,800 -- -- -- 822,800
Change in
foreign
currency
adjustment..... -- -- -- -- -- -- (23,100) -- -- (23,100)
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at
December 31,
1995........... 860,969 8,600 3,000,000 30,000 7,888,800 (11,264,500) (167,500) (113,478) (65,000) (3,569,600)
Net income...... -- -- -- -- -- 1,227,900 -- -- -- 1,227,900
Change in
foreign
currency
adjustment..... -- -- -- -- -- -- 48,000 -- -- 48,000
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at
December 31,
1996........... 860,969 8,600 3,000,000 30,000 7,888,800 (10,036,600) (119,500) (113'478) (65,000) (2,293,700)
Net income
(unaudited).... -- -- -- -- -- 312,700 -- -- -- 312,700
Change in
foreign
currency
adjustment
(unaudited).... -- -- -- -- -- -- (50,800) -- -- (50,800)
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at March
31, 1997
(unaudited).... 860,969 $8,600 3,000,000 $30,000 $7,888,800 $ (9,723,900) $(170,300) (113,478) $ (65,000) $(2,031,800)
======== ====== ========= ======= ========== ============ ========= ======== ========= ===========
Pro forma
adjustments
(unaudited):
Issuance of
Series E
Preferred
Stock.......... $ 50,000 $ 500 -- -- $ 999,500 -- -- -- -- $ 1,000,000
Conversion of
Preferred
Stock.......... (910,969) (9,100) 2,759,415 $27,600 (18,500) -- -- -- -- --
Exercise of
Warrants....... -- -- 286,222 2,900 (2,900) -- -- -- -- --
Pro forma
balance as of
March 31, 1997
(unaudited).... -- -- 6,045,637 $60,500 $8,866,900 $ (9,723,900) $(170,300) (113,478) $ (65,000) $(1,031,800)
======== ====== ========= ======= ========== ============ ========= ======== ========= ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

STATEMENTS OF CASH FLOWS
REPRESENTING INCREASES (DECREASES) IN CASH

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ --------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $ (112,700) $ 822,800 $ 1,227,900 $ 121,100 $ 312,700
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and amor-
tization of fixed as-
sets.................. 309,900 351,000 436,100 86,500 150,900
Amortization of li-
censes and purchased
software (note 4)..... 291,000 291,300 -- -- --
Provision for losses
on accounts receiv-
able.................. 99,000 65,000 431,700 17,500 19,900
Changes in operating
assets and liabili-
ties:
Accounts receivable... (203,700) (977,200) (1,930,500) 303,300 (981,600)
Investment in licens-
ing contracts re-
ceivable............. 1,004,500 502,900 585,300 228,600 (80,400)
Prepaid expenses and
other current as-
sets................. (25,400) 69,800 (87,200) 40,200 (111,200)
Other assets.......... (21,600) (18,400) (43,500) (7,700) (7,400)
Accounts payable...... (79,600) 133,500 255,700 33,100 (83,800)
Accrued expenses...... (112,100) 155,000 220,000 39,600 123,700
Other long-term lia-
bilities............. (45,800) (57,400) -- -- 28,200
Deferred maintenance
revenue.............. 224,500 (16,100) (365,600) (232,400) 82,600
---------- ----------- ----------- --------- ---------
Net cash provided
(used) by operating
activities.......... 1,328,000 1,322,200 729,900 629,800 (546,400)
---------- ----------- ----------- --------- ---------
Cash used by investing
activities -- Purchase
of furniture, fixtures
and equipment.......... (237,300) (354,300) (827,500) (118,600) (197,800)
Cash flows from financ-
ing activities:
Net borrowings (repay-
ments) under revolving
line of credit........ (646,000) (1,150,000) (50,000) (550,000) 800,000
Payments under capital
leases................ (172,100) (143,500) (51,900) (18,300) (13,000)
Stock options exer-
cised................. 300 23,700 -- -- --
---------- ----------- ----------- --------- ---------
Net cash (used) pro-
vided by financing
activities.......... (817,800) (1,269,800) (101,900) (568,300) 787,000
---------- ----------- ----------- --------- ---------
Effect of exchange rate
changes on cash........ (500) (5,600) 98,300 (9,400) (4,700)
---------- ----------- ----------- --------- ---------
Net change in cash... 272,400 (307,500) (101,200) (66,500) 38,100
Cash at beginning of pe-
riod................... 177,600 450,000 142,500 142,500 41,300
---------- ----------- ----------- --------- ---------
Cash at end of period... $ 450,000 $ 142,500 $ 41,300 $ 76,000 $ 79,400
========== =========== =========== ========= =========
Supplemental informa-
tion:
Cash paid for:
Interest............... $ 291,000 $ 352,200 $ 278,900 $ 72,400 $ 65,400
Income taxes........... -- 21,000 27,100 20,000 20,000
Non-cash investing ac-
tivity --
Acquisition of equip-
ment under capital
leases................ $ 132,900 $ 104,600 $ -- $ -- $ 30,000
========== =========== =========== ========= =========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

TSI International Software Ltd. (the "Company") develops, markets, licenses,
and supports computer software and related services which allow organizations
to integrate their business applications within the enterprise and with
outside business partners. The Company's customers are located primarily
throughout the U.S. and Western Europe and represent a broad range of
industries.

(a) Revenue Recognition

Software licensing revenues are recognized upon shipment of the product if
there are no significant post-delivery obligations, or at a later date once
such obligations are satisfied. Maintenance contract revenue is recognized
ratably over the term of the contracts, which are generally for one year. The
unrecognized portion of maintenance revenue is classified as deferred
maintenance revenue in the accompanying balance sheets. Consulting and
training revenues are recognized as services are performed.

The Company licenses its KEY/MASTER product on a term-use basis for 15 to 60
month periods. The contracts provide for maintenance and generally do not have
renewal or purchase options. At contract inception, the present value of the
payments to be received under the contract is apportioned between software
licensing revenue and maintenance revenue and recognized as described above.
The present value of the payments to be received are recorded as the
investment in licensing contracts receivable. License interest revenue is
recognized over the term of the contract at a constant rate of return.

(b) Product Development Costs

Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed",
requires that software development costs: (i) be expensed as incurred until
technological feasibility (as defined therein) is achieved; and (ii)
capitalized subsequent to achieving technological feasibility and prior to the
product being available to customers. The establishment of technological
feasibility of the Company's products has essentially coincided with the
products' general release to customers. Accordingly, the Company expenses all
software development costs as incurred.

Purchased software with alternative future use is capitalized and amortized
over its expected useful life.

Furniture, fixtures and equipment are carried at cost less accumulated
depreciation computed using the straight-line method over their estimated
useful lives. Furniture, fixtures and equipment held under capital leases and
leasehold improvements are amortized on a straight-line basis over the lease
term.

(d) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances
are provided for any portion of the deferred tax assets which are not more
likely than not to be realized.

