SOFTWARE AG SYSTEMS INC, S-1, 1997-09-26

SOFTWARE AG SYSTEMS INC
S-1, 1997-09-26
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION

----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------
SOFTWARE AG SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 54-1167173
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5734
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

11190 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(703) 860-5050
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

----------------
DANIEL F. GILLIS PRESIDENT AND CHIEF EXECUTIVE OFFICER 11190 SUNRISE VALLEY
DRIVE
RESTON, VA 20191
(703) 860-5050
(NAME AND ADDRESS OF AGENT FOR SERVICE)

----------------
COPIES TO:
ROBERT B. OTT, ESQ. DANIEL A. RASKAS, PETER B. TARR, ESQ. BRENT B. SILER,
ESQ. ARNOLD & PORTER 555 TWELFTH ESQ. HALE AND DORR LLP 1455
STREET, N.W. WASHINGTON, D.C. 20004 PENNSYLVANIA AVENUE, N.W. WASHINGTON,
(202) 942-5000 D.C.

---------------- (202) 942-8400

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE

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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock $.01 par
value per share....... 8,855,000 Shares $14.00 $123,970,000 $37,567
</TABLE>
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(1) Includes 1,155,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended.

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

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 SEPTEMBER 26, 1997

[LOGO OF SOFTWARE AG AMERICAS APPEARS HERE]

7,700,000 SHARES

COMMON STOCK

Of the 7,700,000 shares of Common Stock offered hereby, 4,600,000 shares are
being sold by Software AG Systems, Inc. (the "Company") and 3,100,000 shares
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares being sold 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 per share will be between $12.00 and $14.00 per share. See
"Underwriting" for information relating to the method of determining the
initial public offering price. Application will be made for listing of the
Common Stock on the New York Stock Exchange ("NYSE") under the symbol "AGS."
---------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.

---------

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
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO COMMISSIONS COMPANY STOCKHOLDERS
PUBLIC (1) (2) (3) (3)
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<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
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Total (3)...................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters as stated herein (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,100,000.
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase an aggregate of up to an additional 1,155,000
shares of Common Stock on the same terms as set forth above, solely to
cover over-allotments, if any. See "Underwriting." If this option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company 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 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 DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

The date of this Prospectus is , 1997
<PAGE>

[COMPANY LOGO AND GRAPHICAL SCHEMATIC, UNDER THE CAPTION "ENTERPRISE BUSINESS
SOLUTIONS", DEPICTING HOW THE COMPANY'S PRODUCTS AND SERVICES WORK TOGETHER
AND WITH THIRD PARTY PRODUCTS IN BUSINESS COMPUTING ENVIRONMENTS TO DEVELOP
ENTERPRISE LEVEL APPLICATIONS AND TO FACILITATE ACCESS TO INFORMATION. SUB-
CAPTIONS INCLUDE "MISSION-CRITICAL SYSTEMS", "DATA WAREHOUSE", "INFORMATION
ACCESS" AND "APPLICATION COMPONENT TECHNOLOGY."]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

2
<PAGE>

NO DEALER, SALES REPRESENTATIVE OR ANY 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, ANY SELLING STOCKHOLDER OR 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 SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY 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 OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Company Background....................................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 30
Management............................................................... 41
Certain Relationships and Transactions................................... 47
Principal and Selling Stockholders....................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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The Company's principal executive offices are located at 11190 Sunrise
Valley Drive, Reston, Virginia 20191, and its telephone number is (703) 860-
5050. The Company intends to mail to all of its stockholders an annual report
containing financial statements audited by its independent accountants for
each year and quarterly reports containing unaudited financial data for each
of the first three quarters of each year.

ENTIRE(R), SourcePoint(R), PREDICT(R), ADAPLEX(R), ENTIRE NET-WORK(R) and
ENTIRE ACCESS(R) are registered trademarks of the Company, and iXpress(TM),
EntireX/DCOM(TM), ENTIRE BROKER(TM), ENTIRE BROKER SDK(TM), ENTIRE BROKER
APPC(TM), ENTIRE SAF Gateway(TM), INSIGHT 2000(TM), INSIGHT 2000 Tool Kit(TM),
CONSTRUCT(TM), NATURAL Lightstorm(TM), CONSTRUCT Spectrum(TM), CONSTRUCT
Spectrum SDK(TM), CONSTRUCT Extract Service(TM), ADABAS Delta Save
Facility(TM), ADABAS FASTPATH(TM), ADABAS SQL Server(TM), ADABAS Vista(TM) are
trademarks of the Company. Trade names and trademarks of other companies
appearing in this Prospectus are the property of their respective owners.

3
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ materially from those results discussed in
these forward-looking statements and from the results historically experienced.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."

THE COMPANY

Software AG Systems, Inc. is an enterprise solutions company that provides
robust software products and related professional services to large
organizations with complex computing requirements. The Company's products are
used to build and enhance mission-critical applications that require
reliability, scaleability and security, such as customer billing systems, cash
management systems and inventory management for aircraft maintenance systems.
To complement its products, the Company has a comprehensive professional
services offering, including consulting, software integration, systems
implementation and large project management services. The Company has over 24
years of experience in addressing the needs of organizations with complex
enterprise level computing environments.

The Company provides enterprise development software products and related
professional services used by organizations to develop new mission-critical
applications and enterprise enablement software products and related
professional services used to extend existing applications to new technologies.
The Company's enterprise development products include ADABAS, a high-
performance database management system designed to operate with a variety of
data types and computer platforms, and NATURAL, a 4GL programming language that
enables the development of applications that are portable, scaleable and
interoperable across multiple computing platforms. The Company also provides
software products and professional services that enable organizations to extend
existing mission-critical applications to the Internet and intranets and to
create new applications. Products in this area include ENTIRE, a family of
middleware products that facilitates the communication between application
components across heterogeneous computing environments; SourcePoint, an
automated data warehouse management product; iXpress, a Web application
assembly and deployment platform; and EntireX/DCOM, a product that uses
Microsoft's ActiveX technology to bridge applications written in a variety of
programming languages. The Company's professional services that complement its
products include application development and enhancement, application
reengineering, application porting and rightsizing, Web integration and data
warehouse design and implementation.

The Company has a rapidly growing Year 2000 Program which offers a new,
internally developed software product, INSIGHT 2000 Tool Kit, as well as
project management and consulting services to assist customers in the
resolution of their year 2000 problem. The Company believes that there are over
one billion lines of NATURAL code in the United States alone, most of which are
candidates for year 2000 analysis, remediation and testing. To address this
opportunity, the Company has hired 34 new consultants in the first six months
of 1997 and has opened three Millenium Centers for code analysis, remediation
and testing.

The Company's strategy is to further leverage its current leadership position
in building enterprise applications and data access solutions for large
organizations by extending its product and professional service offerings into
the Web integration, data warehouse, middleware and year 2000 markets. Key
elements of this strategy include enhancing and extending product offerings
through acquisitions of complementary products or technologies, internal
product development and licensing additional products; leveraging the Company's
current base of over 1,300 customers; expanding the Company's professional
service offerings; and selling additional products and professional services
through the Company's distribution channels.

On March 31, 1997, the senior management of the Company and Thayer Equity
Investors III, L.P. ("Thayer") acquired approximately 89% of the outstanding
Common Stock of the Company (the

4
<PAGE>

"Recapitalization"). Prior to the Recapitalization, the Company was a wholly
owned subsidiary of Software AG, a large German software company ("SAG"), and
the Company's management was constrained in its ability to develop new
products, license third-party software, retain capital for expansion and make
acquisitions of companies, products or technologies. Management has undertaken
several strategic initiatives since the Recapitalization to increase revenue
growth and profitability including building a product development organization,
developing a product and professional services offering that addresses the year
2000 problem and acquiring R. D. Nickel and Associates Incorporated ("R.D.
Nickel"), a software company with a family of application development products.
The Company believes that, as an independent entity, it will continue to have
significant opportunities to enhance growth.

Immediately prior to the Recapitalization, the Company renegotiated its
licensing agreement with SAG (as renegotiated, the "Cooperation Agreement") to
provide the Company the exclusive and perpetual right to license and service in
North America, South America, Japan and Israel (collectively, the "Territory")
both existing and future products of SAG.

The Company markets and sells its software products and professional services
through direct and indirect channels. In North America, the Company sells its
products through a direct sales channel that includes over 100 people in 19
sales offices. The Company sells its products in over 20 additional countries
through six distributors located in South America, Japan and Israel. In
addition, the Company has access to the distribution channels of SAG in over 50
countries outside the Territory. The Company recently implemented a
reorganization of its sales force into three groups that focus separately on
selling Enterprise License Agreements ("ELAs"), professional services and the
Year 2000 Program. The Company believes that this reorganization and the
resulting productivity improvements in its sales force have contributed to its
revenue growth since the Recapitalization.

The Company has over 1,300 customers, consisting primarily of major
corporations, government agencies and educational institutions. The Company's
customers include Morgan Stanley, Dean Witter, Discover & Co., Delta Air Lines,
Inc., Sprint Corporation, Tandy Corporation, Federal Express Corp., Nissan
Motor Co., LTD., Cable and Wireless, PLC, Banorte Bank, State of California,
State of New Jersey, Federal Bureau of Investigation, Brown University and the
University of Texas. Most of the Company's customers have been long term users
of its products and services. For the nine months ended June 30, 1997, 97% of
the Company's customers who were eligible renewed at least one of their
maintenance arrangements.

THE OFFERING

<TABLE>
<C> <S>
Common Stock Offered by the Company................. 4,600,000 shares
Common Stock Offered by the Selling Stockholders.... 3,100,000 shares
Common Stock to be Outstanding after the Offering
(1)................................................ 28,937,500 shares
Use of Proceeds..................................... To repay indebtedness;
to fund an acquisition
payment; and for working
capital and other
general corporate
purposes. See "Use of
Proceeds."
Proposed NYSE Symbol................................ AGS
</TABLE>
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(1) Excludes (i) 4,947,525 shares of Common Stock issuable upon the exercise of
stock options outstanding at September 26, 1997, granted under the Software
AG Systems, Inc. 1997 Stock Option Plan (the "Stock Option Plan") at a
weighted average exercise price of $4.90 per share and (ii) 1,927,475
additional shares of Common Stock reserved for future issuance under the
Stock Option Plan. See "Management--Stock Option Plan."

5
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SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
PREDECESSOR COMBINED PREDECESSOR SUCCESSOR
------------------------------------------------------- -------- ----------- ---------
SIX SIX THREE THREE
MONTHS MONTHS MONTHS MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
---------------------------------------------- JUNE 30, JUNE 30, MARCH 31, JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA (1):
Software license fees... $ 50,498 $ 51,672 $ 51,832 $ 52,061 $ 52,163 $18,978 $21,595 $ 7,341 $14,254
Maintenance fees........ 51,162 57,264 65,871 65,307 69,702 34,396 35,746 17,352 18,394
Professional service
fees................... 24,139 31,175 29,552 35,194 34,975 16,021 20,247 9,948 10,299
-------- -------- -------- -------- -------- ------- ------- ------- -------
Total revenues......... 125,799 140,111 147,255 152,562 156,840 69,395 77,588 34,641 42,947
Gross profit............ 70,866 70,149 77,429 81,239 83,869 35,585 39,972 17,127 22,845
Income (loss) from
operations............. (7,873) (4,971) 895 3,188 5,281 (2,976) 3,463 1,310 2,153
Net income (loss)....... (5,587) 6,380 1,382 3,326 6,209 (835) 3,524 1,373 2,151
Net income (loss) per
share (2).............. $(0.18) $0.21 $0.05 $0.11 $0.20 $(0.03) $0.13 $0.04 $0.08
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED (4)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 8,440 $ 3,340 $ 52,754
Working capital ......................... 14,457 4,257 53,671
Total assets............................. 123,591 125,391 174,805
Total stockholders' equity............... 39,310 36,010 90,524
</TABLE>

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(1) The historical financial data set forth for the periods ended, or as of
dates, on or prior to March 31, 1997 reflect the results of operations and
balance sheet data of the Company prior to the Recapitalization when the
Company was a wholly owned subsidiary of SAG and is captioned as
"Predecessor." The historical financial data subsequent to March 31, 1997
reflect the results of operations and balance sheet data subsequent to the
Recapitalization and is captioned as "Successor." "Combined" data combines
financial data for the three months ended March 31, 1997 (prior to the
Recapitalization) with financial data for the three months ended June 30,
1997 (subsequent to the Recapitalization). See "Company Background."
(2) Shares used in computing net income (loss) per share for all periods
presented are 30,583,942, except for the three month and six month periods
ended June 30, 1997, which are 27,421,472. See Note 1 of Notes to
Consolidated Financial Statements.
(3) Pro forma gives effect to (i) the issuance by the Company of a promissory
note in the principal amount of $5.1 million in connection with the
acquisition of R.D. Nickel and (ii) the expected write-off of $3.3 million
of purchased in-process research and development expected to be recorded in
connection with the acquisition of R.D. Nickel.
(4) As adjusted to give effect to the sale by the Company of 4,600,000 shares
of Common Stock offered hereby by it at an assumed initial public offering
price of $13.00 per share and the application of the net proceeds
therefrom. See "Use of Proceeds."

Except as otherwise indicated, the information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option and reflects a
275-for-1 stock split to be effected as a stock dividend prior to the closing
of this offering. Unless the context otherwise requires, all references in this
Prospectus to the "Company" or "Software AG Systems, Inc." refer to Software AG
Systems, Inc., a Delaware corporation, and its consolidated subsidiaries and
assume the consummation of the agreement dated as of September 26, 1997 to
acquire R.D. Nickel. See "Company Background."

6
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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 and from the results
historically experienced as a result of certain factors, including those in
the following risk factors and elsewhere in this Prospectus. In addition to
the other information contained in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business
before purchasing shares of the Common Stock offered hereby.

POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE

The Company has experienced significant quarterly and other fluctuations in
revenues and operating results and expects these fluctuations to continue in
the future. The Company believes that these fluctuations have been primarily
attributable to the budgeting and purchasing practices of its customers, and,
to a lesser extent, the Company's sales commission practices, which are based
partly on annual quotas, and other factors. The Company's revenues and results
of operations may also be affected by seasonal trends which have resulted in
higher revenues in the Company's third and fourth quarters and lower revenues
in its first and second quarters. The Company's professional services fees
tend to fluctuate due to the completion or commencement of significant
projects, the number of working days in a quarter and the Company's ability to
attract, retain and efficiently utilize professional services personnel. The
Company's future revenues and operating results may fluctuate as a result of
these and other factors, including the demand for the Company's products and
services, the timing and cost of new product and service introductions and
product enhancements by the Company or its competitors, changes in the mix of
products and services sold by the Company and in the mix of sales by
distribution channels, commencement or conclusion of significant service
contracts, timing of any acquisitions and associated costs, the size, timing
and terms of customer orders, including delays in significant orders, changes
in pricing policies by the Company or its competitors, the timing of
collection of accounts receivable, changes in foreign currency exchange rates,
competitive conditions in the industry and general economic conditions.

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, the Company's operating results are likely to be
materially and adversely affected. The Company's net income may be
disproportionately affected by a reduction in revenue because a large portion
of the Company's expenses cannot be easily reduced. In addition, the Company
intends to increase its operating expenses by expanding its software product
development staff, increasing its professional services and sales and
marketing operations, expanding its 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, financial condition and results of
operations could be materially and adversely affected.

Due to all of the foregoing factors, it is likely that in some future
periods the Company's revenues or operating results will be below the
expectations of securities analysts or investors, in which case the market
price of the Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operations--Quarterly Results of Operations."

RELATIONSHIP WITH SAG

The Company has the exclusive right to license and service in North America,
South America, Japan and Israel both existing and future products developed or
acquired by SAG and, historically, substantially all of

7
<PAGE>

the Company's revenues have been derived from the licensing and servicing of
products developed by SAG. As a result, a materially adverse change in the
financial condition, or a change in control, of SAG could have a material
adverse effect on the business, financial condition and results of operations
of the Company. In the past, SAG has reported operating losses. In addition,
the failure of SAG to develop new products and enhancements to existing
products in a timely manner, to provide ongoing technical support for its
existing products or to adequately protect its proprietary rights could have a
material adverse effect on the business, financial condition and results of
operations of the Company. In the past, the Company has experienced delays in
receiving products from SAG in a timely manner. The Cooperation Agreement
requires SAG to ensure that its products are year 2000 compliant in accordance
with a specific timetable and any failure by SAG to adhere to that timetable
also could have a material adverse effect on the Company's business, financial
condition and results of operations. In 1995 and 1996, the Company's aggregate
royalty payments to SAG were $23.9 million and $26.1 million, respectively. To
the extent that the Company's aggregate royalty payments to SAG fall below $21
million in any calendar year through the year 2000, the Company generally is
required to pay the differential to SAG, and any such payment could have a
material adverse effect on the Company's business, financial condition and
results of operations.

SAG has the exclusive right to license and service in all territories other
than North America, South America, Japan and Israel both existing and future
products developed or acquired by the Company. As a result, the Company is
dependent on SAG for the distribution of these products outside of North
America, South America, Japan and Israel. Any failure by SAG to distribute
such products in a timely and effective manner could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Company Background."

TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS

The Company operates in a rapidly changing technological environment in
which it must keep pace with new technologies and competitive forces in order
to be successful. The Company's success will depend in part on its ability to
acquire and/or develop product enhancements and new products that keep pace
with continuing changes in technology and evolving customer preferences. There
can be no assurance that the Company will be successful in acquiring and/or
developing product enhancements or new products to adequately address changing
technologies, that it can introduce such products on a timely basis or that
any such products or enhancements will be successful in the marketplace. The
Company's failure to acquire and/or develop technological improvements or to
adapt its products to technological change may have a material adverse effect
on the Company's business, financial condition and results of operations.