F-7
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

(e) Net Income (Loss) Per Share

Net income (loss) per share is usually calculated using the weighted average
number of common and common equivalent shares outstanding during each period,
after retroactive adjustment for stock splits (see note 6). In addition, the
Securities and Exchange Commission requires that shares issued or options and
warrants granted within one year of an Initial Public Offering ("IPO") at
prices below the IPO price be shown as outstanding (using the Treasury Stock
method) for all periods presented. Further, in connection with the IPO, all
outstanding preferred stock will be converted into common stock on the basis
described in note 6 and, accordingly, are shown as outstanding for all periods
presented. Following are the components of common stock used to calculate net
income (loss) per share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding....... 2,815,443 2,845,630 2,886,822 2,886,822 2,886,822
Increment for shares is-
sued within one year of
the IPO.................. 198,750 198,750 198,750 198,750 198,750
Common shares expected to
be issued for conversion
of preferred stock....... 2,609,415 2,609,415 2,609,415 2,609,415 2,609,415
Dilutive effect of stock
options.................. -- -- 289,388 -- 731,086
--------- --------- --------- --------- ---------
Weighted average common
and common equivalent
shares outstanding....... 5,623,608 5,653,795 5,984,375 5,694,987 6,426,073
========= ========= ========= ========= =========
</TABLE>

The proposed IPO contemplates that $2,590,100 of the proceeds will be used
to repay bank borrowings. Following is a calculation of supplementary net
income per share for the year ended December 31, 1996 and (unaudited) the
three months ended March 31, 1997 as if the IPO taken place on January 1, 1996
and these bank borrowings were repaid on that date.

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1996 MARCH 31, 1997
------------- --------------
(unaudited)
<S> <C> <C>
Net income as reported.......................... $1,227,900 $ 312,700
Add interest expense related to borrowings ex-
pected to be repaid from IPO proceeds, net of
Federal tax.................................... 223,600 47,700
---------- ----------
Supplementary net income........................ $1,451,500 $ 360,400
========== ==========
Weighted average common and common equivalent
shares outstanding, as reported................ 5,984,375 6,426,073
Add shares required to be sold (at an assumed
IPO price of $8.00) to repay $2,590,100 of bank
borrowings..................................... 323,763 323,763
---------- ----------
Supplementary shares used to compute supplemen-
tary net income per share...................... 6,308,138 6,749,836
========== ==========
Supplementary net income per share.............. $ .23 $ .05
========== ==========
</TABLE>

(f) Cash Equivalents

The Company considers securities with maturities of three months or less,
when purchased, to be cash equivalents.

F-8
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

(g) Use of Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

(h) Accounting Changes

During 1996, the Company adopted SFAS No. 121 -- "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires companies to review assets for possible impairment and
provides guidelines for recognition of impairment losses related to long-lived
assets, certain intangibles and assets to be disposed of. The impact of the
adoption of SFAS No. 121 was not material.

Also during 1996, the Company adopted SFAS No. 123 -- "Accounting for Stock-
Based Compensation." In accordance with SFAS No. 123, the Company elected not
to record any compensation expense for stock options granted to employees at
fair value and will disclose in the notes to its financial statements the
impact on net income and net income per share as if the fair value based
compensation cost had been recognized (see note 6).

(2) FOREIGN OPERATIONS

The Company's balance sheets include foreign branch assets of $1,565,100,
$2,574,400, and $2,642,600 and liabilities of $258,800, $282,200, and $270,700
at December 31, 1995 and 1996, and (unaudited) March 31, 1997, respectively.
The foreign net income (loss) for the years ended December 31, 1994, 1995, and
1996, and (unaudited) the three months ended March 31, 1996 and 1997, after
allocation of corporate charges, was ($106,700), $133,700, $586,200, $129,600,
and $(115,600) respectively.

With the exception of direct sales activities in the United Kingdom and
Canada, the Company utilizes distributors and agents to market its products
outside the United States. Revenues generated through these third parties
amounted to $230,400, $147,100, $288,700, $91,500, and $35,700 for the years
ended December 31, 1994, 1995, and 1996, and (unaudited) for the three months
ended March 31, 1996 and 1997 respectively.

(3) INVESTMENT IN LICENSING CONTRACTS

The net investment in licensing contracts at December 31, 1996 is comprised
of future minimum contract payments receivable, net of unearned interest
income. The interest rate implicit in term-use licensing contracts was 9.5%
for contracts entered into during the years 1995 and 1996 and (unaudited) for
the first quarter of 1997. Total minimum contract payments receivable at
December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997........................................................... $ 826,200
1998........................................................... 394,100
1999........................................................... 147,800
2000........................................................... 48,000
2001........................................................... 11,800
----------
1,427,900
Less unearned interest income.................................. (134,300)
----------
1,293,600
Less current portion........................................... (742,000)
----------
Non current portion............................................ $ 551,600
==========
</TABLE>

F-9
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

There were no transactions during the three months ended March 31, 1997
which would significantly alter these receivables.

(4) CAPITAL ASSETS

(a) Furniture, Fixtures, and Equipment

Furniture, fixtures and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31, USEFUL LIFE
1995 1996 1997 RANGE
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Computer systems......... $ 1,778,700 $ 2,421,700 $ 2,610,000 3-7 years
Furniture and fixtures... 465,800 545,500 553,800 3-7 years
Office equipment......... 302,800 325,800 331,400 3-7 years
Leasehold improvements... 287,600 328,500 326,400 3-10 years
Automobiles.............. 59,000 99,900 97,600 5 years
----------- ----------- -----------
2,893,900 3,721,400 3,919,200
Less accumulated depreci-
ation and amortization.. (1,980,900) (2,417,000) (2,567,900)
----------- ----------- -----------
$ 913,000 $ 1,304,400 $ 1,351,300
=========== =========== ===========
</TABLE>

Computer systems and equipment under capital leases, included in the above
totals, net of accumulated depreciation, was $203,000, $56,200, and $64,300 as
of December 31, 1995 and 1996 and (unaudited) March 31, 1997, respectively.

(b) Purchased Software

In 1990, the Company acquired software from Foretell Corporation which was
available for sale to customers at the time of purchase. The cost of
$1,484,200 was amortized over a five year period which ended in 1995.
Amortization expense for years 1994 and 1995 was $291,000 and $272,100,
respectively.

(5) LONG-TERM DEBT

Since August 1994, the Company has had a line of credit facility with a
bank. The underlying loan agreement, as amended, which expires in November
1998 and is partially guaranteed by the Connecticut Development Authority
(CDA): (a) provides for Company borrowings equal to the lesser of $4,000,000
or the sum of: (i) 80% of eligible accounts receivable, (ii) lesser
percentages of certain other receivables; and (iii) the effective dollar
amount of the guarantee of the CDA (approximately $600,000); (b) requires
interest on borrowings at either the bank's prime rate plus 1.0% or the LIBOR
rate plus 3.0%; (c) collateralizes all assets of the Company as security for
the borrowings; (d) requires the Company to maintain several financial
covenants; and (e) imposes other restrictions, including (i) prohibition on
losses, cash dividends and key management changes and (ii) limitations on
additional debt, mergers and acquisitions, stock repurchases and sales of
assets (except in the normal course of business). The Company was in
compliance with all financial covenants at December 31, 1996 but (unaudited)
was not in compliance with the indebtedness to EBITDA ratio covenant at March
31, 1997. The Company has received a waiver for this non-compliance.

All repayments are due at maturity. Borrowings based on prime can be prepaid
without penalty.

F-10
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

Borrowing costs and effective interest rates under this agreement were as
follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense........ $395,400 $368,300 $250,200 $ 65,600 $ 60,000
Guarantee fees to CDA... 63,500 31,500 23,600 7,900 3,100
Commitment fees......... 8,300 20,000 11,700 5,000 --
-------- -------- -------- --------- ---------
$467,200 $419,800 $285,500 $ 78,500 $ 63,100
======== ======== ======== ========= =========
Effective interest rate. 10.13% 11.41% 9.51% 11.69% 8.41%
======== ======== ======== ========= =========
</TABLE>

(6) STOCKHOLDERS' (DEFICIENCY)

(a) Recent Developments

On May 8, 1997, the Board of Directors approved an IPO of the Company's
common stock and in connection therewith also approved at the closing of the
IPO: (i) an increase in the number of authorized shares of common stock and
preferred stock to 20,000,000 shares and 5,000,000 shares, respectively; and
(ii) a three-for-one common stock split. The accompanying financial statements
have been retroactively adjusted to reflect this common stock split.

Pursuant to the Company's Certificate of Incorporation, the closing of the
IPO will cause the conversion of all preferred shares into 2,759,715 shares of
common stock. In addition, on May 15, 1997, three new investors acquired a
total of 50,000 shares of Series E convertible preferred stock at $20 a share.
At the closing of the IPO, these shares will be converted into 150,000 shares
of common stock. The accompanying unaudited pro forma balance sheet at March
31, 1997 has also been retroactively adjusted for the new investment and the
conversion of all outstanding Preferred Stock.

The Board of Directors also approved the following stock-based plans:

<TABLE>
<CAPTION>
SHARES FORMS OF ISSUANCES
TYPE OF PLAN RESERVED OR GRANTS AWARDED
------------ --------- ------------------
<S> <C> <C>
Equity Incentive 1,125,000 Options, restricted shares and awards.
(replacing the 1993 Grants (under the 1993 Plan) of 112,500
Stock Option Plan) options at exercise prices from $5.00 to
$6.67 a share.
Directors Stock Option 225,000 Grants of 60,000 options at exercise price
of $6.67 a share.
Employee Stock Purchase 750,000 No grants made.
---------
2,100,000
=========
</TABLE>

(b) Preferred and Common Stock

The Company's Certificate of Incorporation authorizes 1,638,166 shares of
preferred stock, and 3,888,166 shares of common stock, each with a par value
of $.01 a share.

F-11
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

All of the classes of Preferred Stock (a) have the right to vote on an as-
converted basis; (b) convert into common stock; and (c) have certain anti-
dilution rights. The authorized shares of preferred stock have been designated
as follows:

<TABLE>
<S> <C>
Series A Convertible Preferred Stock ("Series A stock")............ 297,405
Series B Convertible Preferred Stock ("Series B stock")............ 115,761
Series C Convertible Preferred Stock ("Series C stock")............ 725,000
Series D Convertible Preferred Stock ("Series D stock")............ 364,469
Undesignated....................................................... 135,531
---------
1,638,166
=========
</TABLE>

Upon liquidation, dissolution or winding up of the Company, before any
distribution in respect of the Series A stock, Series B stock or common stock,
the holders of the Series C stock are entitled to receive an amount equal to
$6.00 a share plus any declared and unpaid dividends. In addition, the Series
C stock is entitled to receive preferential non-cumulative dividends, when
declared, at an annual per share amount of $0.48 through December 31, 1997 and
cumulative dividends at $0.72 a share thereafter. The Series C stock may be
redeemed at the Company's option after June 30, 1997 at $6.00 a share plus all
accumulated and unpaid dividends. Further, before any distribution in respect
of the common stock, the holders of shares of the Series B stock and
subsequently the Series A stock are entitled to receive an amount equal to
$13.39 a share plus any declared and unpaid dividends. In addition, the
holders of the Series B and A stock are entitled to receive preferential non-
cumulative dividends, when declared, at an annual per share amount of $1.07
through December 31, 1997 and cumulative dividends at $1.61 a share
thereafter. The Series B and A stock may be redeemed at the Company's option
after June 30, 1997 at $13.39 a share, plus all accumulated and unpaid
dividends. No dividends have been or are required to be declared on these
shares.

At December 31, 1996 the following shares of preferred stock were
outstanding:

<TABLE>
<S> <C>
Series A stock....................................................... 297,405
Series B stock....................................................... 115,761
Series C stock....................................................... 447,803
-------
Total outstanding.................................................. 860,969
Series B Stock issuable to prevent dilution.......................... 8,936
-------
869,905
=======
</TABLE>

Certain owners of preferred and common stock hold an aggregate of nine
warrants to purchase Series D stock at $2.00 a share. The warrants expire in
2002 and, seven of which are not expected to be exercised prior to the
proposed IPO. After the IPO, the remaining warrants are exercisable for
711,771 shares of common stock.

The Company maintains a 1993 Stock Option Plan ("Plan") which provides that
the Company may grant options for employees to purchase up to 1,558,431 shares
of the Company's common stock. Options issued to date have been granted at
fair market value, as determined by the Company's Board of Directors. No
options may be granted for a term greater than 10 years.

F-12
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

Transactions under the Plan are summarized below:

<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Shares under option at January 1........................ 739,767 919,857
Options exercised....................................... (71,160) --
Options granted......................................... 367,500 150,000
Options canceled........................................ (116,250) (6,000)
-------- ---------
Shares under option at December 31...................... 919,857 1,063,857
======== =========
Options exercisable at December 31...................... 409,107 576,357
======== =========
</TABLE>

Options were granted in 1995 and prior years at an exercise price of $0.33 a
share and options were granted during 1996 at exercise prices of $0.67 and
$1.67 a share. Substantially all options vest ratably over a four year period
from the date of grant.

There were 422,664 shares available for grant at December 31, 1996 and
(unaudited) 27,000 options were granted at $1.67 a share during the three
months ended March 31, 1997.

As discussed in Note 1, the Company adopted SFAS No. 123 during 1996 and
elected not to recognize compensation expense relating to employee stock
options where the exercise price of the option equaled the fair value (as
estimated by the Company) of the stock on the date of grant. As a non-public
entity, the Company utilized the minimum value method to determine
compensation based on the fair value of the options on the date of grant in
accordance with SFAS No. 123. Following are the resultant pro forma amounts of
net income and net income per share:

<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Net income -- as reported............................... $822,800 $1,227,900
Net income -- pro forma................................. $819,500 $1,216,600
Primary net income per share -- as reported............. $ .15 $ .20
Primary net income per share -- pro forma............... $ .15 $ .20
</TABLE>

The pro forma effect on net income for 1995 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.

The fair value of each option granted in 1995 and 1996 was $.21 and $.87,
respectively based on estimates on the date of grant using the modified Black-
Scholes option pricing model using the following weighted average assumptions:

<TABLE>
<S> <C>
Risk-free interest rate................................................ 6.27%
Expected life in years................................................. 6
Expected volatility.................................................... 0%
Expected dividend yield................................................ 0%
</TABLE>

(7) EMPLOYEE BONUS AND SAVINGS PLANS

The Company maintains a bonus plan for all non-executive officer employees.
The bonus plan is reviewed annually by the Board of Directors and provides for
payments based upon a percentage of pretax income, as defined. Bonus payments
of $40,000, $100,000, and $200,000 were authorized during 1994, 1995, and
1996, respectively.