DEPENDENCE ON THE YEAR 2000 MARKET

The Company believes that its future growth depends, in part, on increased
demand for the Company's products and professional services relating to the
resolution of the year 2000 problem. The Company had no revenues from its Year
2000 Program in 1996. For the six months ended June 30, 1997, the Company had
revenues of $1.9 million from its Year 2000 Program. Although the Company
believes that the market for products and professional services relating to
the year 2000 problem will grow as the year 2000 approaches, there can be no
assurance that this market will develop to the extent anticipated by the
Company. Significant expenses for sales and marketing may be required to
educate potential clients of the year 2000 problem and the need for products
and professional services addressing the problem. There can be no assurance
that potential clients will understand or acknowledge the problem. In
addition, affected organizations may not be willing or able to allocate the
resources, financial or otherwise, to address the problem in a timely manner.
Many organizations may attempt to resolve the problem internally rather than
contract with outside firms such as the Company and value added integrators to
which the Company may license its software products. Due to these and other
factors, development of the market for the Company's year 2000 products and
professional services is uncertain and unpredictable. In addition, the Company
anticipates that demand for products and professional services that address
the year 2000 problem will decline, perhaps rapidly, following the year 2000.

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<PAGE>

If the market for year 2000 products and professional services fails to grow,
or grows more slowly than anticipated, the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition, competition for personnel qualified to perform professional services
relating to the year 2000 problem is intense, and there can be no assurance
that the Company will be able to retain its employees who provide such
professional services or be able to attract and retain such personnel in the
future.

RELIANCE ON ACQUISITIONS

The Company believes that its future growth will depend, in part, on its
ability to successfully identify, acquire and then develop promising
technologies and products. In addition, the Company intends to build its
product development staff in part through acquisitions. The Company signed an
agreement on September 26, 1997 to acquire R.D. Nickel. The integration of
R.D. Nickel or any other future acquisitions into the Company's existing
business could result in certain unanticipated difficulties that could require
a disproportionate amount of management's attention and the Company's
resources. Furthermore, there can be no assurance that the anticipated
benefits of acquiring R.D. Nickel or any other future acquisition will be
realized. The Company has limited experience in completing acquisitions and
integrating acquired technologies or products into its operations. The Company
may compete for future acquisition opportunities with other companies that
have significantly greater financial and management resources. While the
Company is continually searching for acquisition opportunities, there are
presently no agreements with respect to any material acquisition, and there
can be no assurance that the Company will be successful in identifying,
acquiring and developing products and technology. Acquisitions could also have
adverse short-term effects on the Company's operating results, and could
result in dilutive issuances of equity securities and the incurrence of debt
and contingent liabilities. In addition, many business acquisitions must be
accounted for as purchases and, because most software-related acquisitions
involve the purchase of significant intangible assets, these acquisitions
typically result in substantial amortization charges and may also involve
charges for acquired research and development projects, which could have a
material adverse effect on the Company's operating results. The Company
expects to incur significant charges of this nature in connection with the
acquisition of R.D. Nickel. See "Company Background."

MANAGEMENT OF PROFESSIONAL SERVICES GROWTH

The Company recently has experienced a period of growth in its professional
services business, with revenues from such business increasing from $16.0
million for the six months ended June 30, 1996 to $20.2 million for the six
months ended June 30, 1997. The Company's ability to staff and manage any
future growth in this business effectively will require it to continue to
improve its operational, financial and management controls and reporting
systems and procedures, and to hire, train, motivate and manage its
professional services employees. There can be no assurance that the Company
will be able to manage these challenges in an efficient or timely manner. If
management of the Company is unable to manage growth effectively, the
Company's business, financial condition and results of operations could be
materially adversely affected.

DEPENDENCE ON CUSTOMER BASE

Most of the Company's sales are made to its existing customers. Customers
typically pay a one-time licensing fee for use of the Company's products and
generally pay an annual charge for maintenance which includes software updates
and technical support. There can be no assurance that customers will continue
to purchase the Company's products and services, that the Company's historic
maintenance renewal rates will continue, or that the Company will be able to
maintain its current pricing levels for products and maintenance. Customers'
decisions not to renew their maintenance agreements or to renew them on
different terms could have a material adverse effect on the Company's
business, financial condition and results of operations.

RELIANCE ON MAINFRAME COMPUTING ENVIRONMENT

The majority of the Company's products are purchased by customers using IBM
and IBM-compatible mainframe computing platforms. Worldwide, an increasing
proportion of computing functions are being

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<PAGE>

performed on alternative computing platforms, including mid-range computers
and client/server networks. A significant shift in the way the Company's
customers use computing platforms may have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, although the Company believes that any migration away from mainframe
computing platforms is subsiding as a result of more cost effective mainframe
technology and other factors, any further significant reduction in the role of
mainframe or other legacy systems could have a material adverse effect on the
Company's business, financial condition and results of operations.

PROPRIETARY TECHNOLOGY

The Company's success is dependent to a significant extent on its ability to
protect its proprietary rights. The Company has no patents and depends upon a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure, assignment of invention and other contractual provisions, and
various security measures to protect its proprietary rights. The Company is
also dependent on SAG and other third parties that license products to the
Company to protect their proprietary rights in such products. There can be no
assurance that the legal protections afforded to, or the precautions taken by,
the Company or its third-party licensors will be adequate to prevent
misappropriation of their respective proprietary rights. In addition, these
protections do not prevent independent third-party development of functionally
equivalent or superior technologies, products or professional services. Any
infringement or misappropriation of the Company's proprietary rights, or those
of its third-party licensors, could have a material adverse effect on the
Company's business, financial condition and results of operations.

In the future, litigation may be necessary to enforce and protect the
Company's trade secrets, copyrights and other intellectual property or
proprietary rights. The Company may also be subject to litigation to defend
against claimed infringement of, or to determine the scope and validity of,
the intellectual property or proprietary rights of others. In the event of
litigation involving the use of technology by the Company, the Company could
be required to expend significant resources to develop non-infringing
technology or to obtain licenses to technology in litigation. There can be no
assurance that the Company would be successful in such development or that any
such licenses would be available on commercially reasonable terms, if at all.
Although the Company is not aware that its products, trademarks and other
proprietary rights infringe upon the proprietary rights of third parties,
there can be no assurance that third parties will not assert infringement
claims against the Company and that such claims will not have a material
adverse effect on the Company's business, financial condition and results of
operations. Any such litigation could result in substantial cost to the
Company and divert management's attention from the Company's operations,
either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Adverse
determinations in such litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require
the Company to seek licenses from third parties or prevent the Company from
selling its products, any one of which would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Proprietary Rights."

DEPENDENCE ON THIRD-PARTY TECHNOLOGY

The Company's products are currently designed, and may in the future be
designed, to work on or in conjunction with certain third-party hardware
and/or software products. If any of these current or future third- party
vendors were to discontinue making their products available to the Company or
to licensees of the Company's products or to increase materially the cost to
the Company or its licensees to acquire, license or purchase the third-party
vendors' products, or if a material problem were to arise in connection with
the ability of the Company's products to properly use or operate with third-
party hardware and/or software products, the Company's products would have to
be redesigned by the Company, or the licensor of the product to the Company,
to function with or on alternative third-party products. There can be no
assurance that an alternative source of suitable technology would be available
or that the Company, or the licensor of the product to the Company, would be
able to develop an alternative product on a timely basis or at a reasonable
cost. The failure of the Company to license, acquire or develop alternative
technologies or products

10
<PAGE>

on a timely basis and at a reasonable cost could have a material adverse
effect on the Company's business, financial condition and results of
operations.

COMPETITION

The markets for the Company's software products and professional services
are highly competitive and characterized by continual change and improvement
in technology. The Company provides products and professional services to
several markets within the computer industry and encounters competitors within
each such market. Many of the Company's competitors have significantly greater
financial, marketing and other competitive resources than the Company. The
Company's principal competitors currently include IBM Corporation ("IBM"),
Oracle Corporation ("Oracle"), Microsoft Corporation ("Microsoft"), Informix
Corporation ("Informix"), PLATINUM Technology, Inc. ("PLATINUM"), Sybase, Inc.
("Sybase"), VIASOFT, Inc. ("Viasoft"), Sterling Software, Inc. ("Sterling
Software"), Visigenic Software, Inc. ("Visigenic"), SAS Institute, Inc.
("SAS"), Formal Systems, Inc. ("Formal Systems"), BDM International, Inc.
("BDM") and Electronic Data Systems Corporation ("EDS"). Few of the Company's
competitors compete in all of the same markets as the Company. In certain
markets in which the Company competes, such as the year 2000 market, there are
no significant barriers to entry. There can be no assurance that the Company
will be able to compete successfully against current and future competitors,
and the failure to do so would have a material adverse effect upon the
Company's business, financial condition and results of operations. In
addition, no assurance can be given that the Company will not be required to
make substantial additional investments in connection with its research,
development, marketing, sales and customer service efforts in order to meet
any competitive threat, or that such required investments will not have a
material adverse effect on operating margins. Increased competition could
result in reduction in market share, pressure for price reductions and related
reductions in gross margins, any of which could materially adversely affect
the Company's business, financial condition and results of operations. See
"Business--Competition."

RISK ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS

The Company holds the exclusive right to license SAG products in North
America, South America, Japan and Israel. In South America, Japan and Israel,
the Company has entered into exclusive distributorship arrangements with local
firms. The Company's distributorships in South America, Japan and Israel have
been in place for 25, 21 and 19 years, respectively, and collectively
accounted for 11.3% and 12.4% of the Company's total revenues in 1996 and the
first six months of 1997, respectively. There can be no assurance that such
distributors will continue to perform as they have historically and that they
will not offer products that compete with the Company's products.
Additionally, the distributorships generally may be terminated by either party
at any time upon compliance with applicable notice provisions. In the event
that any of the distributorships were terminated or expired, there can be no
assurance that the Company could find an adequate replacement, and such a
termination or expiration could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is currently renegotiating its distributorship arrangements in Japan and South
America.

Sales of products and the provision of services to customers outside the
United States accounted for 15.2% and 15.9% of the Company's total revenues in
1996 and the first six months of 1997, respectively. The Company anticipates
that revenues from international sales and services will continue to account
for a material portion of its total revenues in the foreseeable future. As a
result, the Company may be subject to certain risks associated with
international operations, including risks associated with foreign currency
exchange rate fluctuations and risks associated with the application and
imposition of protective legislation and regulations relating to import or
export (including export of high technology products) or otherwise resulting
from trade, foreign policy or the variability of foreign economic conditions.
To date, the Company has not engaged in any hedging transactions to mitigate
its risks relating to exchange rate fluctuations. Additional risks associated
with international operations include costs of localizing products for foreign
countries, lack of acceptance of localized products in foreign countries,
difficulties in enforcing intellectual property and contract rights, the
burdens of complying with a wide variety of foreign laws, potentially adverse
tax consequences, tariffs, quotas

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<PAGE>

and other barriers, and potential difficulties in collecting accounts
receivable. There can be no assurance that these and other factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.

RISK OF SOFTWARE DEFECTS

Software products as complex as those offered by the Company frequently
contain errors or defects, especially when first introduced or when new
versions or enhancements are released. Despite product testing, new products
may contain defects or software errors and, as a result, the Company may
experience delayed or lost revenues during the period required to correct any
defects or errors. Any such defects or errors could result in adverse customer
reactions, negative publicity regarding the Company and its products, harm to
the Company's reputation, or loss of or delay in market acceptance, or could
require expensive product changes, any of which could have a material adverse
effect upon the Company's business, financial condition and results of
operations. The Company's Cooperation Agreement with SAG provides for only
limited warranties by SAG with respect to the software products licensed by it
to the Company and, therefore, the Company may be primarily liable to its
customers for defects in SAG-supplied software.

POTENTIAL FOR CONTRACT LIABILITY

The Company markets its products and professional services to customers for
developing, building, deploying, maintaining and managing mission-critical
computer software applications and for addressing the year 2000 problem. The
Company's license and other agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential liability
claims relating to the Company's products or professional services. Despite
this precaution, there can be no assurance that the limitations of liability
set forth in the Company's agreements would be enforceable or would otherwise
protect the Company from liability for damages. Although the Company has not
experienced any material product liability claims to date, the sale and
support of the Company's products and professional services may entail the
risk of such claims, which could be substantial in light of the use of such
products in mission-critical applications. A material product liability claim
against the Company, regardless of its outcome, could result in substantial
cost to the Company and divert management's attention from the Company's
operations. Therefore, any material product liability claim could have a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE ON STATE, LOCAL AND OTHER GOVERNMENT CONTRACTS

The Company derived 24.8% of its total revenues in 1996 and 20.5% of its
total revenues for the first six months of 1997 from selling its products and
professional services directly or indirectly to state and local government
agencies. In addition, the Company derived 12.0% of its total revenues in 1996
and 1.1% of its total revenues for the first six months of 1997 from selling
its products and professional services directly or indirectly to federal
government agencies. Any failure to obtain a contract award, or a delay on the
part of a government agency in making the award or in ordering products and
professional services under an awarded contract, could have a material adverse
effect on the Company's business, financial condition and results of
operations. Other risks generally involved in government sales include the
larger discounts (and thus lower margins) typically involved in government
sales, the dependence of the Company on the ability of a prime contractor, if
any, to obtain the award and perform the contract, the unpredictability of
funding for various government programs, the ability of the government agency
to unilaterally terminate the contract, and the dependence on the
creditworthiness of any prime contractor (some of which are relatively small
organizations without substantial funds). The Company anticipates that state,
local and other government sales will continue to represent a significant but
fluctuating portion of its revenues in the future.

FIXED PRICE CONTRACTS

Revenues from fixed price contracts have represented approximately 8% and
11% of the Company's total revenues for 1996 and the first six months of 1997,
respectively. In making proposals for fixed price contracts,

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<PAGE>

the Company relies on its estimated costs for completing the project. These
estimates reflect, among other factors, judgments as to the efficiencies of
the Company's technology and services as applied to the project. Any increased
or unexpected costs or unanticipated delays in connection with the performance
of fixed price contracts could have a material adverse effect on the Company's
business, financial condition and results of operations. In the past, the
Company has suffered material losses on fixed price contracts.

DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL PERSONNEL

The Company's future performance depends to a significant degree upon the
continued service of the key members of its management, as well as marketing,
sales, consulting and product development personnel, and its ability to
attract and retain new management and other personnel. The loss of any one or
more of the Company's key personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. Company
employees are employed at-will and the Company has no fixed-term employment
agreements with any of its employees.

While historically the Company primarily has relied on SAG for product
development, the Company believes its future success will also depend in part
upon its ability to develop its own technologies and products and,
consequently, upon its ability to attract and retain highly skilled technical
and product development personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to retain its key
employees or that it will be successful in attracting, integrating and
retaining new personnel in the future. Failure to attract, integrate and
retain such personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company currently has approximately 110 independent contractors who work as
technical consultants primarily in connection with the Company's professional
service offerings. Competition for such contractors is intense and the failure
to continue to attract and hire such contractors when they are needed could
have a material adverse effect on the Company's business, financial condition
and results of operations.

CONTROL BY OFFICERS, DIRECTORS AND THAYER

Upon completion of this offering, the Company's officers and directors, and
their affiliates, in the aggregate, will have voting control over
approximately 72% of the Company's outstanding Common Stock. In particular,
Thayer and its affiliates will have voting control over approximately 60% of
the Company's outstanding Common Stock. As a result, these stockholders will
be able to control all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. The
voting power of Thayer and the Company's officers and directors under certain
circumstances could have the effect of preventing or delaying a change in
control of the Company. See "Principal and Selling Stockholders."

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS

The Company's Second Amended and Restated Certificate of Incorporation and
Second Amended and Restated Bylaws contain certain provisions that may have
the effect of discouraging a third party from making an acquisition proposal
for the Company. Such provisions could limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock. For
example, the Board of Directors is authorized to issue, without stockholder
approval, up to 25,000,000 shares of preferred stock, $.01 par value, of the
Company (the "Preferred Stock") with voting, conversion and other rights and
preferences that may be superior to the Common Stock and that could adversely
affect the voting power or other rights of the holders of Common Stock. The
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. Other provisions
impose various procedural and other requirements that could make it more
difficult for shareholders to effect certain corporate actions. In addition,
the Company's Board of Directors is divided into three classes, each of which
will serve for a staggered three-year term, which may make it more difficult
for a third party to gain control of the Company's Board of Directors. Certain
provisions of the Cooperation Agreement with SAG may also have the effect of
discouraging a third party from making an acquisition proposal for the
Company. See "Company Background" and "Description of Capital Stock--Certain
Provisions of Delaware Law, the Certificate of Incorporation and the Bylaws."

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<PAGE>

NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF COMMON STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop following this offering. The initial public offering price will be
determined through negotiations among the Company and the Underwriters and may
not be indicative of the market price of the Common Stock after the completion
of this offering. See "Underwriting" for factors to be considered in
determining the initial public offering price. The market price for the Common
Stock after this offering may be volatile and may be affected by a number of
factors, including the announcement of new products, product enhancements or
services by the Company or its competitors, quarterly variations in the
Company's or its competitors' results of operations, changes in earnings
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies in the technology
sector have experienced wide fluctuations that often have been unrelated to
the operating performance of such companies. Such factors and fluctuations, as
well as general economic, political and market conditions, such as recessions,
may materially adversely affect the market price of the Company's Common
Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
28,937,500 shares of Common Stock. Of these shares, the 7,700,000 shares
offered hereby will be freely tradable without restriction in the public
market. An additional 2,750,000 shares will be eligible for sale beginning 90
days after the date of this Prospectus (of which will be subject to 180-
day lock-up agreements between certain shareholders and the Representatives of
the Underwriters), and 18,487,500 shares will be eligible for sale beginning
March 31, 1998 (of which will be subject to 180-day lock-up agreements).
Robertson, Stephens & Company may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to the
lockup agreements. In addition, the Company intends to file registration
statements on Form S-8 under the Securities Act of 1933, as amended (the
"Securities Act"), on or about the date of this Prospectus to register all
shares of Common Stock issued or reserved for issuance under the Stock Option
Plan. Sales of substantial amounts of Common Stock or the availability of such
shares for sale could adversely affect prevailing market prices of the Common
Stock. See "Shares Eligible for Future Sale" and "Underwriting."