F-13
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

On July 1, 1990, the Company established a defined contribution plan under
Section 401(k) of the Internal Revenue Code which provides for voluntary
employee salary deferrals but does not require Company matching funds. The
defined contribution plan covers substantially all employees. Employees are
eligible to contribute to the defined contribution plan upon completion of
three months of service with the Company. Contributions are subject to
established limitations as determined by the Internal Revenue Service. There
have been no Company contributions to the plan to date.

(8) INCOME TAXES

The provision for income taxes is composed solely of Federal Alternative
Minimum Taxes (AMT). The AMT for the Company's fiscal year ended April 30,
1995 of $13,200 was prorated to calendar 1994 ($8,800) and 1995 ($4,400). The
AMT for the period May 1 to December 31, 1995 was approximately $32,000. The
AMT for the year ended December 31, 1996 was approximately $36,200.

At December 31, 1996, the Company had: (a) federal tax net operating loss
carryforwards of $8,646,000 expiring between the years 2000 and 2009; (b)
research and experimentation credits of $590,000 expiring between 2003 and
2008; and (c) AMT credit carryforwards of $68,100 which have no expiration
date. Section 382 of the Internal Revenue Code imposes a limitation on the
amount of tax loss carryforwards which can be utilized in any year after there
has been a 50% or greater ownership change of the Company. The ownership
change is based on the number of shares of stock or the aggregate market value
of the stock within any consecutive three year period. Future years'
utilization of the Company's tax loss carryforwards could be subject to this
limitation.

At December 31, 1995 and 1996, the components of net deferred taxes
(utilizing a 41.4% combined tax rate) were:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities.............................. $1,306,900 $1,024,900
Deferred tax assets, net of valuation allowances of
$5,798,200 and $5,294,900 in 1995 and 1996........... 1,306,900 $1,024,900
---------- ----------
Net deferred taxes.................................. $ -- --
========== ==========
</TABLE>

Significant temporary differences which give rise to deferred tax (a)
liabilities and (b) assets are: (a) investment in licensing contracts
receivable and depreciation; and (b) net operating loss carryforwards and
deferred maintenance revenues.

The decrease in the valuation allowance of $503,300 in 1996 is the result of
the utilization of net operating loss carryforwards.

(9) ACCRUED EXPENSES

Included in accrued expenses as of December 31, 1995 and 1996 and
(unaudited) March 31, 1997 are compensation costs (regular payroll, bonus and
profit sharing) of $336,500, $548,300 and $804,200, respectively.

F-14
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

(10) COMMITMENTS AND CONTINGENCIES

The Company rents premises and furniture, fixtures and equipment under
operating leases which expire at various dates through 2010.

Future minimum payments, by year and in the aggregate, under operating and
capital leases at December 31, 1996 are:

<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ----------
<S> <C> <C>
1997................................................... $ 82,200 $ 787,300
1998................................................... 24,100 743,700
1999................................................... 9,000 705,900
2000................................................... -- 708,200
2001................................................... -- 453,900
Thereafter............................................. -- 1,404,300
-------- ----------
Total................................................ $115,300 $4,803,300
==========
Less amount representing interest...................... (10,200)
--------
Present value of minimum capital lease payments...... $105,100
========
</TABLE>

There were no significant modifications to the Company's portfolio of leases
during the three months ended March 31, 1997.

Certain of the aforementioned leases provide for additional payments
relating to taxes and other operating expenses. Rental expense for the years
ended December 31, 1994, 1995, and 1996 and (unaudited) the three months ended
March 31, 1996 and 1997 under all operating leases aggregated approximately
$770,900, $820,900, $717,300, $201,600, and $193,100, respectively.

(11) LITIGATION SETTLEMENT

In April 1995 the Company received cash in settlement of a lawsuit which,
after payment of legal expenses, resulted in a non-operating gain of $176,900.

F-15
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONCLUDED

(12) CONDENSED QUARTERLY INFORMATION (UNAUDITED)

The following condensed quarterly information has been prepared by
management on a basis consistent with the Company's audited financial
statements. Such quarterly information may not be indicative of future
results. Amounts are in thousands, except per share data.

<TABLE>
<CAPTION>
1995
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues.............................. $3,897 $4,027 $4,070 $4,067
Gross profit................................ 2,993 3,161 3,538 3,444
Net income.................................. 92 3 568 160
Net income per share........................ $ .02 $ -- $ .10 $ .03
Weighted average number of common and common
equivalent shares outstanding.............. 5,624 5,624 5,672 5,695
<CAPTION>
1996
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues.............................. $4,089 $4,236 $5,046 $5,633
Gross profit................................ 3,564 3,681 4,413 4,845
Net income.................................. 121 186 518 403
Net income per share........................ $ .02 $ .03 $ .08 $ .06
Weighted average number of common and common
equivalent shares outstanding.............. 5,694 5,847 6,152 6,243
</TABLE>

The sum of the quarterly per share amounts for 1996 does not agree to the
respective annual amount due to rounding.

F-16
<PAGE>

The inside back cover contains a chart depicting data transformation. The left
side of the graphic contains pictures of 3 computers in a vertical row with a
cube, pyramid and sphere, respectively next to the computer. Each drawing has an
arrow emanating from it to an oval in the center of the graphic. The oval
contains a vertical row of a cube, pyramid and sphere (in a vertical column)
each with two arrows emanating from it and pointing to two other three
dimensional shapes on the right side of the oval. The right side of the oval has
two arrows emanating from it and pointing towards the right. The top arrow
points to a piece of computer equipment with a three dimensional shape next to
it and the bottom arrow points to a different piece of computer equipment with a
three dimensional "pie" shape next to it.

The TSI Data Transformation Solution
for Integrating Applications

. Concurrent transformation between multiple application sources and
destinations

. Support for any application, message or file format

. Elimination of custom written interface programs

. No modification to the underlying applications

. Support for multiple protocols for data transport

. Scalability and portability across a broad range of computing platforms

. Execution in batch mode, real-time, stand-alone, or embedded within
applications

<PAGE>

[LOGO OF TST SOFT APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth expenses, other than the underwriting
discount and commissions, to be paid by the Registrant in connection with this
offering. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 12,121
NASD filing fee................................................. 4,500
Nasdaq National Market filing fee............................... 40,665
Accounting fees and expenses.................................... 125,000
Legal fees and expenses......................................... 300,000
Printing and engraving expenses................................. 135,000
Blue sky fees and expenses...................................... 15,000
Transfer agent and registrar fees and expenses.................. 12,500
Miscellaneous................................................... 55,214
--------
Total......................................................... $700,000
========
</TABLE>
- --------
* To be filed by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director to the fullest extent permitted by the Delaware General
Corporation Law. As permitted by Section 145 of the Delaware General
Corporation Law, the Bylaws of the Registrant provide that (i) the Registrant
is required to indemnify its directors and executive officers and the
directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) to the fullest extent permitted by the
Delaware General Corporation Law, the Registrant is required to advance all
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding (subject to certain exceptions), (iii) the rights
conferred in the Bylaws are not exclusive, (iv) the Registrant may, in its
discretion indemnify or advance expenses to persons whom the Registrant is not
obligated to indemnify or advance expenses; (v) the Registrant is authorized
to enter into indemnification agreements with its directors, officers,
employees and agents or any person serving at the request of the Registrant as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including employee benefit plans and
(vi) the Registrant may not retroactively amend the Bylaw provisions relating
to indemnification.

The Registrant intends to enter into indemnity agreements with each of its
directors and executive officers. The indemnity agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors, officers, employees or agents of the Registrant or as
directors, officers, employees or agents of any other company or enterprise
when they are serving in such capacities at the request of the Registrant. The
Registrant will not be obligated pursuant to the agreements to indemnify or
advance expenses to an indemnified party with respect to proceedings or claims
(i) initiated by the indemnified party and not by way of defense, except with
respect to a proceeding authorized by the Board and successful proceedings
brought to enforce a right to indemnification under the indemnity agreements,
(ii) for any amounts paid in settlement of a proceeding unless the Registrant
consents to such settlement; (iii) on account of any suit in which judgment is
rendered against the indemnified party for an accounting of profits made from
the purchase or sale by the indemnified party of securities of the Registrant
pursuant to the provisions of (S)16(b) of the

II-1
<PAGE>

Securities Exchange Act of 1934 and related laws; (iv) on account of conduct
by an indemnified party that is finally adjudged to have been in bad faith or
conduct that the indemnified party did not reasonably believe to be in, or not
opposed to, the best interests of the Registrant; (v) on account of any
criminal action or proceeding arising out of conduct that the indemnified
party had reasonable cause to believe was unlawful; or (vi) if a final
decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.

The indemnity agreement requires a director or executive officer to
reimburse the Registrant for expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, his or her indemnity agreement or otherwise to
be indemnified for such expenses. The indemnity agreement provides that it is
not exclusive of any rights a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any majority-in-
interest vote of the stockholders or vote of disinterested directors, Delaware
law, or otherwise.

The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
directors and executive officers for liabilities arising under the Securities
Act.

As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Registrants Board, has is seeking, and expects to obtain, directors and
officers liability insurance.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Form of Underwriting Agreement............................. 1.01
Registrant's Certificate of Incorporation.................. 3.01
Registrant's Bylaws........................................ 3.04
1989 Stock Purchase Agreement, as amended.................. 4.03
Form of Indemnification Agreement.......................... 10.06
</TABLE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following table sets forth information regarding all securities sold by
the Registrant and its Connecticut predecessor since May 1, 1994.

<TABLE>
<CAPTION>
AGGREGATE
NUMBER PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES OF SHARES PRICE CONSIDERATION
------------------- ------------ ------------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Officers, directors and 05/94-05/97 Options to Purchase 772,500 -- --
employees Shares of Common Stock
granted under the
Company's 1993 Stock
Option Plan (1)
Officers, directors and 05/94-05/97 Common Stock purchased 71,910 $ 23,970 cash
employees upon exercise of stock
options
Mitsui & Co., Ltd., May 15, 1997 Series E Convertible 50,000 $1,000,000 cash
Mitsui Knowledge Preferred Stock
Industry Co., Ltd. and
Nippon Venture Capital
Co., Ltd.
</TABLE>
- --------
(1) With respect to the grant of stock options, exemption from registration
under the Securities Act was unnecessary in that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of
the Securities Act.

II-2
<PAGE>

All sales of Common Stock made pursuant to the exercise of stock options
granted under the Registrant's stock option plan and issuances to independent
contractors were made pursuant to the exemption from the registration
requirements of the Securities Act afforded by Rule 701 promulgated under the
Securities Act.

All other sales were made in reliance on Registration S promulgated under
the Securities Act or Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act. This sale was made to three purchasers,
two of which are affiliated, in connection with a distribution arrangement
without general solicitation or advertising. The purchasers were not United
States residents and were sophisticated investors with access to all relevant
information necessary to evaluate the investment who represented to the
Registrant that the shares were being acquired for investment.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed herewith:

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.13 --Letter Agreement, between Registrant and Constance Galley.
10.14 --Letter Agreement dated as of December 5, 1995 between Registrant
and Eric Amster.+
10.15 --Letter Agreement dated as of October 5, 1995, between Registrant
and Ira Gerard.+
10.16 --Letter Agreement dated as of January 1, 1994 between Registrant
and Edward Watson.+
10.17 --Letter Agreement dated as of October 1, 1994, between Registrant
and Saydean Zeldin.+
10.18 --Series E Preferred Stock Purchase Agreement dated as of May 15,
1997 between the Company and the Purchasers named therein.+
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 --Consent of KPMG Peat Marwick LLP, Independent Accountants.
27.01 --Financial Data Schedule (EDGAR version only).+
24.01 --Power of Attorney (see Page II-6 of this Registration Statement).+
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.

(b) The following financial statement schedule is filed herewith:

Schedule II -- Valuation and Qualifying Accounts

Other financial statement schedules are omitted because the information
called for is not required or is shown either in the Financial Statements or
the Notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to 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.

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 under Item 14 above, 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 Securities 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 whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned 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 this
Registration Statement in reliance upon Rule 430A and contained in a 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 the purpose 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.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wilton, State of Connecticut, on the
18th day of June, 1997.

TSI INTERNATIONAL SOFTWARE LTD.

By: /s/ Constance F. Galley
---------------------------------
CONSTANCE F. GALLEY
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

In accordance with the requirements of the Securities Act, this Registration
Statement was signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----

<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:

/s/ Constance F. Galley President, Chief
- ------------------------------------- Executive Officer June 18, 1997
CONSTANCE F. GALLEY and a Director

PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:

/s/ Ira A. Gerard Vice President,
- ------------------------------------- Finance and June 18, 1997
IRA A. GERARD Administration and
Chief Financial
Officer

</TABLE>
II-5
<PAGE>

NAME TITLE DATE
---- ----- ----

DIRECTORS:

* Director
- ------------------------------------- June 18, 1997
STEWART K.P. GROSS

* Director
- ------------------------------------- June 18, 1997
ERNEST E. KEET

* Director
- ------------------------------------- June 18, 1997
JOHN J. PENDRAY

* Director
- ------------------------------------- June 18, 1997
DENNIS G. SISCO

* /s/ Ira Gerard Attorney-in-Fact
- ------------------------------------- June 18, 1997
IRA GERARD

</TABLE>

II-6
<PAGE>

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

The Board of Directors
TSI International Software Ltd.

The audits referred to in our report dated April 14, 1997 included the
related financial statement schedule for the years ended December 31, 1994,
1995, and 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 of this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Stamford, Connecticut
April 14, 1997

S-1
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD

FINANCIAL STATEMENT SCHEDULE

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
CHARGED BALANCE
BALANCE AT TO COSTS CHARGED TO AT END
BEGINNING AND OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
----------- ---------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Receivable:
Year ended December 31,
1994................... $399,600 $99,000 $96,600 $(443,100) $152,100
Year ended December 31,
1995................... 152,100 65,000 65,800 (124,800) 158,100
Year ended December 31,
1996................... 158,100 431,700 1,400 (271,300) 319,900
Three months ended March
31, 1996............... 158,100 17,500 -- (14,100) 161,500
Three months ended March
31, 1997............... 319,900 19,900 94,000 (145,000) 288,800
</TABLE>
- --------
(1) Recoveries of balances previously written off.
(2) Write-offs of receivables and reversals of unneeded balances.