DILUTIVE EFFECT OF THE OFFERING

Purchasers of Common Stock in this offering will experience immediate and
significant dilution of approximately $10.73 in the net tangible book value
per share of the Common Stock so purchased, based on an assumed initial public
offering price of $13.00 per share. This will result in the existing
stockholders of the Company realizing an immediate accretion in the net
tangible book value of their investment. See "Dilution."

DIVIDENDS

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."

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<PAGE>

COMPANY BACKGROUND

In February 1981, the Company was incorporated as a Delaware corporation and
established as a holding company for Software AG Americas, Inc. Since 1973,
Software AG Americas, Inc. has primarily licensed and serviced SAG products in
the United States and other countries through a series of licensing agreements
with SAG. In June 1981, the Company sold approximately 30% of its outstanding
common stock in an initial public offering. In 1988, SAG purchased all of the
outstanding stock of the Company, thereby acquiring control of the Company.

On March 31, 1997, the Company consummated the Recapitalization, pursuant to
which Thayer and the senior management of the Company acquired approximately
89% of the outstanding Common Stock of the Company. See "Certain Relationships
and Transactions." The Company believes that the Recapitalization provides
several significant benefits to the Company, such as access to growth and
development capital, equity ownership incentives for management and other key
employees, and the opportunity and ability to pursue acquisitions and internal
product development.

Immediately prior to the Recapitalization, the Company and SAG entered into
the Cooperation Agreement which generally (i) provides the Company the
exclusive and perpetual right to license and service in North America, South
America, Japan and Israel (the "Territory") both existing and future products
developed or acquired by SAG and (ii) provides SAG the exclusive and perpetual
right to license and service outside the Territory both existing and future
products developed or acquired by the Company. Each of the Company and SAG
must pay the other 24% of the net revenues derived from such licenses. This
24% royalty rate is fixed for 20 years. Except under certain circumstances,
the Company's minimum annual royalty payment to SAG through the year 2000 must
equal at least $21 million. In 1995 and 1996, the Company's aggregate royalty
payments to SAG were $23.9 million and $26.1 million, respectively. See
"Certain Relationships and Transactions." The Company anticipates that the
Cooperation Agreement and SAG's equity interest in the Company will promote
close collaboration between the Company and SAG. See "Principal and Selling
Stockholders."

The Cooperation Agreement contains certain safeguards to ensure that the
Company and SAG are able to continue to exercise their respective rights to
license and service each other's products in their respective territories.
These safeguards include rights of first refusal with respect to transfers of
proprietary rights to third parties and restrictions on SAG from competing
against the Company in the Territory and on the Company from competing against
SAG outside the Territory. The Cooperation Agreement also prohibits either
party from consummating a change of control unless such party's successor
agrees to be bound by the terms of the Cooperation Agreement with respect to
all existing products of such party and future products that are materially
derived therefrom. In addition, SAG is precluded from consummating a change of
control unless its successor agrees to continue supporting the research and
development of SAG's then existing and planned products for two years
following the change in control. The Company is precluded from consummating a
change in control in which certain specified entities would be its successor
unless such entities agree to pay the Company's minimum annual royalty
payments to SAG until the later of December 31, 2000 or two years following
the change in control.

The Company entered into an agreement on September 26, 1997 to acquire R.D.
Nickel, a software company that develops, licenses and supports a family of
application development products, including CONSTRUCT and CONSTRUCT Spectrum.
Additionally, R.D. Nickel has served as the exclusive distributor of the
Company's products in Canada since 1973. In the year ended November 30, 1996
and for the seven months ended June 30, 1997, R.D. Nickel had revenues of
US$13.6 million and US$9.4 million, respectively. The Company purchased R.D.
Nickel for Cdn$14.0 million (approximately US$10.1 million), consisting of a
Cdn$7.0 million promissory note and Cdn$7.0 million in cash. The Company is
required to repay the promissory note with proceeds from this offering. In
connection with this acquisition, the Company expects to record approximately
US$6.7 million of goodwill, which will be amortized on a straight-line basis
over 10 years, and to take a one-time charge of approximately US$3.3 million
in the quarter ending September 30, 1997 associated with the purchase of
incomplete or in-process research and development.

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,600,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$54.5 million, assuming an initial public offering price of $13.00 per share
and after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.

The principal purposes of this offering are to increase the Company's equity
capital, to establish a public market for the Company's Common Stock, to
provide enhanced equity incentives to attract and retain key employees, to
increase the Company's visibility in its markets, to facilitate future access
to public capital markets and to obtain additional working capital. The
Company will use approximately Cdn$7.1 million (US$5.1 million) of the net
proceeds to prepay a promissory note issued by the Company in connection with
the acquisition of R.D. Nickel. This note bears simple interest at a rate of
9% per annum. It has a stated maturity date of September 30, 1999, but
requires prepayment upon consummation of this offering. In accordance with the
terms of the acquisition of R.D. Nickel, upon consummation of this offering,
the Company will owe an additional payment of Cdn$500,000 (approximately
US$360,000) in connection with the R.D. Nickel acquisition, which amount will
be paid from the net proceeds of this offering. See "Company Background."

The remainder of the net proceeds of this offering will be used for working
capital and other general corporate purposes, including financing product
development and augmenting the Company's professional services business. A
portion of the net proceeds may also be used to fund acquisitions of
complementary businesses, products or technologies. The Company is not
currently a party to any agreements with respect to any acquisitions. Pending
such uses, the Company intends to invest the net proceeds in short-term,
interest bearing, investment grade securities.

DIVIDEND POLICY

In 1995 and 1996, while a wholly owned subsidiary of SAG, the Company paid
aggregate dividends to SAG of $1.7 million and $9.0 million, respectively. The
Company does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. Certain of the Company's lines of credit have the
effect of restricting the ability of the Company to pay cash dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 3 of Notes to
Consolidated Financial Statements.

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<PAGE>

CAPITALIZATION

The following table sets forth as of June 30, 1997 the capitalization and
short term debt of the Company (i) on an actual basis, (ii) on a pro forma
basis to reflect the acquisition of R.D. Nickel and (iii) on a pro forma as
adjusted basis to give effect to the sale by the Company of the 4,600,000
shares of Common Stock offered by it hereby at an assumed initial public
offering price of $13.00 per share and the application of the net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED
------- ------------- -----------
(in thousands)
<S> <C> <C> <C>
Short term debt.......................... $ -- $ 5,100 $ --
======= ======= =======
Stockholders' equity:
Preferred Stock, $.01 par value;
25,000,000 shares authorized (2); none
issued and outstanding, actual, pro
forma or pro forma as adjusted ...... -- -- --
Common Stock, $.01 par value; 75,000,000
shares authorized (2); 24,337,500 shares
issued and outstanding, actual and
pro forma; 28,937,500 shares issued
and outstanding, pro forma as adjusted
(3)..................................... 243 243 289
Additional paid-in capital............... 36,916 36,916 91,384
Retained earnings........................ 2,151 (1,149) (1,149)
------- ------- -------
Total stockholders' equity............. 39,310 36,010 90,524
------- ------- -------
Total capitalization.................. $39,310 $36,010 $90,524
======= ======= =======
</TABLE>
- --------
(1) Pro forma gives effect to (i) the issuance by the Company of a promissory
note in the principal amount of $5.1 million in connection with the
acquisition of R.D. Nickel and (ii) the expected write-off of $3.3 million
of purchased in-process research and development to be recorded in
connection with the acquisition of R.D. Nickel.
(2) Authorized shares give effect to an amendment to the Company's certificate
of incorporation filed subsequent to June 30, 1997.
(3) Excludes (i) 3,059,650 shares of Common Stock issuable upon the exercise
of stock options outstanding at June 30, 1997, granted under the Stock
Option Plan at an exercise price of $1.47 per share, (ii) 137,500 shares
of Common Stock issued subsequent to June 30, 1997, (iii) 1,887,875 shares
of Common Stock issuable upon the exercise of stock options granted under
the Stock Option Plan subsequent to June 30, 1997 at a weighted average
exercise price of $10.45 per share and (iv) 1,927,475 shares of Common
Stock reserved for future issuance pursuant to the Stock Option Plan. See
"Management--Stock Option Plan."

17
<PAGE>

DILUTION

The net tangible book value of the Company as of June 30, 1997 was $11.2
million, or $0.46 per share of outstanding Common Stock. Net tangible book
value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale of the 4,600,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $13.00 per share and the receipt of the estimated net proceeds
therefrom, the adjusted net tangible book value of the Company as of June 30,
1997 would have been $65.7 million, or $2.27 per share. This represents an
immediate increase in net tangible book value of $1.81 per share to existing
stockholders and an immediate dilution of $10.73 per share to investors
purchasing shares of Common Stock in this offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $13.00
------
Net tangible book value per share at June 30, 1997......... $0.46
Increase per share attributable to new investors........... 1.81
-----
Net tangible book value per share after this offering........ 2.27
------
Dilution per share to new investors.......................... $10.73
======
</TABLE>

The following table summarizes as of June 30, 1997 the differences between
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing
stockholders and by the new investors at an assumed initial public offering
price of $13.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 24,337,500 84.1% $34,765,000 36.8% $ 1.43
New investors........... 4,600,000 15.9 59,800,000 63.2% 13.00
------------ ------- ----------- -----
Total................. 28,937,500 100.0% $94,565,000 100.0%
============ ======= =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will cause the number
of shares of Common Stock held by existing stockholders to be reduced to
21,237,500 shares, or 73.4% of the total number of shares of Common Stock
to be outstanding after this offering (20,660,000 shares, or 68.6%, if the
Underwriters' over-allotment option is exercised in full), and will
increase the number of shares of Common Stock held by the new investors to
7,700,000 shares, or 26.6% of the total number of shares of Common Stock
to be outstanding immediately after this offering (8,855,000 shares, or
29.4%, if the Underwriters' over-allotment option is exercised in full).
See "Principal and Selling Stockholders."

The calculation of net tangible book value per share and the other
computations above assume no exercise of outstanding options under the Stock
Option Plan. As of September 26, 1997, 4,947,525 shares of Common Stock were
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $4.90 per share. To the extent the outstanding options are
exercised, or additional stock options are granted and exercised at a price
per share below the initial public offering price in the future, there will be
further dilution to new investors. See "Management--Stock Option Plan."

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of operations data set forth below for each of
the years ended December 31, 1994, 1995 and 1996 and the consolidated balance
sheet data as of December 31, 1995 and 1996 have been derived from the
Company's consolidated financial statements, which statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
and are included elsewhere in this Prospectus. The consolidated balance sheet
data at December 31, 1994 is derived from the Company's consolidated financial
statements, which statements have been audited by KPMG Peat Marwick LLP and
are not included in this Prospectus. The financial data presented as of and
for the years ended December 31, 1992 and 1993 are derived from the Company's
financial statements, which statements have been audited by other auditors and
are not included in this Prospectus. The financial data presented as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are derived from
unaudited consolidated financial statements included elsewhere in this
Prospectus, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial data for such periods. The results of operations for the six
months ended June 30, 1997 are not necessarily indicative of the results to be
expected for the full year or for any future period. The selected consolidated
financial data set forth below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus. The historical financial data set
forth below for the periods ended, or as of the dates prior to, March 31, 1997
reflect the results of operations and balance sheet data of the Company prior
to the Recapitalization when the Company was a wholly owned subsidiary of SAG
and is captioned as "Predecessor." The historical financial information
subsequent to March 31, 1997 reflect the results of operations and balance
sheet data subsequent to the Recapitalization and is captioned as "Successor."
See "Company Background."

<TABLE>
<CAPTION>
PREDECESSOR COMBINED (1) PREDECESSOR SUCCESSOR
------------------------------------------------------- ------------ ----------- ---------
SIX SIX THREE THREE
MONTHS MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
---------------------------------------------- JUNE 30, JUNE 30, MARCH 31, JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- ------------ ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software license fees........ $ 50,498 $ 51,672 $ 51,832 $ 52,061 $ 52,163 $18,978 $21,595 $ 7,341 $14,254
Maintenance fees............. 51,162 57,264 65,871 65,307 69,702 34,396 35,746 17,352 18,394
Professional service fees.... 24,139 31,175 29,552 35,194 34,975 16,021 20,247 9,948 10,299
-------- -------- -------- -------- -------- ------- ------- ------- -------
Total revenues............. 125,799 140,111 147,255 152,562 156,840 69,395 77,588 34,641 42,947
-------- -------- -------- -------- -------- ------- ------- ------- -------
Cost of revenues:
Software license............. 12,046 14,331 13,513 15,244 14,120 5,049 6,172 2,098 4,074
Maintenance.................. 23,457 29,796 29,823 23,488 25,885 12,990 12,782 6,205 6,577
Professional services........ 19,430 25,835 26,490 32,591 32,966 15,771 18,662 9,211 9,451
-------- -------- -------- -------- -------- ------- ------- ------- -------
Total cost of revenues .... 54,933 69,962 69,826 71,323 72,971 33,810 37,616 17,514 20,102
-------- -------- -------- -------- -------- ------- ------- ------- -------
Gross profit.................. 70,866 70,149 77,429 81,239 83,869 35,585 39,972 17,127 22,845
-------- -------- -------- -------- -------- ------- ------- ------- -------
Operating expenses:
Software product
development................. 6,219 3,045 900 900 1,372 1,001 283 -- 283
Sales and marketing.......... 36,239 43,439 50,422 52,512 48,677 21,427 18,794 7,317 11,477
Administrative and general... 36,281 28,636 25,212 24,639 28,539 16,133 17,432 8,500 8,932
-------- -------- -------- -------- -------- ------- ------- ------- -------
Total operating expenses... 78,739 75,120 76,534 78,051 78,588 38,561 36,509 15,817 20,692
-------- -------- -------- -------- -------- ------- ------- ------- -------
Income (loss) from
operations................... (7,873) (4,971) 895 3,188 5,281 (2,976) 3,463 1,310 2,153
Other income and expense,
net.......................... 1,431 7,599 1,882 2,449 5,230 1,640 2,575 978 1,597
-------- -------- -------- -------- -------- ------- ------- ------- -------
Income (loss) before
cumulative effect of change
in accounting principle and
income taxes................. (6,442) 2,628 2,777 5,637 10,511 (1,336) 6,038 2,288 3,750
Cumulative effect of change in
accounting principle......... -- 5,070 -- -- -- -- -- -- --
Income tax provision (benefit)
............................. (855) 1,318 1,395 2,311 4,302 (501) 2,514 915 1,599
-------- -------- -------- -------- -------- ------- ------- ------- -------
Net income (loss)............. $ (5,587) $ 6,380 $ 1,382 $ 3,326 $ 6,209 $ (835) $ 3,524 $ 1,373 $ 2,151
======== ======== ======== ======== ======== ======= ======= ======= =======
Net income (loss) per share
(2).......................... $ (0.18) $ 0.21 $ 0.05 $ 0.11 $ 0.20 $(0.03) $ 0.13 $ 0.04 $ 0.08
======== ======== ======== ======== ======== ======= ======= ======= =======
Dividends..................... $ -- $ -- $ 600 $ 1,700 $ 9,000 $ -- $ -- $ -- $ --
- -------------------------------------
======== ======== ======== ======== ======== ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------ ---------
DECEMBER 31,
------------------------------------------ JUNE 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital
(deficit).............. $ 7,239 $ 6,355 $ 5,167 $ (2,465) $ 30,421 $ 14,457
Total assets............ 75,647 74,175 86,466 125,612 158,088 123,591
Long-term debt, less
current maturities..... 5,942 3,212 431 -- -- --
Total stockholders'
equity................. 23,810 30,190 30,972 32,599 29,808 39,310
</TABLE>
- -------
(1) Reflects combined data for the three months ended March 31, 1997 (prior to
the Recapitalization) and for the three months ended June 30, 1997
(subsequent to the Recapitalization).
(2) Shares used in computing net income (loss) per share for all periods
presented are 30,583,942, except for the three month and six month periods
ended June 30, 1997 which are 27,421,472. See Note 1 of Notes to
Consolidated Financial Statements.

19
<PAGE>

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

The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in "Risk Factors."

OVERVIEW

The Company is an enterprise solutions company that provides robust software
products and related professional services to large organizations with complex
computing requirements. The Company's revenues are primarily derived from
license fees for the use of software products, fees for maintenance related to
those products and fees for professional services. Since 1973, the Company has
primarily licensed and serviced SAG products in the United States and other
countries through a series of licensing agreements with SAG. In 1981, the
Company sold approximately 30% of its outstanding Common Stock in an initial
public offering. In 1988, SAG purchased all of the outstanding Common Stock of
the Company, thereby acquiring control of the Company.

On March 31, 1997, the Company consummated the Recapitalization, pursuant to
which the senior management of the Company and Thayer acquired approximately
89% of the outstanding Common Stock of the Company. The Company believes the
Recapitalization provides several significant benefits to the Company such as
access to growth and development capital, equity ownership incentives for
management and other key employees, and the opportunity and ability to pursue
acquisitions and internal product development. See "Company Background" and
"Certain Relationships and Transactions."

Prior to the Recapitalization, the Company's management team was constrained
by SAG in its ability to develop new products, license third-party software,
retain capital for expansion and make acquisitions of companies, products or
technologies. The Company's relatively low software product development
expenditures resulted, in part, from these constraints. Management has
undertaken several strategic initiatives since the Recapitalization to
increase revenue growth and profitability, including building a product
development organization, developing a product and professional services
offering that addresses the year 2000 problem and acquiring R.D. Nickel.

Software license fees are generated through the licensing of enterprise
development and enterprise enablement products. Enterprise development
products include ADABAS, a high-performance data management system, and
NATURAL, a 4GL programming language. Enterprise enablement software products
include ENTIRE, a family of middleware products; INSIGHT 2000 Tool Kit, a
software product that addresses the year 2000 problem; and a number of Company
and third-party products which address the data warehouse and Web enablement
markets. The Company recognizes license fee revenues in accordance with
Statement of Position 91-1, "Software Revenue Recognition" issued by the
American Institute of Certified Public Accountants. Software license fee
revenues are recognized upon shipment of the software if the software is not
subject to customer acceptance or significant post-delivery obligations. If
the license is subject to customer acceptance or significant post-delivery
obligations, the recognition of license fees is deferred until customer
acceptance or the significant post-delivery obligations have been met.

The Company also provides maintenance and support services to its customers.
Such maintenance services are typically provided in accordance with annual
agreements, with maintenance fees charged as a percentage of current software
license fees. Maintenance fees are recognized ratably over the term of the
agreement.

Software license and maintenance fees are derived from both direct and
indirect channels. In the United States, Mexico and Canada, a direct sales and
support structure is utilized through the Company's wholly

20
<PAGE>

owned subsidiaries. In the remainder of the Territory, exclusive distributors
sell the Company's products and provide maintenance support for which they pay
the Company a royalty. The Company has historically derived the majority of
its revenues from sales within the United States. Sales outside of the United
States represented 13.9%, 16.2% and 15.9% of the Company's total revenues in
1995, 1996 and the six months ended June 30, 1997, respectively.

The Company also generates revenues through the provision of professional
services associated with the implementation and deployment of the Company's
enterprise development and enterprise enablement products and through
educational services. The Company recognizes revenue from professional
services as such services are performed. The Company's professional services
offerings include consulting, software integration, system implementation,
large project management and year 2000 analysis and remediation. These
services are delivered on either a time and materials basis or a fixed price
basis. The Company is currently moving away from fixed price professional
services contracts. However, year 2000 business will continue to be conducted
using primarily fixed price contracts based on the number of lines of code
analyzed or remediated, as opposed to a specific and defined set of
deliverables as is the case in traditional fixed price contracts.

The Company offers its products and professional services to certain
customers under ELAs. ELAs are typically long term contracts of three to five
years which include the provision of software products, professional services
and maintenance support. Revenues from software licenses sold as part of an
ELA are recognized as revenue when such products are shipped and revenue from
professional services and maintenance support are recognized as provided. As
of June 30, 1997, 91 of the Company's customers had entered into ELA
agreements with the Company.

21
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain financial data for the periods
indicated expressed as a percentage of total revenues.

<TABLE>
<CAPTION>
PREDECESSOR COMBINED (1)
---------------------------------------------- ------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
---------------------------------- ---------- ------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees................. 40.1% 36.9% 35.2% 34.1% 33.3% 27.3% 27.8%
Maintenance fees...... 40.7 40.9 44.7 42.8 44.4 49.6 46.1
Professional services
fees................. 19.2 22.2 20.1 23.1 22.3 23.1 26.1
----- ----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Software license...... 9.6 10.2 9.2 10.0 9.0 7.3 8.0
Maintenance........... 18.6 21.3 20.3 15.4 16.5 18.7 16.5
Professional
services............. 15.4 18.4 18.0 21.4 21.0 22.7 24.1
----- ----- ----- ----- ----- ----- -----
Total cost of
revenues........... 43.6 49.9 47.5 46.8 46.5 48.7 48.6
----- ----- ----- ----- ----- ----- -----
Gross profit............ 56.4 50.1 52.5 53.2 53.5 51.3 51.4
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Software product
development.......... 4.9 2.2 0.6 0.6 0.9 1.4 0.4
Sales and marketing... 28.8 31.0 34.2 34.4 31.0 30.9 24.2
Administrative and
general.............. 28.8 20.4 17.1 16.2 18.2 23.2 22.5
----- ----- ----- ----- ----- ----- -----
Total operating ex-
penses............. 62.5 53.6 51.9 51.2 50.1 55.5 47.1
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (6.1) (3.5) 0.6 2.0 3.4 (4.2) 4.3
Other income and
expense, net .......... 1.1 5.4 1.3 1.6 3.3 2.4 3.3
----- ----- ----- ----- ----- ----- -----
Income (loss) before
cumulative effect of
change in accounting
principle and
income taxes........... (5.0) 1.9 1.9 3.6 6.7 (1.8) 7.6
Cumulative effect of
change in accounting
principle.............. -- 3.6 -- -- -- -- --
Income tax provision
(benefit).............. (0.7) 0.9 0.9 1.5 2.6 (0.7) 3.3
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (4.3)% 4.6% 1.0% 2.1% 4.1% (1.1)% 4.3%
===== ===== ===== ===== ===== ===== =====

The following table sets forth, for each component of revenues, the cost of
such revenues as a percentage of such revenues for the periods indicated:

<CAPTION>
PREDECESSOR COMBINED (1)
---------------------------------------------- ------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
---------------------------------- ---------- ------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Software license...... 23.9% 27.7% 26.1% 29.3% 27.1% 26.6% 28.6%
Maintenance........... 45.8 52.0 45.3 36.0 37.1 37.8 35.8
Professional
services............. 80.5 82.9 89.6 92.6 94.3 98.4 92.2
</TABLE>
- --------
(1) Reflects combined data for the three months ended March 31, 1997 (prior to
the Recapitalization) and for the three months ended June 30, 1997
(subsequent to the Recapitalization).

22
<PAGE>

SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Revenues

Total Revenues. The Company's revenues are currently derived from fees from
licensing the Company's software products, fees for providing maintenance to
customers which have licensed the Company's software products and fees from
professional services. The Company's total revenues were $77.6 million and
$69.4 million for the six months ended June 30, 1997 and 1996, respectively,
representing an increase of 11.8%.

Software License Fees. The Company's software license fees are derived
primarily from the licensing of the Company's enterprise development and
enterprise enablement products. Software license fees were $21.6 million and
$19.0 million for the six months ended June 30, 1997 and 1996, respectively,
representing an increase of 13.7%. This increase was primarily attributable to
the reorganization of the direct sales force at the beginning of 1997 into
three groups, with one focused on software products, another on professional
services and a third on the Year 2000 Program.

Maintenance Fees. The Company's maintenance fees are derived primarily from
providing technical support to customers which have licensed the Company's
enterprise development and enterprise enablement products. Maintenance is
available in various levels of support and priced as a percentage of the
software license fees. The most commonly contracted level is priced at 18% of
the applicable license fee at the time of renewal. Software customers are not
required to renew their maintenance agreements and renewals can be expected
only if the customer continues to use the licensed product. Maintenance fees
were $35.7 million and $34.4 million for the six months ended June 30, 1997
and 1996, respectively, representing an increase of 3.8%. This increase was
due primarily to the effect of price increases, combined with an increase in
the maintenance base from the sale of new software licenses.

Professional Services Fees. The Company's professional services fees are
derived primarily from work performed by the Company on behalf of customers
who have licensed the Company's software products. Professional services fees
were $20.2 million and $16.0 million for the six months ended June 30, 1997
and 1996, respectively, representing an increase of 26.3%. This increase was
attributable to two sources. Professional services fees grew 14.5% primarily
due to additional new business generated by the reorganization of the sales
force as noted above. In addition, professional services fees in 1997 include
$1.9 million from work performed as a part of the Company's Year 2000 Program,
which began in 1997.

Cost of Revenues

Software License. Software license costs consist primarily of royalties paid
to third parties. Software license costs were $6.2 million and $5.0 million
for the six months ended June 30, 1997 and 1996, respectively, representing
28.6% and 26.6% of software license fees for each respective period. The
increase in dollar amount was due primarily to an increase in sales volume.
The percentage increase was primarily due to a shift in product mix since
royalty rates on third-party products vary from 24% to 40%.

Maintenance. Maintenance costs consist of royalties paid to third parties,
the costs of providing customer support and the distribution costs of new
releases. Maintenance costs were $12.8 million and $13.0 million for the six
months ended June 30, 1997 and 1996, respectively, representing 35.8% and
37.8% of maintenance fees for each respective period. This decrease was
primarily attributable to expense reductions relating to customer support and
product release personnel. This reduction program was begun in late 1994, and
substantially implemented by June 1997. The program reduced the number of
support and product release personnel from 136 at December 31, 1994 to 78 at
June 30, 1997. The reduction of personnel was accompanied by a reorganization
of responsibilities within the support function, which was designed to improve
productivity and the level of customer support. This reorganization involved a
shift in focus from a customer specialization to product specialization. The
change was augmented by the addition of new customer call handling and problem
solving tools, combined with more effective product release methods.

23
<PAGE>

Professional Services. Professional services costs consist of labor and
related overhead costs for the people performing the service. Such costs
include costs for project management, quality control, proposal writing and
project review. Professional services costs were $18.7 million and $15.8
million for the six months ended June 30, 1997 and 1996, respectively,
representing 92.2% and 98.4% of professional services fees for each respective
period. The improvement in margin was primarily attributable to improved
performance on fixed price contracts combined with improved utilization of
resources. Both of these improvements were derived from process changes
initiated in late 1995 that included enhanced infrastructure and tools for
project management, improved estimating and bidding processes, and expanded
quality control procedures.

Operating Expenses

Software Product Development. Software product development expenses include
all labor and overhead costs related to the development of software products
owned by the Company. Software product development costs were $0.3 million and
$1.0 million for the six months ended June 30, 1997 and 1996, respectively,
representing 1.4% and 5.3% of software license fees for each respective
period. This decrease was the result of a sale, with transfer of the
applicable software product development costs, of one of the Company's
products in 1996 to a third party. Prior to the Recapitalization, the
Company's ability to invest in software product development was constrained.
The Company expects software product development expenses to increase in the
future as a percentage of software license fees.

Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits, commissions, and associated overhead costs, and
the cost of marketing programs, direct mailings, public relations, trade
shows, seminars, advertising and related communications. Sales and marketing
expenses were $18.8 million and $21.4 million for the six months ended June
30, 1997 and 1996, respectively, representing 24.2% and 30.9% of total
revenues for each respective period. This decrease was primarily attributable
to reductions in the direct sales force and related support personnel,
combined with reductions in marketing staff and programs. These reductions
were begun in 1995 and substantially implemented by June 1997. The program
reduced the number of direct sales, direct sales support and marketing
personnel from 252 at December 31, 1994 to 123 at June 30, 1997.

Administrative and General. Administrative and general expenses include
employee salaries and benefits for administration, executive, finance, legal,
human resources, data center, distribution and internal systems personnel and
associated overhead costs, as well as bad debt expenses and accounting and
legal expenses. Administrative and general expenses were $17.3 million and
$16.1 million for the six months ended June 30, 1997 and 1996, respectively,
representing 22.3% and 23.2% of total revenues for each respective period. The
increased dollar amount was the result of increases in personnel related
expenses and infrastructure required to support an independent company.

Other

Other Income and Expense, Net. Other income and expense, net consists
primarily of interest earned on cash, cash equivalents, short term investments
and long term customer contracts carried by the Company, and miscellaneous
income, offset in part by interest expense associated with equipment
financing. Interest and investment income and expense, net was $2.6 million
and $1.6 million for the six months ended June 30, 1997 and 1996,
respectively.

Income Tax Provision (Benefit). Income tax provision (benefit) was $2.5
million and $(0.5) million for the six months ended June 30, 1997 and 1996,
respectively, resulting in effective tax rates of 40.7% and 37.5%,
respectively.

YEARS ENDED DECEMBER 31, 1996 AND 1995

Revenues

Total Revenues. The Company's total revenues were $156.8 million and $152.6
million in 1996 and 1995, respectively, representing an increase of 2.8%.

24
<PAGE>

Software License Fees. Software license fees were $52.2 million in 1996 and
$52.1 million in 1995, or 33.3% and 34.1% of total revenues for each
respective period.

Maintenance Fees. Maintenance fees were $69.7 million in 1996 and $65.3
million in 1995, representing an increase of 6.7%. This increase was due
primarily to the effect of price increases combined with an increase in the
maintenance base from the sale of additional software licenses.

Professional Services Fees. Professional services fees were $35.0 million in
1996 and $35.2 million in 1995, or 22.3% and 23.1% of total revenues for each
respective period. This minimal decline from 1995 to 1996 was the result of
actions taken in the latter part of 1995 to temporarily curb growth in the
professional services operation so that the Company could build a stronger
infrastructure and control process to support the rapid growth anticipated
from the Year 2000 Program. These actions were largely accomplished and
accounted for in the first half of 1996.

Cost of Revenues

Software License. Software license costs were $14.1 million in 1996 and
$15.2 million in 1995, representing 27.1% and 29.3% of software license fees
for each respective period. This decrease was primarily attributable to lower
third-party royalty rates associated with a slight shift in product mix.

Maintenance. Maintenance costs were $25.9 million in 1996 and $23.5 million
in 1995, representing 37.1% and 36.0% of maintenance fees for each respective
period. The increase from 1995 to 1996 was primarily attributable to royalties
related to additional revenue combined with a change in product mix.

Professional Services. Professional services costs were $33.0 million in
1996 and $32.6 million in 1995, representing 94.3% and 92.6% of professional
services fees in each respective period. This increase was primarily
attributable to an increase in spending for infrastructure to support the
anticipated growth in the Year 2000 Program, partially offset by improved
margins on new projects.

Operating Expenses

Software Product Development. Software product development expenses were
$1.4 million in 1996 and $0.9 million in 1995, representing 2.6% and 1.7% of
software license fees, respectively. This increase was primarily attributable
to the employment of additional staff to develop and enhance the Company's
products.

Sales and Marketing. Sales and marketing expenses were $48.7 million in 1996
and $52.5 million in 1995, representing 31.0% and 34.4% of total revenues,
respectively. This decrease in expenses was primarily attributable to
reductions made in 1995 to the direct sales force and to the direct support
personnel. As discussed previously, these reductions commenced in 1995 and
were substantially implemented by June 1997. The net effect of this reduction
during 1996 was to reduce the direct selling and support personnel from 131 at
December 31, 1995, to 98 at December 31, 1996, a net reduction of 25%.

Administrative and General. Administrative and general expenses were $28.5
million in 1996 and $24.6 million in 1995, representing 18.2% and 16.2% of
total revenues, respectively. This increase was primarily attributable to
investments in computer equipment necessary to support anticipated year 2000
growth and severance payments made to the Company's former chief executive
officer.

Other

Other Income and Expense, Net. Other income and expense, net was $5.2
million in 1996 and $2.4 million in 1995. The difference was attributable to
interest received on $30.0 million in loans made to SAG in three stages over
1995 and 1996, combined with income received for the sale of the rights to one
of the Company's products. The loans were retired in March 1997 prior to the
Recapitalization.

25
<PAGE>

Income Tax Provision. Income tax provision was $4.3 million and $2.3 million
in 1996 and 1995, respectively, resulting in effective tax rates of 40.9% and
41.0%, respectively.

YEARS ENDED DECEMBER 31, 1995 AND 1994

Revenues

Total Revenues. The Company's total revenues were $152.6 million and $147.3
million in 1995 and 1994, respectively, representing an increase of 3.6%.

Software License Fees. Software license fees were $52.1 million in 1995 and
$51.8 million in 1994, or 34.1% and 35.2% of total revenues for each
respective period.

Maintenance Fees. Maintenance fees were $65.3 million in 1995 and $65.9
million in 1994, or 42.8% and 44.7% of total revenues for each respective
period. This decrease was primarily attributable to the transfer in 1994 of
the rights to license SAG products in Southeast Asia from the Company to SAG.
These rights accounted for 1994 maintenance revenue of $3.0 million. Adjusting
1994 for the impact of the loss of this territory and these rights in 1995,
maintenance revenues would have grown 3.8% from $62.9 million in 1994 to $65.3
million in 1995. The increase was due primarily to the effect of price
increases, combined with an increase in the maintenance base from the sale of
new software licenses.

Professional Services Fees. Professional services fees were $35.2 million in
1995 and $29.6 million in 1994, representing an increase of 18.9%. This growth
was the result of an increased level of business in the customer base, aided
significantly by the award to the Company of several large contracts.

Costs of Revenues

Software Licenses. Software license costs were $15.2 million in 1995 and
$13.5 million in 1994, representing 29.3% and 26.1% of software license fees
for each respective period. This increase was primarily attributable to an
increase in third-party royalty rates associated with a shift in product mix.

Maintenance. Maintenance costs were $23.5 million in 1995 and $29.8 million
in 1994, representing 36.0% and 45.3% of maintenance fees for each respective
period. This decrease from 1994 to 1995 was primarily attributable to
personnel cost reductions made as a result of the transfer of the Southeast
Asian, territory to SAG, combined with a significant reduction in customer
support and product release personnel. As discussed previously, this planned
reduction was combined with changes in support processes designed to improve
productivity and customer service.

Professional Services. Professional services costs were $32.7 million in
1995 and $26.5 million in 1994, representing 92.6% and 89.6% of professional
services fees in each respective period. This increase was primarily
attributable to losses on certain fixed price contracts. As a result, the
Company temporarily slowed the growth in professional services in order to
improve its infrastructure and control process.

Operating Expenses

Software Product Development. Software product development expenses were
$0.9 million in 1995 and $0.9 million in 1994, representing 1.7% of software
license fees in both years.

Sales and Marketing. Sales and marketing expenses were $52.5 million in 1995
and $50.4 million in 1994, representing 34.4% and 34.2% of total revenues,
respectively. The increase in expenses was attributable to higher commissions
resulting from the growth in software licenses and professional services fees.

Administrative and expenses Administrative and general expenses were $24.6
million in 1995 and $25.2 million in 1994, representing 16.2% and 17.1% of
total revenues for each respective period.

26
<PAGE>

Other

Other Income and Expense, Net. Other income and expense, net was $2.4
million in 1995 and $1.9 million in 1994.