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 --Form of Underwriting Agreement.+
3.01 --Registrant's Certificate of Incorporation.+
3.02 --Form of Amended and Restated Certificate of Incorporation to be
filed after the consummation of this offering.+
3.03 --Registrant's Bylaws.+
4.01 --Form of Specimen Certificate for Registrant's Common Stock.+
4.02 --Stockholders Agreement dated as of June 1, 1989, as amended.+
4.03 --1989 Stock Purchase Agreement dated as of June 1, 1989, as
amended.+
5.01 --Opinion of Fenwick & West LLP regarding legality of the securities
being issued.
10.01 --Registrant's 1993 Stock Option Plan and related documents.+
10.02 --Registrant's 1997 Equity Incentive Plan.+
10.03 --Registrant's 1997 Directors Stock Option Plan.+
10.04 --Registrant's 1997 Employee Stock Purchase Plan.+
10.05 --Registrant's Profit Participation Plan.+
10.06 --Form of Indemnification Agreement to be entered into by Registrant
with each of its directors and executive officers.
10.07 --Lease Agreement dated as of January 2, 1990 between Registrant and
Robert D. Scinto, as amended.+
10.08 --Office Building Lease dated as of February 4, 1994 between
Registrant and American National Bank and Trust Company of Chicago,
not individually but solely as Trustee under Trust No. 42978, as
amended.+
10.09 --Lease Agreement dated as of July 1, 1996 between Registrant and
Boca Corners, L.P., Ltd., as amended.+
10.10 --Credit Agreement dated as of July 31, 1994 between Registrant and
The Bank of New York, as amended.+
10.11 --Security Agreement dated as of July 31, 1994 between Registrant
and The Bank of New York.+
10.12 --Guarantee Agreement dated as of August 22, 1994 by and between the
Connecticut Development Authority and The Bank of New York, as
amended.+
10.13 --Letter Agreement, between Registrant and Constance Galley.
10.14 --Letter Agreement dated as of December 5, 1995 between Registrant
and Eric Amster.+
10.15 --Letter Agreement dated as of October 5, 1995, between Registrant
and Ira Gerard.+
10.16 --Letter Agreement dated as of January 1, 1994 between Registrant
and Edward Watson.+
10.17 --Letter Agreement dated as of October 1, 1994, between Registrant
and Saydean Zeldin.+
10.18 --Series E Preferred Stock Purchase Agreement dated as of May 15,
1997 between the Company and the Purchasers named therein.+
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 --Consent of KPMG Peat Marwick LLP, Independent Accountants.
27.01 --Financial Data Schedule (EDGAR version only).+
24.01 --Power of Attorney (see Page II-6 of this Registration Statement).+
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.

<PAGE>

EXHIBIT 5.01
------------

June 20, 1997

TSI International Software Ltd.
45 Danbury Road
Wilton, Connecticut 06897

Gentlemen/Ladies:

At your request, we have examined the Registration Statement on Form S-1,
file number 333-27293 (the "Registration Statement") filed by you with the
Securities and Exchange Commission (the "Commission") on May 16, 1997 in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of 3,000,000 shares of your Common Stock (the "Stock"),
1,600,000 of which are presently issued and outstanding and will be sold by
certain selling stockholders (the "Selling Stockholders").

In rendering this opinion, we have examined the following:

(1) the Registration Statement on Form S-1 together with the Exhibits
filed as a part thereof;

(2) your registration statement on form 8-A (File Number 0-22667) filed
with the Commission on June 6, 1997;

(3) the Prospectuses prepared in connection with the Registration
Statement;

(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of your predecessor, TSI International
Ltd., a Connecticut corporation ("TSI Connecticut"), that are in our
possession;

(5) the stock records for both you and TSI Connecticut that you have
provided to us (consisting of a list of stockholders and a list of
option and warrant holders as of May 31, 1997 regarding your capital
stock that was prepared by you);

(6) the Certificate of Incorporation of TSI International Ltd. (the
"Company"), as amended through June 20, 1997 and the Bylaws of the
Company, both certified by the Secretary Company on June 20, 1997
and filed as Exhibits 3.01 and 3.03 to the Registration Statement,
respectively;

(7) the Form of the Amendment to the Certificate of Incorporation of the
Company to be filed on or before the effective date of the
Registration Statement; and

(8) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
<PAGE>

TSI International Software Ltd.
June 20, 1997
Page 2

In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the legal capacity of all natural
persons, the genuineness of all signatures on original documents, the
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies, the lack of any
undisclosed terminations, modifications, waivers or amendments to any documents
reviewed by us and the due execution and delivery of all documents where due
execution and delivery are prerequisites to the effectiveness thereof.

As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information included in the documents referred
to above. We have made no independent investigation or other attempt to verify
the accuracy of any of such information or to determine the existence or non-
existence of any other factual matters; however, we are not aware of any facts
-------
that would lead us to believe that the opinion expressed herein is not accurate.

Based upon the foregoing, it is our opinion that the 1,600,000 shares of
Stock to be sold by the Selling Stockholders pursuant to the Registration
Statement are legally issued, fully paid and nonassessable and that the up to
3,000,000 shares of Stock to be issued and sold by you, when issued and sold in
accordance in the manner referred to in the relevant Prospectus associated with
the Registration Statement, will be legally issued, fully paid and
nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.

This opinion speaks only as of its date and is intended solely for the your
use as an exhibit to the Registration Statement for the purpose of the above
sale of the Stock and is not to be relied upon for any other purpose.

Very truly yours,

FENWICK & WEST LLP

<PAGE>

EXHIBIT 10.06

FORM OF TSI INTERNATIONAL SOFTWARE LTD.

INDEMNITY AGREEMENT

This Indemnity Agreement (this "Agreement"), dated as of ________ ____,
---------
1997, is made by and between TSI International Software Ltd., a Delaware
corporation (the "Company"), and _________________, a director and/or officer of
-------
the Company (the "Indemnitee").
----------

RECITALS
--------

A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;

B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
-----
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;

C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify by
-----------
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive; and

D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

1. Definitions.
-----------

1.1 Agent. For the purposes of this Agreement, "agent" of the
----- -----
Company means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
<PAGE>

Company; or was a director or officer of a foreign or domestic corporation which
was a predecessor corporation of the Company, including, without limitation, TSI
International Ltd., a Connectictut corporation, or was a director or officer of
another enterprise or affiliate of the Company at the request of, for the
convenience of, or to represent the interests of such predecessor corporation.
The term "enterprise" includes any employee benefit plan of the Company, its
----------
subsidiaries, affiliates and predecessor corporations.

1.2 Expenses. For purposes of this Agreement, "expenses" includes
-------- --------
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other out-
of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification or advancement of expenses
under this Agreement, Section 145 or otherwise; provided, however, that expenses
-------- -------
shall not include any judgments, fines, ERISA excise taxes or penalties or
amounts paid in settlement of a proceeding.

1.3 Proceeding. For the purposes of this Agreement, "proceeding"
---------- ----------
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.

1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means
---------- ----------
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more of
its subsidiaries or by one or more of the Company's subsidiaries.

2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
------------------
to serve as an agent of the Company, at the will of the Company (or under
separate agreement, if such agreement exists), in the capacity the Indemnitee
currently serves as an agent of the Company, faithfully and to the best of his
ability, so long as he is duly appointed or elected and qualified in accordance
with the applicable provisions of the charter documents of the Company or any
subsidiary of the Company; provided, however, that the Indemnitee may at any
-------- -------
time and for any reason resign from such position (subject to any contractual
obligation that the Indemnitee may have assumed apart from this Agreement), and
the Company or any subsidiary shall have no obligation under this Agreement to
continue the Indemnitee in any such position.