Income Tax Provision. Income tax provision was $2.3 million and $1.4 million
for 1995 and 1994, respectively, resulting in effective tax rates of 41.0% and
50.2%, respectively.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight most recent quarters. In the opinion of
management, this information has been prepared on the same basis as the
audited financial statements appearing elsewhere in this Prospectus, and all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto. The operating results for any quarter
are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------------------------- ---------
QUARTER ENDED
-----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
<CAPTION>
<S> <C>
Revenues:
Software license fees................. $13,664 $17,309 $ 6,609 $12,369 $12,785 $20,400 $ 7,341 $14,254
Maintenance fees...................... 16,901 17,744 17,171 17,225 17,382 17,924 17,352 18,394
Professional services fees............ 7,352 8,206 8,506 7,515 10,959 7,995 9,948 10,299
------- ------- ------- ------- ------- ------- ------- -------
Total revenues........................ 37,917 43,259 32,286 37,109 41,126 46,319 34,641 42,947
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Software license...................... 3,963 5,020 1,758 3,291 3,494 5,577 2,098 4,074
Maintenance........................... 5,925 6,389 6,614 6,376 6,273 6,622 6,205 6,577
Professional services................. 6,812 7,689 8,480 7,291 10,083 7,112 9,211 9,451
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues................ 16,700 19,098 16,852 16,958 19,850 19,311 17,514 20,102
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................... 21,217 24,161 15,434 20,151 21,276 27,008 17,127 22,845
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Software product development.......... 245 260 410 591 371 -- -- 283
Sales and marketing................... 13,378 14,431 8,576 12,851 9,712 17,538 7,317 11,477
Administrative and general............ 6,283 6,774 7,349 8,784 7,339 5,067 8,500 8,932
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 19,906 21,465 16,335 22,226 17,422 22,605 15,817 20,692
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.......... 1,311 2,696 (901) (2,075) 3,854 4,403 1,310 2,153
Other income and expense, net.......... 1,184 576 592 1,048 533 3,057 978 1,597
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes...... 2,495 3,272 (309) (1,027) 4,387 7,460 2,288 3,750
Income tax provision (benefit)......... 387 1,070 (97) (404) 1,642 3,161 915 1,599
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ 2,108 $ 2,202 $ (212) $ (623) $ 2,745 $ 4,299 $ 1,373 $ 2,151
- --------------------------------------------------
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>

The following table sets forth certain unaudited consolidated quarterly
statement of operations data expressed as a percentage of total revenues for
each of the eight most recent quarters.

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------------------------- ---------
QUARTER ENDED
----------------------------------------------------------------------------- ---
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees.................. 36.0% 40.0% 20.5% 33.3% 31.1% 44.0% 21.2% 33.2%
Maintenance fees....... 44.6 41.0 53.2 46.4 42.3 38.7 50.1 42.8
Professional service
fees.................. 19.4 19.0 26.3 20.3 26.6 17.3 28.7 24.0
----- ----- ----- ----- ----- ----- ----- -----
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenue:
Software license....... 10.5 11.6 5.4 8.9 8.5 12.0 6.1 9.5
Maintenance............ 15.6 14.8 20.5 17.2 15.3 14.3 17.9 15.3
Professional service... 18.0 17.8 26.3 19.6 24.5 15.4 26.6 22.0
----- ----- ----- ----- ----- ----- ----- -----
Total cost of reve-
nues................ 44.1 44.2 52.2 45.7 48.3 41.7 50.6 46.8
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 55.9 55.8 47.8 54.3 51.7 58.3 49.4 53.2
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Software product
development........... 0.6 0.6 1.3 1.6 0.9 -- -- 0.7
Sales and marketing.... 35.3 33.4 26.6 34.6 23.6 37.9 21.1 26.7
Administrative and
general............... 16.6 15.7 22.8 23.7 17.8 10.9 24.5 20.8
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 52.5 49.7 50.7 59.9 42.3 48.8 45.6 48.2
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from oper-
ations................. 3.4 6.1 (2.9) (5.6) 9.4 9.5 3.8 5.0
Other income and ex-
pense, net............. 3.1 1.3 1.8 2.8 1.3 6.6 2.8 3.7
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... 6.5 7.4 (1.1) (2.8) 10.7 16.1 6.6 8.7
Income tax provision
(benefit).............. 1.0 2.5 (0.3) (1.1) 4.0 6.8 2.6 3.7
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 5.5% 4.9% (0.8)% (1.7)% 6.7% 9.3% 4.0% 5.0%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

As a result of the Recapitalization on March 31, 1997, the Company is no
longer a wholly owned subsidiary of SAG. Management has undertaken several
strategic initiatives since the Recapitalization to increase revenue growth
and profitability including building a product development organization,
developing a product and professional services offering that addresses the
year 2000 problem and acquiring R.D. Nickel. The revenue and profit
improvements from the first quarter to the second quarter may be partially
attributable to these changes, but there can be no assurance that this trend
will continue in future quarters. Due in part to these initiatives, the
Company expects that product development costs as a percentage of software
license fees will increase and that administrative and general expenses as a
percentage of total revenues will decrease.

The Company's results of operations have historically fluctuated on a
quarterly basis and are expected to be subject to quarterly fluctuations in
the future. The Company's software license fees have tended to increase
through each successive quarter of the year, with software license fees in the
first quarter of a year being lower than those in the immediately preceding
fourth quarter. Third quarter results have been favorably affected by
increased end of the year spending by the Company's government customers.
Fourth quarter results benefit from those customers who operate on a calendar
year basis, combined with the Company's sales compensation plans which include
incentives for achieving annual targets. The Company typically does not have a
material backlog of unfilled orders, and revenues in any quarter are
substantially dependent on orders booked in that quarter.

Maintenance fees generally have not fluctuated on a quarterly basis to the
same degree as software license fees due to the large percentage of
maintenance fees generated from renewals of maintenance contracts which are
recognized ratably over the contract period.

Revenues from professional services are influenced by the number of
personnel providing such services, the utilization rates of such personnel and
the number of billable days in a quarter. Other factors being equal,

28
<PAGE>

a quarter ending December 31 will generally reflect lower professional
services fees than other quarters due to the relatively large number of
holidays falling in that quarter. In addition, the completion or commencement
of significant professional services projects may affect the revenues from
professional services in a particular quarter.

The Company's expenses are generally fixed and do not vary significantly in
the short term with revenues. As a result, operating and net income in a given
quarter may be disproportionately affected by a reduction in revenues.

The Company's quarterly operating results may continue to fluctuate due to
numerous factors, including the demand for the Company's products and
services, the timing and cost of new product and service introductions and
product enhancements by the Company or its competitors, changes in the mix of
products and services sold by the Company and in the mix of sales by
distribution channels, commencement or conclusion of significant service
contracts, timing of any acquisitions and associated costs, the size, timing
and terms of customer orders, including delays in significant orders, changes
in pricing policies by the Company or its competitors, the timing of
collection of accounts receivable, changes in foreign currency exchange rates,
competitive conditions in the industry and general economic conditions. See
"Risk Factors--Potential Fluctuations in Quarterly Performance."

LIQUIDITY AND CAPITAL RESOURCES
Since 1988, when the Company became a wholly owned subsidiary of SAG, the
Company has financed its operations principally through cash flow from
operating activities. In order to meet its short term cash needs and to pay
dividends to SAG, in 1992 the Company began to periodically sell long term
customer receivable contracts. Sales of long term customer receivable
contracts increased in subsequent years in order to meet SAG's directives and
in connection with the Recapitalization. Since the Recapitalization, the
Company has sold $8.9 million of long term customer receivable contracts,
primarily to fund the purchase of R.D. Nickel. The Company does not expect to
sell additional long term customer receivable contracts in the foreseeable
future.

Investing activities used net cash of $3.1 million, $23.8 million, $4.3
million and $24.4 million during 1994, 1995, 1996 and the six months ended
June 30, 1997, respectively, primarily to fund capital expenditures needed to
support expansion of the Company's business, to provide loans to SAG and as
consideration for the Cooperation Agreement. Financing activities used net
cash of $4.5 million, $4.8 million, $9.0 million and $2.4 million during 1994,
1995, 1996 and the six months ended June 30, 1997, respectively, primarily for
the repayment of long term obligations, the payment of dividends, and the
issuance and repurchase of Common Stock.

The Company has no long term debt, and as of June 30, 1997 had approximately
$8.4 million in cash and investments. The Company has two accounts receivable
lines of credit. Under these lines, the Company may sell long term receivable
contracts. These transactions are treated as sales by the Company as the
economic interest in the contract is transferred to the buyer. Domestic
accounts receivable averaged 50 days outstanding at June 30, 1997, which is
down from an average of 72 days outstanding at March 31, 1997 as a result of
changes made by management following the Recapitalization.

The Company's international distributors report and pay in U.S. dollars. In
addition, royalties reported and paid by the Company to SAG under the
Cooperation Agreement are in U.S. dollars. The Company's Mexican subsidiary
was founded in 1996 and represented less than 3% of total revenues in 1996.
The Company, therefore, has not to date engaged in foreign currency hedging
transactions. In the event of significant growth in international operations,
the Company may enter into hedging transactions.

The Company traditionally leases all major equipment, and has no investment
in inventory or facilities other than leasehold improvements.

The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing cash balances, funds generated from
operations and available accounts receivable lines of credit will be
sufficient to finance the Company's operations for at least the next twelve
months. Although operating activities may provide cash in certain periods, to
the extent the Company grows in the future, its operating and investing
activities may use such cash. There can be no assurances that any necessary
additional financing will be available to the Company on commercially
reasonable terms.

29
<PAGE>

BUSINESS

Software AG Systems, Inc. is an enterprise solutions company that provides
robust software products and related professional services to large
organizations with complex computing requirements. The Company's products are
used to build and enhance mission-critical applications that require
reliability, scaleability and security, such as customer billing systems, cash
management systems and inventory management for aircraft maintenance systems.
To complement its products, the Company has a comprehensive services offering,
including consulting, software integration, systems implementation and large
project management services. The Company has over 24 years of experience in
addressing the needs of organizations with complex enterprise level computing
environments.

The Company provides enterprise development software products and related
professional services used by organizations to develop new mission-critical
applications and enterprise enablement software products and related
professional services used to extend existing applications to new
technologies. The Company's enterprise development products include ADABAS, a
high-performance database management system designed to operate with a variety
of data types and computer platforms, and NATURAL, a 4GL programming language
that enables the development of applications that are portable, scaleable and
interoperable across multiple computing platforms. The Company also provides
software products and professional services that enable organizations to
extend existing mission-critical applications to the Internet and intranets
and to create new applications. Products in this area include ENTIRE, a family
of middleware products that facilitates the communication between application
components across heterogeneous computing environments; SourcePoint, an
automated data warehouse management product; iXpress, a Web application
assembly and deployment platform; and EntireX/DCOM, a product that uses
Microsoft's ActiveX technology to bridge applications written in a variety of
programming languages. The Company has also developed a software product,
INSIGHT 2000 Tool Kit, and professional services that address the year 2000
problem. The Company's professional services that complement its products
include application development and enhancement, application reengineering,
application porting and rightsizing, Web integration and data warehouse design
and implementation.

The Company markets and sells its software products and services through
direct and indirect channels in North America, South America, Japan and
Israel. Over 1,300 customers in North America, South America, Japan and Israel
have licensed the Company's products or purchased the Company's professional
services since January 1996. These customers include large corporations,
government agencies and educational institutions, such as Nabisco, Inc.,
Sprint Corporation, the National Aeronautics and Space Administration, the
Federal Aviation Administration, Brown University, USX Corporation, the
University of Texas and the State of California.

INDUSTRY BACKGROUND

Worldwide, large business and governmental organizations rely on large-scale
computer applications to help manage their businesses. These applications,
many of which are mission-critical, contain the core knowledge and processes
that support the major operations of these organizations. Examples of such
applications include order entry systems, financial accounting systems,
inventory management systems and customer billing systems.

Mainframes are the predominant computing platform for running mission-
critical applications because they provide the high levels of reliability,
scaleability, security, manageability and control required by such
applications. Recently, with the proliferation of intranets, the growth of the
Internet and the decreasing cost of operating mainframe systems, mainframes
have gained increased importance as servers capable of managing and providing
widespread access to corporate data. Large organizations are also seeking to
leverage investments in existing systems by integrating their mainframe
systems with distributed computing environments. International Data
Corporation estimated that worldwide software revenue for the mainframe
segment exceeded $26 billion in 1996.

30
<PAGE>

Organizations must continually build, modify and maintain their information
systems in order to respond to competitive pressures, regulatory changes and
technological advances. For example, many organizations have initiated
significant modifications of their information systems to address the
increasing demands of management for more information for decision making and
the needs of customers and suppliers for greater access to information.
Organizations are constantly updating their information systems to exploit
advances in database management, communication and software technologies and
to maximize the return on their investments in existing systems. In addition,
the size and complexity of the year 2000 problem, a problem expected in the
year 2000 when applications with two-digit entries in the date code field will
need to accept four-digit entries to distinguish twenty-first century dates
from twentieth century dates, has created significant demand for technology
and professional services that address that problem.

The need to continually adapt information systems is placing increased
demands on organizations. Already suffering from a shortage of qualified
technical professionals, information technology ("IT") organizations are
required to work more productively, to distribute information to users more
quickly and to preserve the investments that have already been made in
computing assets. The Company estimates that there are over one billion lines
of NATURAL code in the United States alone. IT organizations are seeking to
integrate new technologies into their mainframe systems to avoid the downtime,
expense and risks involved in replacing these systems and the applications
running on these systems. In many cases, IT organizations lack the resources
and expertise required to cost-effectively implement and maintain distributed
computing systems. The inability of these organizations to fully utilize
available technology, together with the limited functionality of many existing
processes and tools, have increased demand for integrated software development
products and professional services.

As a result, organizations are increasingly seeking to achieve the
reliability, scaleability and interoperability of legacy systems while
leveraging the speed, cost effectiveness and flexibility of new technologies.
The Company believes that organizations are meeting this challenge by working
with vendors that: (i) provide enterprise level performance; (ii) enhance and
extend existing computing investments; and (iii) provide a comprehensive
solution of products, professional services and support.

THE COMPANY'S SOLUTIONS

Over its 24 year history, the Company has developed significant expertise in
addressing the needs of large, complex computing environments at the
enterprise level. The Company's solutions enable its customers to leverage
their investments in existing information systems and personnel, and to
enhance and expand these systems to meet the changing needs of the enterprise.
The Company believes its solutions provide the following benefits:

Provide Enterprise Level Performance. The Company's solutions consist of
software products and related professional services that are used for the
development and enhancement of mission-critical enterprise applications. The
Company's products are used to build, maintain and extend business
applications that require reliability, scaleability and security, and
constitute the core technology behind mission-critical systems, such as those
used for cash management, customer billing and inventory management for
aircraft maintenance.

Enhance and Extend Existing Computing Investments. The Company's application
development and enablement products and related professional services allow
its customers to preserve their investments in mainframe systems by updating
and evolving their systems to meet changing business processes and needs.

Enable New Enterprise Applications. The Company's products and
professional services enable its customers to implement new enterprise
applications that require access to existing corporate data wherever it
resides. For example, the Company's software products and professional
services expertise in building data warehousing applications allow IT
organizations to create data warehouses that enable managers and knowledge
workers to access and analyze corporate data previously unavailable to them
for improved decision making.

31
<PAGE>

Extend Mission-Critical Applications to Distributed Computing
Environments. The Company's solutions allow its customers to extend their
mission-critical applications to distributed computing environments.
Organizations can use the Company's products and professional services to
connect their network-based architectures, including Internet and intranet-
based systems, to their mainframe applications, providing improved access
to corporate data. In this manner, existing applications need not be
rewritten in order to extend them to the network or the Web, and the
security, extensibility and scaleability of mainframe environments can be
extended.

Provide Solutions to the Year 2000 Problem. The Company's year 2000
product, INSIGHT 2000 Tool Kit, and professional services assist its
customers in resolving their year 2000 problem. Organizations can use the
Company's year 2000 product and professional services to analyze the amount
of remediation needed and to develop and implement a remediation and
testing plan. In this manner, existing applications need not be abandoned
or replaced upon the arrival of the year 2000.

Provide a Comprehensive Solution of Products, Professional Services and
Support. The Company's solutions represent a comprehensive offering of
products, professional services and support from a single vendor. While many
"point" products exist in the form of connectivity tools, programming
languages and data management products, most are limited in their ability to
support the enterprise computing environment. The Company's extensive
experience in enterprise software and related professional services enables it
to address customers' mission-critical computing needs.

THE COMPANY'S STRATEGY

Enhance and Extend Product Offerings. The Company believes that a
substantial opportunity exists to provide software products and professional
services that assist organizations in building, modifying and maintaining
mainframe systems. To pursue this opportunity, the Company intends to enhance
its existing product offerings with added features and functionality. The
Company also intends to broaden its product offerings through internal product
development, additional licensed products from third parties and acquisitions.
In furtherance of this strategy, the Company recently signed an agreement to
acquire R.D. Nickel, a software company with a family of application
development products. Upon completion of this acquisition, the Company will
obtain the CONSTRUCT family of application development products which are used
in conjunction with NATURAL. In addition, pursuant to the Cooperation
Agreement, the Company has an exclusive right to license in the Territory any
new products developed by SAG. The Company expects to continue to benefit from
SAG's product development efforts, which in 1996 totaled approximately $56
million. See "Company Background."

Leverage Customer Base. Most of the Company's customers are large,
sophisticated organizations with complex information systems in dispersed,
heterogeneous computing environments. Over 1,300 customers in North America,
South America, Japan and Israel have licensed the Company's products or
purchased the Company's professional services since January 1996. Typically,
the IT budget of a customer of the Company substantially exceeds the annual
amount such customer spends with the Company. The Company believes it can
expand its share of its customers' IT budgets through increased and improved
product and professional services offerings.

Expand Professional Services Offerings. The Company believes that, due to
the strategic nature of its products, customers require the Company to provide
comprehensive professional services and support. The Company's strategy is to
expand its key professional services offerings, which are centered around
application development, data warehousing, Web integration and the year 2000
problem. The Company expects to hire additional consultants and to develop new
professional service offerings to meet its customers' evolving service needs.
The Company intends to expand its efforts to cross sell its professional
services to its product customers.

32
<PAGE>

Leverage Distribution Channels. The Company directly and indirectly sells its
products in over 20 countries throughout North America, South America, Japan
and Israel (the "Territory") through distributors. Through the Cooperation
Agreement with SAG, the Company has access to SAG's distribution channel for
the Company's products (other than those licensed from SAG) in 50 additional
countries outside the Territory. The Company intends to leverage this
distribution channel by developing and acquiring additional products for
distribution by SAG.

PRODUCTS AND SERVICES

The following diagram depicts how the Company provides enterprise solutions
for its customers. The Company works at the highest level of IT organizations
to evaluate the overall needs of the enterprise and develop solutions that use
its products and professional services to effectively build, extend and enable
complex computing environments. Typically, the Company's solutions focus either
on building and deploying new mission-critical applications or enhancing and
extending existing business-critical applications through building data
warehouses and integrating with the Internet and intranets. The Company's
products and professional services allow its customers to leverage their
investments in existing information systems and personnel and to enhance and
expand these systems to meet the changing needs of their organizations.

- -------------------------------------------------------------------------------
UNDERSTAND BUSINESS PROBLEMS
- -------------------------------------------------------------------------------
IDENTIFY BUSINESS SOLUTIONS
- -------------------------------------------------------------------------------

Build and Deploy Enhance and Extend

ENTERPRISE DEVELOPMENT ENTERPRISE ENABLEMENT
Mission-critical Business-critical

APPLICATIONS DECISION SUPPORT WEB INTEGRATION
Buy . Rightsize . Migrate . Build . Deploy Data Warehouse Internet/Intranet

PLATFORMS
MVS/VSE . UNIX . Windows NT . Windows

NATURAL ADABAS ENTIRE
4GL Development Language Data Management Middleware & Web Enabling

YEAR 2000
Remediation

PROFESSIONAL SERVICES
Core Product . Web Integration . Data Warehouse . Year 2000 . Education .
Technology . Support

33
<PAGE>

The following table summarizes the Company's product offerings by category,
indicating the year the product was introduced, the shipment date of the
product's current version, and the platforms supported by the product.
<TABLE>
<CAPTION>
YEAR OF CURRENT PLATFORMS
PRODUCTS (1) INTRODUCTION VERSION SUPPORTED
------------ ------------ ------- ---------
<S> <C> <C> <C>
ENTERPRISE DEVELOPMENT
NATURAL Product Line
NATURAL 1979 12/95 MVS/VSE
NATURAL 1993 7/96 UNIX
NATURAL 1996 11/96 WIN NT
NATURAL Lightstorm 1995 2/97 WIN
CONSTRUCT 1988 9/97 MVS/VSE
CONSTRUCT 1993 10/96 UNIX
CONSTRUCT Spectrum 1997 8/97 MVS/VSE
CONSTRUCT Spectrum 1997 8/97 WIN NT
CONSTRUCT Spectrum SDK 1997 8/97 MVS/VSE
CONSTRUCT Spectrum SDK 1997 8/97 WIN NT
PREDICT 1983 2/97 MVS/VSE
PREDICT 1993 2/97 UNIX
ADABAS Product Line
ADABAS 1972 1/97 MVS/VSE
ADABAS 1993 7/97 UNIX
ADABAS Delta Save Facility 1996 2/96 MVS/VSE
ADABAS FASTPATH 1991 12/96 MVS/VSE
ADABAS SQL Server 1992 10/95 MVS/VSE
ADABAS Vista 1997 9/97 MVS/VSE
ADAPLEX+ 1996 2/97 MVS/VSE
ENTERPRISE ENABLEMENT
ENTIRE Product Line
iXpress 1996 8/97 WIN NT
ENTIRE ACCESS 1994 12/96 UNIX
ENTIRE ACCESS 1995 12/96 WIN NT
ENTIRE BROKER 1994 4/97 MVS/VSE
ENTIRE BROKER 1996 8/97 UNIX
ENTIRE BROKER 1996 7/97 WIN NT
ENTIRE BROKER SDK 1997 9/97 WIN NT
ENTIRE BROKER APPC 1991 2/95 MVS/VSE
ENTIRE NET-WORK 1987 8/97 MVS/VSE
ENTIRE NET-WORK 1993 9/97 UNIX
ENTIRE NET-WORK 1995 3/97 WIN NT
ENTIRE SAF Gateway 1997 4/97 MVS/VSE
EntireX/DCOM 1997 9/97 UNIX
Data Warehouse Product Line
SourcePoint 1995 6/97 UNIX
PASSPORT 1995 8/97 MVS/VSE
CONSTRUCT Extract Service 1997 5/97 MVS/VSE
CONSTRUCT Extract Service 1997 3/97 UNIX
ESPERANT 1994 2/97 WIN
DSS AGENT 1995 8/96 WIN
Year 2000 Product
INSIGHT 2000 Tool Kit 1997 9/97 WIN
</TABLE>
- --------
(1) CONSTRUCT, CONSTRUCT Spectrum, CONSTRUCT Spectrum SDK and INSIGHT 2000
Tool Kit are products owned by the Company. iXpress, PASSPORT, ESPERANT
and DSS AGENT are products which the Company has the right to license
pursuant to agreements with third parties other than SAG. The Company has
the exclusive right to license and service all other products listed in
this table in North America, South America, Japan and Israel pursuant to
the Cooperation Agreement with SAG.

34
<PAGE>

Enterprise Development Products and Professional Services

The Company provides a family of enterprise development software products
and related professional services that allow its customers to develop and
deploy enterprise solutions that are integrated with existing data and
applications.

. NATURAL, the Company's 4GL programming language for the enterprise
environment, is designed to increase productivity in application software
design, development and deployment. NATURAL supports Rapid Application
Development to RDBMS environments with applications that are portable,
scaleable and interoperable across multiple computing platforms.

. Add-on products for the NATURAL environment include: NATURAL LightStorm,
for repository-based development environments; CONSTRUCT, for model-based
Rapid Application Development; and CONSTRUCT Spectrum, for automated
development of distributed components.

The Company's family of data management solutions delivers access to data
and are designed to ensure the reliability, integrity, and security of such
data throughout an organization's computing environment.

. ADABAS, the Company's flagship high-performance database management
product, is designed to handle large volumes of changing data requiring
high levels of availability. It provides multi-data model support, multi-
platform support, comprehensive SQL support, and a variety of extended
capabilities that take advantage of technological advances in both hardware
and software.

. Add-on products for the ADABAS environment include: ADABAS SQL Server, an
SQL interface to ADABAS data; ADABAS ADAPLEX+, a technology that
distributes and presents a single view of multiple databases; ADABAS
FASTPATH, which optimizes database and application performance; and ADABAS
Delta Save Facility, for reducing backup time and database recovery
processing.

. Core Product Services. These professional services focus on the deployment
and use of the Company's database management and application development
products, including application development and enhancement, application
reengineering, application porting and rightsizing.

Enterprise Enablement Products and Professional Services

The Company's ENTIRE middleware products and professional services minimize
the complexity of integrating a distributed computing environment that
encompasses a variety of platforms, protocols, programming languages and
databases.

. The ENTIRE product family includes: ENTIRE BROKER, a cross-platform
messaging middleware product that links mainframe applications and
components to ActiveX- and Java-enabled desktops; and ENTIRE SAF Gateway, a
central security administration environment. The Company also offers ENTIRE
BROKER APPC, a product that links Advanced Program-to-Program Communication
and IBM's MQSeries-enabled mainframe applications to ActiveX- and Java-
enabled desktops; ENTIRE BROKER Software Development Kit, a set of software
products for building and deploying distributed applications; and
EntireX/DCOM, a product that allows applications or pieces of applications
to work together transparently on Windows and/or UNIX platforms.

. iXpress is an Internet-enablement technology that combines component
technology, such as Java and ActiveX, with enterprise systems, allowing
organizations to deliver and manage business-critical information solutions
via the Web.

. Web Integration Services. The Company offers its customers a variety of Web
integration professional services, such as integrating an organization's
Internet site with an order entry system; integrating multiple sources of
data, applications and services from multiple platforms; enabling secure
access for suppliers to specific data and applications; and distributing
application components across the network.

The Company's data warehousing solutions include both products and
professional services for implementing a data warehouse and its approach
encompasses six elements: data acquisition, data warehouse administration,
services and support, education, business analysis tools and database
management.

35
<PAGE>

. SourcePoint is an administration product for automating data extraction,
transportation and loading from operational data sources to data warehouse
servers. SourcePoint works separately or in an integrated fashion with
PASSPORT, a data extraction and transformation product. In addition, the
Company's CONSTRUCT Extract Service offers a Rapid Application Development
approach to creating NATURAL extraction programs that integrate directly
with SourcePoint.

. ESPERANT, a query and reporting product, and DSS AGENT, a relational online
analytical processing (OLAP) product, offer users decision support tools
for accessing and analyzing data for improved decision making.

. Data Warehouse Services. The Company provides consulting services and
methodologies for building and implementing data warehouses, with a focus
on rapid delivery of scaleable data warehouses.

The Company offers a software product and a professional services capability
that address the year 2000 problem.

. INSIGHT 2000 Tool Kit is a product that allows developers to analyze and
remediate NATURAL code by providing a picture of how much code needs to be
fixed, helping project managers break year 2000 projects into segments and
develop a comprehensive work plan for executing remediation.

. Year 2000 Services. The Company's year 2000 professional service offerings
include impact assessment, analysis and implementation to assist customers
in resolving their year 2000 problem. These services are provided through a
professional staff with expertise in managing large projects and in the
methodologies and products that underlie software integration and systems
management. The Company also recently established Millennium Centers in
Denver, Colorado, Fort Lee, New Jersey and Sacramento, California to
provide remediation and testing for its year 2000 program and plans to
establish additional centers in the future. Year 2000 remediation can be
done at one of the Company's Millennium Centers or at the customer's site.

Other Services

Education Services. The Company provides customers with in-depth training in
the Company's products, with courses available through scheduled and
customized classes. In addition, the Company offers programs to accelerate the
implementation of application development, Web integration, data warehouse and
year 2000 projects.

Technology Services. The Company also provides system engineering services,
supplementary database administration services and database application and
network performance and tuning services.

SOFTWARE PRODUCT DEVELOPMENT

Prior to the Recapitalization, the Company was a wholly owned subsidiary of
SAG and the Company's research and development efforts were directed by SAG.
The Company's software product development expenses were $0.9 million, $0.9
million and $1.4 million in 1994, 1995 and 1996, respectively.

Since the Recapitalization, the Company has begun building its internal
product development group, which currently consists of 17 people, including 12
people added as a result of the acquisition of R.D. Nickel. The first product
resulting from the Company's recent internal product development efforts is
INSIGHT 2000 Tool Kit, which was released in September 1997. The Company
intends to continue expanding its product development group through additional
acquisitions and internal hiring.

Since the Cooperation Agreement provides the Company with an exclusive right
to license in the Territory products developed by SAG, the Company also
expects to continue to benefit from SAG's product development efforts. In
1996, SAG's product development costs were approximately $56 million. In
September 1997, SAG released EntireX/DCOM, the first product resulting from
SAG's strategic relationship with Microsoft.

PRODUCT MAINTENANCE AND CUSTOMER SUPPORT

The Company offers a wide range of product maintenance and customer support
services. The Company believes that its future success is dependent in part on
its ability to provide high levels of customer service in

36
<PAGE>

order to cultivate advocacy by the Company's installed customer base. For the
nine months ended June 30, 1997, approximately 97% of the Company's customers
who were eligible renewed at least one of their maintenance arrangements. As
of June 30, 1997, the Company had 78 employees devoted to its maintenance and
customer support services.

Customers may choose from three levels of service and support offerings:
basic, extended and custom, which are differentiated by service deliverables
and access to support persons. Some of these customer support services
include:

. Support during product proof-of-concept/trial
. Technical support 24 hours a day, seven days a week
. Customized support offerings
. Onsite installation and implementation
. Remote analysis
. Automated customer assistance and Web-based electronic services

CUSTOMERS AND MARKETS

Over 1,300 customers in North America, South America, Japan and Israel have
licensed the Company's products or purchased the Company's professional
services since January 1996. These customers consist primarily of major
corporations, government agencies and educational institutions.

The following examples are representative of how customers use the Company's
products and professional services to build and enable enterprise level,
mission-critical applications for large organizations.

Utility Billing Services, Incorporated ("UBS"). An information service
bureau for water and wastewater companies, UBS needed to develop a new
customer information system to handle approximately 600,000 customer accounts
for 15 clients in New Jersey and New York. UBS decided to use the Company's
ADABAS, NATURAL and CONSTRUCT products and related services to develop a
system of enhanced services and applications that could be sold as an
independent software package to UBS's water utility clients handling their own
billing and information tracking. According to UBS, six of its programmers
developed the entire system in less than two years at a cost of approximately
$420,000 and the system resulted in savings of approximately $1.7 million
compared to projected COBOL development costs.

Federal Aviation Administration ("FAA"). In 1994, the FAA decided to migrate
its 400 mainframe COBOL financial and accounting modules to the Company's
ADABAS product. To facilitate conversion of the online portion of the system,
the FAA also used the Company's NATURAL Lightstorm product to create new
client/server components and the ADABAS product to manage data running in
Microsoft's Windows and Windows NT environments. According to the FAA, the new
system supports 1.7 million financial transactions each month, is utilized by
employees to pay vendors an average of $27 million a day and is used daily by
approximately 2,000 employees worldwide to process departmental accounting
information.

City of New York. The City of New York was using an integrated, COBOL-based
system to process various business and commercial compliance activities, such
as license processing, inspections, cash management and consumer services. In
order to keep up with the changing operational requirements of a diverse user
community, the City of New York decided to switch to a new system using the
Company's ADABAS and NATURAL products. According to the City of New York, the
new system produced a 60% decrease in license processing time and resulted in
a 40% increase in revenue collections.

Pepsi-Cola General Bottlers Inc. ("PCGB"). In 1990, PCGB, then one of the
largest of Pepsi-Cola's bottlers, found that its systems were unable to handle
the company's volume of transactions. PCGB decided to replace its existing
systems with a system designed to centralize and support business processes in
a single set of programs and files. PCGB chose the Company's ADABAS product
and, in the process, developed its own enterprise methodology called Open
Batch Architecture which uses the Company's NATURAL, CONSTRUCT and ADABAS
products to streamline code development. According to PCGB, its new system for
domestic operations processes approximately 40 million commands daily.

37
<PAGE>

The following is a representative list of some of the Company's customers
that produced revenues of at least $500,000 for the Company during the 18
months ended June 30, 1997.

<TABLE>
<S> <C>
American Community Mutual Insurance Co. National Aeronautics and Space Administration
American Electric Power Company, Inc. Nissan Motor Co., LTD.
Banorte Bank Ryerson Tull
Brown University Rykoff-Sexton, Inc.
Burlington Northern Santa Fe Corporation S.C. Johnson & Son Inc.
Cable and Wireless, PLC Sprint Corporation
Centers for Disease Control State of California
Central Hudson Gas & Electric Corporation State of Hawaii
City of New York State of Nevada
City of Philadelphia State of New Jersey
Commonwealth of Virginia State of Texas
Cutler-Hammer, Inc. State of Washington
Delta Air Lines, Inc. Tandy Corporation
Duke Power Company Union Electric Company
Federal Aviation Administration University of Arkansas
Federal Bureau of Investigation University of Hawaii
Federal Express Corp. University of Texas
KN Energy, Inc. University of Toronto
Morgan Stanley, Dean Witter, Discover & Co. US Airways Group, Inc.
Nabisco Inc. US Patent & Trademark Office
USX Corporation
</TABLE>

In 1996 and during the first six months of 1997, no single customer
accounted for more than 10% of the Company's total revenues.

SALES AND MARKETING

The Company sells its products through both direct and indirect sales
channels. Recently, the Company reorganized its sales organization into three
groups which focus separately on sales of ELAs, professional services and the
Year 2000 Program. The reorganization of the sales force has resulted in
significantly increased productivity per salesperson.

In North America, the Company sells its products through a direct sales
channel that includes 95 people in 19 sales offices. The Company sells its
products in over 20 additional countries through six distributors located in
South America, Japan and Israel. In addition, the Company has access to SAG's
distribution channel for the Company's products (other than those licensed
from SAG) in over 50 countries outside North America, South America, Japan and
Israel. In North America, the Company directly sells its professional services
through 28 people. In addition, the Company has nine people in the United
States focused on selling its year 2000 products and professional services.

The Company's corporate marketing organization supports the Company's sales
and professional services channels through the efforts of 39 professionals
with expertise in product marketing, marketing communications, database
marketing, inside sales and strategic development. The Company also has
strategic marketing relationships with certain vendors of computing products
and services, including IBM, Microsoft, Digital Equipment Corporation,
Andersen Consulting and BDM.

COMPETITION

38
<PAGE>

and other competitive resources than the Company. In addition, in certain
markets in which the Company competes, such as the year 2000 market, there are
no significant barriers to entry. Few of the Company's competitors compete in
all of the same markets as the Company.

In the enterprise development markets, the Company's competitors with
respect to enterprise and departmental database management products include
IBM, Oracle, Informix, Sybase and Microsoft. In addition, the Company's 4GL
applications programming language, NATURAL, competes with offerings from both
large and small companies, including Oracle, Microsoft, IBM and Sterling
Software. In the enterprise enablement markets, the Company's products compete
in both the component/object and the message oriented segments of the
middleware market, where its competitors include IBM, Microsoft, and
Visigenic. The Company's competitors in the data warehousing segment of the
enablement markets include IBM, SAS, and PLATINUM and database vendors such as
Oracle, Sybase and Informix. In the market for year 2000 products and
professional services, the Company's competitors include Formal Systems,
Viasoft, BDM and EDS.

The principal competitive factors affecting the markets for the Company's
product and professional services offerings include: (1) product
functionality, performance, reliability and ease of use, (2) quality of
technical support, training and consulting services, (3) responsiveness to
customer needs, (4) reputation, experience and financial stability and (5)
cost of ownership, including initial price and deployment costs as well as
ongoing maintenance costs. Due to the continued increase in new product
licenses and professional services revenues, the Company believes that it has
competed effectively in each of these areas. Nevertheless, current and
potential competitors may introduce new and better products, make strategic
acquisitions, or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. There can be no
assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would have a material
adverse effect upon the Company's business, financial condition and results of
operations. See "Risk Factors--Competition."