3. Directors' and Officers' Insurance. The Company shall, to the extent
----------------------------------
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
-------------
and conditions as may be approved by the Board.

4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee:

4.1 Third Party Actions. If the Indemnitee is a person who was or
-------------------
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of
<PAGE>

anything done or not done by him in any such capacity, against any and all
expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of 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 and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; and

4.2 Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of 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; except that no
------
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and

4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.

5. Partial Indemnification and Contribution.
----------------------------------------

5.1 Partial Indemnification. If the Indemnitee is entitled under
-----------------------
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.

5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware General Corporation Law, then in respect
of any threatened, pending or completed proceeding in which the Company is
jointly liable with the Indemnitee (or would be if joined in such
<PAGE>

proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by the Indemnitee in such proportion as
is appropriate to reflect (i) the relative benefits received by the Company on
the one hand and 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 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 5 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.

6. Mandatory Advancement of Expenses.
---------------------------------

6.1 Advancement. Subject to Section 9 below, the Company shall
-----------
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the General Corporation
Law of Delaware or otherwise. The advances to be made hereunder shall be paid by
the Company to the Indemnitee within thirty (30) days following delivery of a
written request therefor by the Indemnitee to the Company.

6.2 Exception. Notwithstanding the foregoing provisions of this
---------
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at least
twenty (20) percentage points without advance Board approval.
<PAGE>

7. Notice and Other Indemnification Procedures.
-------------------------------------------

7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

7.2 If, at the time of the receipt of a notice of the commencement
of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.

7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
--------
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.

8. Determination of Right to Indemnification.
-----------------------------------------

8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the investigation, defense or appeal of such
proceeding, or such claim, issue or matter, as the case may be.

8.2 In the event that Section 8.1 is inapplicable, or does not apply to
the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the
<PAGE>

Indemnitee has not met the applicable standard of conduct required to entitle
the Indemnitee to such indemnification.

8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8.2 hereof that the Indemnitee is
not entitled to indemnification will be heard from among the following, except
------
that the Indemnitee can select a forum consisting of the stockholders of the
Company only with the approval of the Company:

(a) A quorum of the Board consisting of directors who are not parties
to the proceeding for which indemnification is being sought;

(b) The stockholders of the Company;

(c) Legal counsel mutually agreed upon by the Indemnitee and the
Board, which counsel shall make such determination in a written opinion;

(d) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by the Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or

(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.

8.4 As soon as practicable, and in no event later than thirty (30) days
after the forum has been selected pursuant to Section 8.3 above, the Company
shall, at its own expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification, and the Company shall act in the
utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.

8.5 If the forum selected in accordance with Section 8.3 hereof is not a
court, then after the final decision of such forum is rendered, the Company or
the Indemnitee shall have the right to apply to the Court of Chancery of
Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
--------
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.

8.6 Notwithstanding any other provision in this Agreement to the contrary,
the Company shall indemnify the Indemnitee against all expenses incurred by the
Indemnitee in connection with any hearing or proceeding under this Section 8
involving the Indemnitee and against all expenses incurred by the Indemnitee in
connection with any other proceeding between the Company and the Indemnitee
involving the interpretation or enforcement of the rights of the Indemnitee
under this Agreement unless a court of competent jurisdiction finds that each of
the
<PAGE>

material claims and/or defenses of the Indemnitee in any such proceeding was
frivolous or not made in good faith.

9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
------
proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification and/or advancement of expenses arising under
this Agreement, the charter documents of the Company or any subsidiary or any
statute or law or otherwise, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or

9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or

9.3 Securities Law Actions. To indemnify the Indemnitee on account
----------------------
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or

9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.

10. Non-Exclusivity. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.

11. General Provisions
------------------

11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement
<PAGE>

of expenses to the Indemnitee to the fullest extent now or hereafter permitted
by law, except as expressly limited herein.

11.2 Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, then:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any paragraphs of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.

11.3 Modification and Waiver. No supplement, modification 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 provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver.

11.4 Subrogation. In the event of full payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary or desirable to secure such rights and
to enable the Company effectively to bring suit to enforce such rights.

11.5 Counterparts. This Agreement may be executed in one or more counter-
------------
parts, which shall together constitute one agreement.

11.6 Successors and Assigns. The terms of this Agreement shall bind, and
----------------------
shall inure to the benefit of, the successors and assigns of the parties hereto.

11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and receipted for by the party addressee; or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement or as subsequently modified by written
notice.

11.8 Governing Law. This Agreement shall be governed exclusively by and
-------------
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
<PAGE>

11.9 Consent to Jurisdiction. The Company and the Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement.

11.10 Attorneys' Fees. In the event Indemnitee is required to bring any
---------------
action to enforce rights under this Agreement (including, without limitation,
the expenses of any Proceeding described in Section 3), the Indemnitee shall be
entitled to all reasonable fees and expenses in bringing and pursuing such
action, unless a court of competent jurisdiction finds each of the material
claims of the Indemnitee in any such action was frivolous and not made in good
faith.

IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.

TSI INTERNATIONAL SOFTWARE LTD. INDEMNITEE:
a Delaware corporation

By: By:
--------------------------------- ------------------------------

Title:
------------------------------

Address: Address:
---------------------------- ----------------------------

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

<PAGE>

EXHIBIT 10.13

EMPLOYMENT AGREEMENT
--------------------

EMPLOYMENT AGREEMENT made and entered into as of May 1, 1988 by and between
Constance F. Galley (the "Employee"), and TSI International Ltd. ("TSI"), a
Connecticut corporation having its principal place of business at 295 Westport
Avenue, Norwalk, CT 06856.

WHEREAS, TSI wishes to employ the Employee and the Employee wishes to be
employed under the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:

1. Employment and Term.
-------------------

1.1 TSI agrees to employ the Employee as President and Chief
Executive officer and the Employee agrees to render her full-time services to
TSI for a term of one year, which term shall commence as of the date of this
Agreement and terminates as the end of the first full fiscal year thereafter,
subject to annual renewal for one-year increments as set forth below. The
Employee agrees to devote her full business time and the best of her abilities
to the faithful and diligent performance of her services to TSI under the
direction of the Board of Directors of TSI.

1.2 Unless either party shall have given written notice of non-
renewal to the other party no fewer than thirty (30) days before the expiration
of the initial or then current renewal term, this Agreement shall automatically
renew for successive periods of one (l) year.

1.3 In the event TSI is sold or recapitalized or substantially all
of the assets of TSI are sold (the "Sale of TSI"), the remaining term of this
Agreement shall be one year unless otherwise agreed between the parties. If
termination should occur as a result of the "Sale of TSI", the Employee will
receive a severance compensation of one year's annual salary as outlined in
paragraph 2.1 and one year's continuance of eligible benefits.
<PAGE>

2. Compensation.
------------

2.1 TSI agrees to pay the Employee an annual Salary of One Hundred
Twenty Thousand Dollars ($120,000), payable in accordance with TSI's standard
payroll practices. This salary is for the one-year term (FY '89) of this
Agreement, and thereafter will be as determined by the Board of Directors of
TSI.