PROPRIETARY RIGHTS

The products sold by the Company consist of products developed by SAG (e.g.,
ADABAS, NATURAL and ENTIRE), products owned by other third parties which are
distributed by the Company (e.g., ESPERANT and iXpress) and products developed
or acquired by the Company (e.g., INSIGHT 2000 Tool Kit, CONSTRUCT, CONSTRUCT
Spectrum and CONSTRUCT Spectrum SDK). For all of these products, the Company,
if not the developer, is contractually obligated to provide appropriate
security measures to protect the proprietary materials of SAG and other third
parties against misappropriation and illegal copying.

The Company treats all of the products that it distributes as proprietary
trade secrets and confidential information. It relies primarily upon a
combination of trade secret, copyright and trademark laws, its license
agreements with customers, and its internal security systems, confidentiality
procedures and employee agreements to maintain the security of its products.
The Company typically provides its products to users under nonexclusive,
nontransferable perpetual licenses which generally permit use of the licensed
software solely for internal operations on designated computers at specific
sites. Under certain circumstances, the Company makes available the source
code for its products under an escrow arrangement which restricts access to
and use of the source code. Although the Company takes steps to protect its
trade secrets, there can be no assurance that misappropriation will not occur.
In addition, the laws of some foreign countries do not protect proprietary
rights to the same extent as the laws of the United States.

The Company seeks to protect its software, documentation and other written
materials under copyright law, and to assert trademark rights in its product
names. The Company has not sought to protect its products under patent laws,
though SAG and some third parties have patented, in the United States, Japan
and/or the European Union, certain of the products which the Company
distributes.

39
<PAGE>

Although the Company is not aware of any claims that its products infringe
on the proprietary rights of third parties, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future with respect to current and future products or that any such assertion
may not require the Company to enter into royalty arrangements or result in
costly litigation. See "Risk Factors--Proprietary Technology."

EMPLOYEES

As of June 30, 1997, the Company employed 696 people, with 329 in
professional services and consulting, 118 in sales and marketing, 150 in
customer support, and 99 in general and administrative. As of June 30, 1997,
the Company also utilized approximately 110 individuals under independent
contracts. None of the Company's employees is represented by a labor union,
and the Company has never experienced any work stoppage. The Company considers
its relations with its employees to be good. The Company's success will depend
in part on its continued ability to attract and retain highly qualified
personnel in a competitive market for experienced software developers,
professional services staff and sales and marketing personnel.

FACILITIES

The Company's executive offices, principal marketing and data center
facility are located in approximately 170,000 square feet of space in a three
building campus that the Company leases in Reston, Virginia. The Company's
Customer Service and Support Center is located in approximately 85,000 square
feet that the Company leases in Highlands Ranch, Colorado.

The Company leases product sales and professional services branch offices in
Irvine and Sacramento, California; Atlanta, Georgia; Chicago, Illinois;
Braintree, Massachusetts; Bloomington, Minnesota; Fort Lee, New Jersey;
Plymouth Meeting, Pennsylvania; Dallas, Texas; Bellevue, Washington and
Reston, Virginia in the United States. The Company's subsidiary in Mexico
leases offices in Mexico City and Monterrey, Mexico. As a result of the
acquisition of R.D. Nickel, the Company will lease product sales and
professional services branch offices in the following cities in Canada:
Calgary, Cambridge, Edmonton, Montreal, Ottawa and Toronto.

LEGAL PROCEEDINGS

From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. As of the date of this
Prospectus, the Company is not a party to any litigation or other legal
proceeding that, in the opinion of management, could have a material adverse
effect on the Company's business, financial condition or results of
operations.

40
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their respective
ages as of September 26, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Carl J. Rickertsen (1)(2).. 37 Chairman of the Board
Daniel F. Gillis........... 51 President, Chief Executive Officer and Director
Harry K. McCreery.......... 51 Vice President, Treasurer and Chief Financial Officer
Timothy L. Hill............ 39 Vice President--Marketing
Derek M. Brigden........... 45 Vice President--Operations and Chief Information Officer
James H. Daly.............. 54 Vice President, Secretary and General Counsel
Thomas E. Gorley........... 51 Vice President--Professional Services
Dr. Philip S. Dauber (1)... 56 Director
Dr. Erwin Koenigs.......... 47 Director
Edward E. Lucente (2)...... 57 Director
Dr. Paul G. Stern (1)(2)... 58 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2)Member of the Audit Committee.

Carl J. Rickertsen has served as Chairman of the Board of the Company since
April 1997. Mr. Rickertsen is also a member of TC Equity Partners, LLC and TC
Management LLC, which are, respectively, the general partner and managing
agent of Thayer. Thayer is a private equity fund in Washington, D.C. that
targets investments in the information technology and services industries.
From September 1994 to April 1996, Mr. Rickertsen was a partner with Thayer
Capital Partners, an affiliate of Thayer. Prior to that, Mr. Rickertsen acted
as a private financial consultant from 1993 through August 1994 and was a
partner at Hancock Park Associates, a private equity investment firm based in
Los Angeles, from 1989 to 1993. Before joining Hancock Park Associates, Mr.
Rickertsen was an associate at Brentwood Associates from 1987 to 1989 and a
financial analyst in the high technology group at Morgan Stanley & Co., Inc.
from 1983 to 1985. Mr. Rickertsen currently serves as a director of MLC
Holdings, Inc.

Daniel F. Gillis has served as President and Chief Executive Officer of the
Company and the Company's wholly owned subsidiary, Software AG Americas, Inc.
("Software Americas"), since May 1996. He also has served as a director of the
Company since February 1997. Previously, Mr. Gillis served as Senior Vice
President of U.S. Sales of Software Americas from April 1995 to May 1996 and
as Vice President of Federal Systems Sales of Software Americas from January
1995 to March 1995. From August 1994 to January 1995, he was a private
consultant. From May 1987 through August 1994, he was Executive Vice President
at Falcon Microsystems Incorporated, a computer products reseller and systems
integrator. Mr. Gillis currently serves as a director of Carleton Corporation.

Harry K. McCreery has served as Vice President, Treasurer and Chief
Financial Officer of the Company since April 1997. He also has served as
Treasurer of Software Americas since May 1991, Chief Financial Officer of
Software Americas since June 1989 and as Chief Information Officer of Software
Americas from June 1989 to December 1990.

Timothy L. Hill has served as Vice President--Marketing of the Company since
August 1997. Previously, Mr. Hill served from July 1994 through July 1997 as
Vice President, Worldwide Marketing & Sales for Iomega Corporation, a
manufacturer of computer storage products. From August 1993 through July 1994,
Mr. Hill served as Vice President, Marketing for Falcon Microsystems
Incorporated. From January 1988 to August 1993, Mr. Hill was Director of
Marketing & Sales, Consumer Business Division, at Gates Energy Products, a
manufacturer of consumer and commercial rechargeable battery products.

41
<PAGE>

Derek M. Brigden has served as Vice President--Operations and Chief
Information Officer of the Company since April 1997. He has been Vice
President--Operations and Chief Information Officer of Software Americas since
December 1990.

James H. Daly has served as Vice President and General Counsel of the
Company since April 1997 and as Secretary of the Company since 1992. Mr. Daly
also has served as Vice President, General Counsel and Secretary of Software
Americas since May 1991.

Thomas E. Gorley has served as Vice President--Professional Services of the
Company since April 1997. He has served as Vice President--Professional
Services of Software Americas since February 1996. From September 1994 to June
1995, Mr. Gorley served as Senior Vice President of Electronic Data Systems
Corporation, a systems integration and consulting company. He also served as
President of Bell Atlantic Utilities Systems, a software development and
services company, from June 1992 to December 1993. Mr. Gorley was a private
consultant from June 1995 to February 1996 and from January 1994 to September
1994.

Dr. Philip S. Dauber has served as a director of the Company since April
1997. Dr. Dauber has served as a consultant at IQI, Inc., a telemarketing
firm, since November 1996, and as the acting President of IQI, Inc. from
February 1997 through August 1997. Before joining IQI, Inc., Dr. Dauber was
employed as an independent consultant, providing services to several
technology oriented businesses. Dr. Dauber served as a Senior Vice President
of Unisys Corporation from 1981 to 1987 during which time he was also Chairman
and Chief Executive Officer of Memorex, Inc., a wholly owned subsidiary of
Unisys Corporation. Before joining Unisys Corporation, Dr. Dauber was employed
by IBM Corporation from 1965 to 1981 and served as Secretary of its Corporate
Management Committee from 1980 to 1981.

Dr. Erwin Koenigs has served as a director of the Company since December
1996 and was Chairman of the Board of the Company from December 1996 through
March 1997. Dr. Koenigs has served as Chairman of the Board since September
1996 and Chief Executive Officer of SAG since November 1996. From April 1989
to November 1996, Dr. Koenigs was Chief Executive Officer of Linotype-Hell AG
in Eschborn, Germany, a supplier of prepress and publishing technology.

Edward E. Lucente has served as a director of the Company since April 1997.
Since May 1995, Mr. Lucente has served as the Chief Executive Officer and
President of Liant Software Corporation, a software development company.
Previously, he was a marketing consultant from May 1994 until April 1995, and
Executive Vice President of Sales and Marketing of Digital Equipment
Corporation, a computer hardware, software and services company, from March
1993 through April 1994. From February 1991 until March 1993, Mr. Lucente was
a Member of the Executive Office of Northern Telecom Limited, a supplier of
digital telecommunications systems, serving from January 1992 until March 1993
as an Executive Vice President of Northern Telecom Limited. Mr. Lucente
currently serves as a director of Compuserve Corporation, Genicom Corporation
and Information Resources, Inc.

Dr. Paul G. Stern has served as a director of the Company since April 1997.
Dr. Stern is also a member of TC Equity Partners, LLC and TC Management LLC,
which are, respectively, the general partner and managing agent of Thayer. In
1995, Dr. Stern joined Thayer as a co-founder. Prior to that, Dr. Stern was a
Special Limited Partner at Forstmann Little & Co., a private investment firm,
from June 1993 to June 1995. From March 1989 until June 1993, Dr. Stern served
as Chief Executive Officer and Chairman of the Board of Northern Telecom
Limited. Dr. Stern currently serves as a director of The Dow Chemical Company,
The LTV Corporation and Whirlpool Corporation.

The Company's Second Amended and Restated Bylaws (the "Bylaws") provide for
the Company's Board of Directors to be comprised of six directors, and permit
the Board of Directors from time to time to increase or decrease the number of
directors. Pursuant to the terms of the Company's Second Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), upon the
consummation of this offering the directors will be divided into three
classes. One class will hold office initially for a term expiring at the
annual meeting of the stockholders to be held in 1998, a second class will
hold office initially for a term expiring at

42
<PAGE>

the annual meeting of stockholders to be held in 1999 and a third class will
hold office initially for a term expiring at the annual meeting of
stockholders to be held in 2000. Each director will hold office for the term
to which he is elected and until his successor is duly elected and qualified
or until his earlier death, resignation or removal. Mr. Gillis and Dr. Koenigs
will have terms expiring in 1998, Dr. Dauber and Mr. Lucente will have terms
expiring in 1999, and Mr. Rickertsen and Dr. Stern will have terms expiring in
2000. At each annual meeting of the stockholders of the Company, the
successors to the class of directors whose terms expire at such meeting will
be elected to hold office for a term expiring at the third succeeding annual
meeting of stockholders after their election.

Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the first meeting of the Board of Directors
following the next annual meeting of stockholders following their election and
until their successors have been duly elected and qualified or until their
earlier death, resignation or removal. There are no family relationships among
any of the executive officers or directors of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

In April 1997, the Board of Directors established an Audit Committee and a
Compensation Committee. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews with the Company's
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the Company's independent public
accountants and reviews any recommendations made by the Company's auditors
regarding the Company's accounting methods and the adequacy of the Company's
internal accounting controls. The current members of the Audit Committee are
Messrs. Lucente and Rickertsen and Dr. Stern. The Compensation Committee
establishes general guidelines regarding the compensation of the officers and
executives of the Company and its subsidiaries, and determines the
compensation of the executive officers of the Company. The Compensation
Committee also administers the Stock Option Plan. The current members of the
Compensation Committee are Mr. Rickertsen and Drs. Stern and Dauber. The Audit
Committee and the Compensation Committee are comprised solely of directors who
are not officers or employees of the Company or any of its subsidiaries
("Independent Directors").

DIRECTOR COMPENSATION

The Company's directors were not compensated during 1996 for any services
provided as directors and did not receive during such fiscal year any benefits
or other forms of compensation, cash or otherwise, from the Company for their
service as directors. The Company has no present plans to pay such benefits or
compensation to directors. The Company intends to reimburse directors for
certain out-of-pocket expenses incurred in connection with attendance at Board
of Directors and committee meetings.

Each of Dr. Dauber and Mr. Lucente has received grants of nonstatutory stock
options under the Stock Option Plan to purchase 54,450 shares of Common Stock
at an exercise price equal to $1.47 per share. The options vest in equal
annual installments over a period of four years, commencing March 31, 1998.
The options become exercisable in full upon a change in control of the
Company. See "--Stock Option Plan."

43
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation paid to the persons who served as the Company's Chief Executive
Officer during 1996 and each of the four other most highly compensated
executive officers of the Company whose annual salary and bonus compensation
for 1996 exceeded $100,000 (collectively, the "Named Executive Officers"). The
Named Executive Officers did not receive any stock option grants in 1996, hold
any stock options at the end of 1996 or exercise any stock options during
1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) COMPENSATION (2)
- --------------------------- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Current Executive Officers
Daniel F. Gillis (3)
President and Chief
Executive Officer......... $249,039 $240,500 $24,000 $ 179,671
Harry K. McCreery (4)
Vice President, Treasurer
and Chief Financial
Officer................... 170,000 132,600 -- 235,933
Derek M. Brigden (4)
Vice President--Operations
and Chief Information
Officer................... 150,000 101,346 -- 7,500
James H. Daly (4)
Vice President--
International Operations,
Secretary and General
Counsel................... 142,000 92,300 20,208 159,183
Former Executive Officers
Michael J. King (5)
President and Chief
Executive Officer......... 130,344 -- -- 2,800,874(5)
William Cripe (6)
Vice President--Human
Resources................. 123,613 81,900 -- 97,060(6)
</TABLE>
- -------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), other compensation in the form of perquisites and
other personal benefits have been omitted because such perquisites and
other personal benefits constituted in the aggregate less than the lesser
of $50,000 or 10% of the total annual salary and bonus reported for the
Named Executive Officer during 1996.
(2) Unless otherwise indicated, consists of (i) amounts of deferred
compensation earned and credited to deferred compensation accounts of the
Named Executive Officer during 1996 and (ii) $7,500 of contributions paid
by the Company on behalf of each Named Executive Officer under the 401(k)
Plan. See "--Deferred Compensation Agreements," "--401(k) Plan" and
footnotes 5 and 6 below. The Company does not have any long term incentive
plans.
(3) Mr. Gillis served as President and Chief Executive Officer of the Company
from May 6, 1996.
(4) In 1996, these individuals served as executive officers of Software
Americas, the Company's wholly owned subsidiary, and performed policy
making functions for both Software Americas and the Company.
(5) Mr. King served as President and Chief Executive Officer of the Company
and Software Americas prior to Mr. Gillis. Amounts reported as All Other
Compensation include (i) severance payments in the amount of $950,000,
(ii) deferred compensation payments in the amount of $1,843,374 and (iii)
$7,500 of contributions paid by the Company under the 401(k) Plan.
(6) During 1996, Mr. Cripe served as Vice President--Human Resources of
Software Americas. His employment with Software Americas was terminated on
March 21, 1997. Amounts reported as All Other Compensation include (i)
$90,930 of deferred compensation earned and credited to Mr. Cripe's
deferred compensation account and (ii) $6,130 of contributions paid by the
Company on behalf of Mr. Cripe under the 401(k) Plan.

44
<PAGE>

Messrs. Gillis, McCreery, Brigden, Daly, Gorley and Hill have received
grants of nonstatutory stock options under the Stock Option Plan to purchase
aggregate amounts of 2,472,800 and 1,017,289 shares of Common Stock at an
exercise price per share equal to $1.47 and $12.00, respectively. The options
granted to Messrs. Gillis and McCreery vest in equal annual installments over
a period of three years, and the options granted to Messrs. Brigden, Daly,
Gorley and Hill vest in equal annual installments over a period of four years.
The options become exercisable in full upon a change in control of the
Company. See "--Stock Option Plan." Messrs. Gillis, McCreery, Brigden, Daly,
Gorley and Hill have also received grants of nonstatutory stock options under
the Stock Option Plan to purchase an aggregate of 618,200 shares of Common
Stock at an exercise price per share equal to $9.60, which options are fully
vested.

STOCK OPTION PLAN

In connection with the Recapitalization, which was consummated on March 31,
1997, the Company authorized the granting of stock options to purchase an
aggregate of 3,300,000 shares of Common Stock at an exercise price equal to
$1.47, the per share purchase price of the Recapitalization. On April 29,
1997, the Company adopted the Software AG Systems, Inc. 1997 Stock Option Plan
(the "Stock Option Plan"). The Stock Option Plan is intended to assist the
Company and its affiliates in attracting and retaining employees, directors,
consultants and advisors (collectively, the "Eligible Individuals") and to
promote the identification of their interests with those of the stockholders
of the Company. The Stock Option Plan permits a maximum of 6,875,000 shares of
Common Stock to be issued to Eligible Individuals pursuant to grants of stock
options. Unless sooner terminated by the Company's Board of Directors, the
Stock Option Plan will terminate on April 1, 2007. Options granted under the
Stock Option Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or nonstatutory stock options. No option granted under the Stock Option Plan
is exerciseable after the tenth anniversary of the option's date of grant. The
Company has granted to Eligible Individuals nonstatutory stock options to
acquire an aggregate of 4,947,525 shares of Common Stock at a weighted average
exercise price of $4.90 per share.