2.2 If the profits before taxes for TSI's full fiscal year, based
on TSI's audited financial statements, exceed Six Hundred Thousand Dollars
($600,000), TSI will pay the Employee a one-time bonus equal to Fifteen Thousand
Dollars ($15,000) plus five percent of all profits before taxes in excess of Six
Hundred Thousand Dollars ($600,000). If the profits before taxes for TSI's full
fiscal year, based on TSI's audited financial statements, exceed Eight Hundred
Thousand Dollars ($800,000), TSI will pay the Employee an additional Fifteen
Thousand Dollars ($15,000). For purposes of this bonus calculation, the amount
of this bonus will not be considered as an expense which reduces profits.

If revenues as for TSI 's full fiscal year, based on TSI's
audited financial statements, exceed Ten Million Dollars ($10, 000,000), TSI
will pay the Employee a one-time bonus equal to one percent of all revenues in
excess of Ten Million Dollars ($10,000,000).

3. Benefits.
--------

3.1 The Employee shall be entitled to participate on the same
basis, subject to the same qualifications as other TSI employees and pursuant to
TSI's then prevailing policies, in any group medical, hospitalization, or other
fringe benefit plans in effect with respect to employees of TSI in general but
not including any group profit sharing or other profit-based incentive program.

3.2 The Employee shall be entitled to the same number of paid
holidays per year as set forth by TSI for its employees in general plus twenty
(20) paid vacation days to be scheduled by the mutual agreement of the parties.

2
<PAGE>

4. Employments Guidelines. The Employee agrees to at all times be bound
----------------------
by and adhere to the Employment Guidelines attached hereto and incorporated
herein, and to use her best efforts to protect the proprietary and confidential
materials and information of TSI and of TSI's clients, including valuable trade
secrets.

5. Termination.
-----------

5.1 This agreement shall terminate and all payments due hereunder
shall cease, except to the extent accrued, upon death of the Employee, without
further act of TSI.

5.2 TSI shall have the right to terminate this Agreement and any
payments due hereunder upon prior written notice to the Employee, if a licensed
physician employed by the Board of Directors of TSI, shall determine that the
Employee, by reason of physical or mental disability (excluding infrequent and
temporary absences due to ordinary transitory illness) shall be unable to
perform the services required of her hereunder for more than three consecutive
months or an aggregate of six months during any twelve-month period.

5.3 TSI shall have the right to terminate this Agreement, without
further compensation, upon prior written notice to the Employee, in the event of
a breach of the terms hereof by the Employee or if, in the opinion of the board
of Directors of TSI, the Employee is guilty of willful misconduct, gross
negligence, gross insubordination, or causes disrepute, or otherwise for good
cause.

5.4 TSI shall have the right to terminate this Agreement, for
convenience, at the discretion of the Board of Directors. If such termination
occurs, the Employee will receive a severance compensation of six months' annual
salary, as specified in paragraph 2.1, and six months' continuance of eligible
benefits and shall be entitled to no other payment or benefit from TSI.

5.5 Upon termination or expiration of this Agreement, irrespective
of the reason therefore, the Employee shall promptly turn over to TSI all
proprietary and confidential materials of the kind referred to in Section 4 and
all tangible forms of the Employee's work

3
<PAGE>

product (including work files) without retaining any copies or duplicates
thereof, except as to which TSI may in writing give permission.

6. Negative Covenant.
-----------------

6.1 The Employee agrees that during the term of this Agreement
(including any renewal terms hereunder) and for a period of one (1) year
following the termination of this Agreement, she will not, directly or
indirectly, own, operate, manage, join, control, or participate in the
ownership, management, operation or control of, or be connected with as a
partner, stockholder, director, officer, agent, employee, or consultant, any
business, firm, or corporation which engages in the sale of products which are
directly competitive with TSI in the territories TSI serves; provided, however,
that nothing in this Section 6.1. shall bar the acquisition of any publicly
traded securities which do not confer upon the Employee the right to control or
influence the policy of the issuer.

6.2 The Employee further agrees that for a period of one (1) year
following the termination of this Agreement, she will not, without the prior
written consent of TSI, (a) solicit for employment any of the staff of TSI or of
TSI's customers, or (b) solicit the business of TSI's customers.

7. Remedies. The parties hereto recognize that, in the event of any
--------
breach by the Employee of the provisions of Sections 4, 5 or 6 hereof, damages
may be difficult, if not impossible, to ascertain and it is therefore agreed
that TSI, in addition to and without limiting any other remedy it might have
under this Employment Contract, or at law or in equity, shall be entitled to an
injunction against the Employee issued by any court of competent jurisdiction
enjoining any such breach. The Employee agrees to reimburse TSI for all out-of-
pocket costs and expenses, including reasonable attorney's fees, incurred by TSI
by reason of any such breach; provided, however, that if a court of competent
-------- -------
jurisdiction in any action wherein TSI is the claimant with respect to such
breach shall determine that no such breach occurred or is likely, and if any
appeal therefor be taken by TSI where such determination shall be fully and
finally upheld, TSI shall reimburse the Employee for all out-of-pocket costs and
expenses,

4
<PAGE>

including reasonable attorney's fees, incurred by the Employee by reason of such
action and any appeal.

8. Representation and Warranty. Employee represents and warrants that she
is not now and was not on the date of commencement of this Agreement a party to
any agreement, contract or understanding, whether of employment or otherwise,
which would in any way restrict or prohibit her from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.

9. Miscellaneous.
-------------

9.1 Should any provision or part of this Employment Contract be
declared void or unenforceable by any court or administrative body of competent
jurisdiction, such provisions or part shall be deemed severable and, without
further action by the parties to this Agreement, shall be severed from the
remainder of this Agreement which shall continue in all respects valid and
enforceable.

9.2 Any notices or communications hereunder shall be in writing and
shall be personally delivered or sent by registered or certified mail to the
addresses specified herein or, after proper notice, to such addresses as the
parties may specify.

9.3 Any notices or communications hereunder shall be in writing and
shall be personally delivered or sent by registered or certified mail to the
addresses specified herein or, after proper notice, to such addresses as the
parties may specify.

9.3 This Agreement shall be binding upon and inure to the benefit of
TSI, its successors or assigns, or any corporation which acquires all or
substantially all of its assets. This agreement is personal as to the Employee
and shall not be assignable by the Employee.

9.4 This Agreement constitutes the entire understanding of the
parties hereto with respect to the Employee's employment and her compensation
therefor and supersedes any

5
<PAGE>

prior agreements and understanding between the parties concerning employment or
compensation.

9.5 This Agreement shall be governed by and construed under the laws
of the State of Connecticut.

9.6 The captions appearing in this Agreement appear as a matter of
convenience only and in no way define or limit the scope and intent of any of
the provisions hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.

For TSI For the Employee:
295 Westport Avenue
Norwalk, CT 05856

By: /s/ Ernest Keet By: /s/ Constance Galley
----------------------------- ------------------------------
Typed Name: Ernest E. Keet Type Name: Constance F. Galley
Chairman, Compensation Address:
Committee --------------------------

----------------------------------
Date:
----------------------------

<PAGE>

EXHIBIT 23.02

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
TSI International Software Ltd.

We consent to the use of our reports included herein and to the reference to
our firm under "Experts" and "Selected Financial Data" in the Prospectus.

KPMG Peat Marwick LLP

Stamford, Connecticut

June 20, 1997