401(K) PLAN

Software Americas provides a 401(k) plan (the "401(k) Plan") giving eligible
employees, including executive officers, the opportunity to accrue additional
income and to save for retirement on a before-tax basis. The 401(k) Plan is
qualified under Section 401(k) of the Code. All Software Americas employees
are eligible to participate in the plan after six months of full-time
employment. The 401(k) Plan provides that each participant may contribute up
to 15% of the participant's annual pre-tax compensation, but not more than the
annual maximum prescribed by law. The 401(k) Plan requires 100% matching
contributions by Software Americas up to 5% of the participant's annual
compensation.

DEFERRED COMPENSATION AGREEMENTS

Software Americas has entered into deferred compensation agreements with
Messrs. Gillis, McCreery and Daly (the "Deferred Compensation Agreements").
Pursuant to these agreements, each of Messrs. Gillis, McCreery and Daly
annually receives a credit of $41,838, $46,000 and $24,000, respectively, to
his deferred compensation account plus an additional credit to such account
equal to 53%, 100% and 120%, respectively, of his bonus for such year. The
deferred compensation accounts earn interest at an annual rate of 6%. Under
the Deferred Compensation Agreements, no additional credits, other than
interest, will be made to any of the deferred compensation accounts after
December 31, 1998. The deferred compensation accounts of Messrs. McCreery and
Daly are fully vested. Mr. Gillis' deferred compensation account is currently
40% vested and will vest in full as of December 31, 1998. Except under certain
circumstances, upon termination of employment, each of Messrs. Gillis,
McCreery and Daly is entitled to receive from Software Americas payments
totaling the vested portion of his deferred compensation account.

45
<PAGE>

SEVERANCE AGREEMENTS

Mr. Gillis has entered into a memorandum of understanding with the Company
with respect to the termination of his employment as President and Chief
Executive Officer of the Company. Under this agreement, the Company is
required to pay Mr. Gillis a severance benefit equal to twelve months of his
then-current salary plus annual bonus, and, for a period not to exceed twelve
months, to continue to make available his health and other fringe benefits if
(i) the Company terminates his employment other than for cause or (ii) he
resigns within ninety days of a substantial change in his title or a
substantial reduction in his compensation and benefits or job
responsibilities.

Each of Messrs. McCreery, Brigden and Daly has entered into a memorandum of
understanding with Software Americas with respect to the termination of his
employment on terms and conditions substantially similar to Mr. Gillis'
memorandum of understanding with the Company, provided, however, that no
severance or other benefits are due under these agreements if the executive
officer resigns within ninety days of a substantial reduction in his
compensation and benefits related to a company wide reduction or a substantial
reduction in his job responsibilities that is deemed to be in the best
business interests of Software Americas.

Pursuant to the terms of a Shareholders Agreement dated as of April 1, 1997,
each of Messrs. Gillis, McCreery, Brigden, Daly and Gorley has agreed that (i)
prior to the fifth anniversary of the termination of his employment with the
Company, he will not influence any employee to leave the Company and (ii)
prior to the third anniversary of the termination of his employment with the
Company (unless such termination is by the Company without cause), he will not
directly or indirectly compete with the Company by soliciting any of its
customers, clients or suppliers. Mr. Hill has agreed to similar restrictions
pursuant to a subscription agreement between Mr. Hill and the Company dated as
of August 22, 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to April 1997, the Company did not have a Compensation Committee or
other committee of the Board of Directors performing an equivalent function,
and the compensation of the Company's executive officers was determined by the
Company's Board of Directors. Since April 29, 1997, the Compensation Committee
of the Company's Board of Directors has been comprised of Mr. Rickertsen and
Drs. Stern and Dauber, each of whom is an Independent Director. Mr. Rickertsen
and Dr. Stern are members of TC Equity Partners, LLC, which is the general
partner of Thayer, a stockholder of the Company.

46
<PAGE>

CERTAIN RELATIONSHIPS AND TRANSACTIONS

At the closing of the Recapitalization, Thayer and the senior management of
the Company acquired approximately 89% of the outstanding voting equity of the
Company pursuant to an agreement among the Company, SAG, Thayer and the
following executive officers of the Company: Daniel F. Gillis, Harry K.
McCreery, Gary Hayes, James H. Daly, Derek M. Brigden and Thomas E. Gorley
(collectively, such individuals are referred to as the "Managers"). Prior to
the Recapitalization, SAG owned all of the Company's 27,500,000 outstanding
shares of Common Stock. In connection with the Recapitalization, the Company
(i) repurchased 24,750,000 shares of Common Stock from SAG for an aggregate
purchase price of 57,000,000 Deutsche Marks ($34.1 million) and (ii) issued
and sold 20,678,350 shares of Common Stock to Thayer and an aggregate of
771,650 shares of Common Stock to the Managers for an aggregate purchase price
of $31,526,820, or $1.47 per share. Of the Common Stock purchased by the
Managers, Messrs. Gillis and McCreery each purchased 204,050 shares and
Messrs. Hayes, Daly, Brigden and Gorley purchased 84,975, 108,625, 67,925 and
102,025 shares, respectively. After the Recapitalization, SAG retained
2,750,000 shares of Common Stock, representing approximately 11% of the
outstanding Common Stock. Dr. Erwin Koenigs, the Chairman of the Board and
Chief Executive Officer of SAG, is currently a director of the Company. As a
result of the Recapitalization, Thayer and the Managers respectively owned
approximately 85% and 3% of the outstanding Common Stock. Dr. Stern and Mr.
Rickertsen, directors of the Company, are members of TC Equity Partners, LLC,
which is the sole general partner of Thayer. In addition, Mr. Gillis is
currently, and was at the time of the Recapitalization, a director of the
Company.

In connection with the Recapitalization, on March 31, 1997, Software
Americas borrowed $5,000,000 from Thayer under a short term note agreement for
working capital requirements. This note accrued interest at a simple rate
equal to 10% per annum and was repaid on April 11, 1997. In addition, Software
Americas paid to TC Management LLC ("TC Management") a financial advisory fee
of $840,000 in consideration for investment banking and advisory services
provided by TC Management in connection with the Recapitalization, and
reimbursed TC Management for its out-of-pocket expenses in connection with the
Recapitalization. On April 1, 1997, Software Americas also agreed to pay on a
quarterly basis an annual fee of $300,000 to TC Management for management and
consulting services to be provided by TC Management to Software Americas in
connection with the operation and conduct of Software Americas' business. To
date, Software Americas has paid $150,000 of such fees. TC Management provides
management services to Thayer. Dr. Stern and Mr. Rickertsen, directors of the
Company, are members of TC Management. In connection with the
Recapitalization, Software Americas also paid a one-time advisory fee of
$250,000 to MLC Holdings, Inc. Mr. Rickertsen, is a director of MLC Holdings,
Inc.

Prior to the Recapitalization, the Company licensed and serviced SAG
products pursuant to a license agreement entered into by SAG and Software
Americas on January 1, 1995 (the "License Agreement"). The License Agreement
gave Software Americas the exclusive rights to license and service SAG
products in North America, South America, Japan and Israel, and gave SAG the
exclusive rights to license and service Software Americas products in all
other areas. Immediately prior to the Recapitalization, Software Americas and
SAG entered into a Cooperation Agreement dated March 31, 1997 which terminated
and superseded the License Agreement. The Cooperation Agreement generally
provides (i) Software Americas the exclusive and perpetual right to license
and service in North America, South America, Japan and Israel (the
"Territory") both existing and future products developed or acquired by SAG
and (ii) SAG the exclusive and perpetual right to license and service outside
the Territory both existing and future products developed or acquired by
Software Americas. Each of Software Americas and SAG must pay the other 24% of
the net revenues derived from such licenses. Except in certain circumstances,
Software Americas' minimum annual royalty payment to SAG through the year 2000
must at least equal $21 million. This 24% royalty rate is fixed for 20 years.
In 1994, 1995, 1996 and the first six months of 1997, Software Americas'
royalty payments to SAG were $29.0 million, $23.9 million, $26.1 million and
$12.3 million, respectively. In the same periods, SAG's royalty payments to
Software Americas were $0, $0.3 million, $0.3 million and $0.4 million,
respectively. See "Company Background."

47
<PAGE>

On December 5, 1993, Software Americas and SAG entered into a Products and
Research & Development Operations Transfer Agreement (the "R&D Agreement")
which required Software Americas to provide certain services relating to
certain SAG employees who utilized Software Americas facilities. In connection
with the Recapitalization, on March 31, 1997, Software Americas entered into
an Administrative Services Agreement (the "ASA") with SAG, terminating the R&D
Agreement and requiring that Software Americas provide services similar to
those required under the R&D Agreement. SAG is required under the ASA to
reimburse Software Americas for its costs incurred in connection with the ASA
and to pay Software Americas $500,000 per year during the years 1997, 1998 and
1999 for the use of certain machinery leased by Software Americas. In 1994,
1995, 1996 and the first six months of 1997, payments to Software Americas
under the R&D Agreement and the ASA were approximately $7.5 million, $8.8
million, $15.9 million and $6.6 million, respectively.

From 1988 until the Recapitalization, the Company was a wholly owned
subsidiary of SAG. Accordingly, during that period, there were a variety of
intercompany transactions, including loans and dividends, between the Company
and SAG. In 1995 and 1996, the Company paid aggregate dividends to SAG of $1.7
and $9.0 million, respectively. Except as described above, all of these
transactions that were material terminated in connection with the
Recapitalization. See "Dividend Policy" and Note 6 of the Notes to the
Consolidated Financial Statements.

On August 22, 1997, the Company entered into a subscription agreement with
Timothy L. Hill, the Company's Vice President--Marketing, pursuant to which
the Company issued and sold to Mr. Hill 137,500 shares of Common Stock for an
aggregate purchase price of $202,095. Pursuant to the subscription agreement,
the Company has the right to repurchase Mr. Hill's shares at $1.47 per share
if Mr. Hill's employment with the Company is terminated for any reason prior
to August 22, 1999. The Company has issued options to purchase an aggregate of
94,325 shares of Common Stock at an exercise price of $1.47 to the members of
Thayer's Advisory Board.

The Company and Thayer have entered into a registration rights agreement for
the benefit of all holders of "restricted securities" of the Company within
the meaning of Rule 144 of the Commission as of the date hereof and certain
transferees. Pursuant to this agreement, a majority-in-interest of such
holders has the right to require the Company to register their restricted
securities for resale under the Securities Act on up to five occasions (only
one of which may be on Form S-1) and such holders have been granted certain
"piggy-back" registration rights with regard to certain securities offerings
initiated by the Company. The Company has agreed to pay certain expenses in
connection with such registrations.

On March 24, 1997, Thomas Gorley borrowed $75,000 from Software Americas
under a promissory note. The promissory note accrues interest at the rate of
6% per annum and is due and payable upon Mr. Gorley's termination of
employment with Software Americas.

48
<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 September
26, 1997, and as adjusted to reflect the sale of the shares pursuant to this
offering, by (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each director and
Named Executive Officer of the Company, (iii) all directors and executive
officers of the Company as a group and (iv) each Selling Stockholder. Except as
otherwise indicated below, to the knowledge of the Company, each person listed
below has sole voting power and investment power with respect to the shares
beneficially owned by such person, subject to community property laws where
applicable.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING (2) SHARES TO BE AFTER OFFERING (2)
------------------------- SOLD IN ------------------
NAME AND ADDRESS (1) NUMBER PERCENT OFFERING (3) NUMBER PERCENT
- -------------------- ------------- ----------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Thayer Equity Investors 20,209,200 83.0% 3,083,260 17,125,940 59.2%
III, L.P...............
1455 Pennsylvania
Avenue, N.W.
Washington, DC 20004
Software AG............. 2,750,000 11.3 -- 2,750,000 9.5
Uhlandstrasse 12, D-
64297
Darmstadt, Germany
TC Co-Investors, LLC.... 109,725 * 16,740 92,985 *
1455 Pennsylvania
Avenue, N.W.
Washington, DC 20004
Daniel F. Gillis........ 561,550 2.3 -- 561,550 1.9
Harry K. McCreery....... 396,550 1.6 -- 396,550 1.4
James H. Daly........... 125,675 * -- 125,675 *
Derek M. Brigden........ 84,975 * -- 84,975 *
Carl J. Rickertsen (4).. 20,318,925 83.5 3,100,000 17,218,925 60.0
Dr. Philip S. Dauber 67,925 * -- 67,925 *
(5)....................
Dr. Erwin Koenigs (6)... 2,852,025 11.7 -- 2,852,025 9.9
Edward E. Lucente....... -- -- -- -- --
Dr. Paul G. Stern (4)... 20,318,925 83.5 3,100,000 17,218,925 60.0
Michael J. King......... -- -- -- -- --
William Cripe........... -- -- -- -- --
All directors and
executive officers as a
group (11 persons)
(7).................... 24,681,250 98.9% 3,100,000 21,581,250 73%
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock
(1) The business address for Messrs. Gillis, McCreery, Brigden and Daly is
11190 Sunrise Valley Drive, Reston, Virginia 20191. The business address
for Mr. Rickertsen and Dr. Stern is c/o Thayer Equity Investors III, L.P.,
1455 Pennsylvania Avenue, N.W., Washington, DC 20004. The business address
for Dr. Koenigs is c/o Software AG, Uhlandstrasse 12, D-64297, Darmstadt,
Germany.

49
<PAGE>

(2) The number of shares of Common Stock outstanding prior to this offering
includes (i) 24,337,500 shares outstanding as of September 26, 1997 and
(ii) with respect to each person, the shares issuable by the Company
pursuant to options held by such person which may be exercised within 60
days following September 26, 1997 ("Presently Exercisable Options"). The
number of shares of Common Stock deemed outstanding after this offering
includes an additional 4,600,000 shares that are being offered for sale by
the Company in this offering. Beneficial ownership is determined in
accordance with the rules of the Commission that deem shares to be
beneficially owned by any person or group who has or shares voting and
investment power with respect to such shares. Presently Exercisable
Options 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 or
group.
(3) If the Underwriters exercise their over-allotment option to purchase up to
1,155,000 shares, the following stockholders named in the table above will
sell up to the following number of additional shares: Thayer Equity
Investors III, L.P., 574,381 shares; and TC Co-Investors, LLC 3,119
shares.
(4) Consists of 20,209,200 shares held of record by Thayer and 109,725 shares
held of record by TC Co- Investors, LLC ("TC Co-Investors"). Thayer is a
Delaware limited partnership whose general partner is TC Equity Partners,
LLC, a Delaware limited liability company ("TC Equity Partners"). TC
Equity beneficially owns, and has sole voting and investment power with
respect to, the shares of Common Stock held of record by Thayer. TC Co-
Investors is a Delaware limited liability company whose managing member is
TC Management LLC ("TC Management"). TC Management beneficially owns, and
has sole voting and investment power with respect to, the shares of Common
Stock held of record by TC Co-Investors. The members of each of TC Equity
Partners and TC Management are Frederic V. Malek, Dr. Paul G. Stern and
Carl J. Rickertsen. Dr. Stern and Mr. Rickertsen may be deemed to be the
beneficial owners of the shares of Common Stock held by each of Thayer and
TC Co-Investors.
(5) All of the reported shares are held of record by PSERD Trust, of which Dr.
Dauber is a trustee. Dr. Dauber shares voting and investment power with
respect to all shares held by PSERD Trust and may be deemed to be the
beneficial owner of all such shares.
(6) 2,750,000 of the reported shares are held of record by Software AG
("SAG"). Dr. Koenigs, a director of the Company, is the Chairman of the
Board and Chief Executive Officer of SAG, and may be deemed to have or
share voting and investment power with respect to all shares held of
record by SAG. Dr. Koenigs disclaims beneficial ownership of all shares
held of record by SAG.
(7) Includes 20,209,200 shares held of record by Thayer, 2,750,000 shares held
of record by SAG, 109,725 shares held of record by TC Co-Investors and
67,925 shares held of record by PSERD Trust. See footnotes (4), (5) and
(6).

50
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, $.01 par value per share, and 25,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock").

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of applicable law and by the
Company's Certificate of Incorporation, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

As of September 26, 1997, there were 24,337,500 shares of Common Stock
outstanding held of record by 18 stockholders. Based on the number of shares
outstanding as of that date and giving effect to the issuance of the 4,600,000
shares of Common Stock being offered by the Company hereby, there will be
28,937,500 shares of Common Stock outstanding upon the consummation of this
offering.

Holders of Common Stock are entitled to one vote per share on all matters to
be voted on by stockholders. There are no cumulative voting rights. All
outstanding shares of Common Stock are, and all shares of Common Stock issued
and sold in this offering will be, duly authorized, validly issued, fully paid
and nonassessable. Subject to such preferential rights as may be granted by
the Board of Directors in connection with the issuance of Preferred Stock,
distributions may be paid to the holders of Common Stock when, as and if
declared by the Board of Directors out of funds legally available therefore.
The Company does not intend to pay dividends on its Common Stock in the
foreseeable future. See "Dividend Policy." Holders of Common Stock have no
preemptive or other rights to subscribe for additional shares of Common Stock,
redemption rights or conversion rights. Upon liquidation, dissolution or
winding up of the Company, the holders of the Common Stock are entitled to
share ratably in all assets of the Company that are legally available for
distribution after payment of all debts and other liabilities and subject to
any prior rights of holders of Preferred Stock, if any, then outstanding.

PREFERRED STOCK

The Board of Directors has authority to issue 25,000,000 shares of Preferred
Stock in one or more series and to fix the relative rights, preferences,
privileges, qualifications, limitations and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Board of Directors could,
without the approval of the stockholders, issue Preferred Stock having voting
or conversion rights that could adversely affect the voting power of the
holders of Common Stock, and the issuance of Preferred Stock could be used,
under certain circumstances, to render more difficult or discourage a hostile
takeover of the Company. The Company has no present plans to issue any shares
of Preferred Stock.

LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS

The Company has adopted provisions in its Certificate of Incorporation
limiting the liability of directors of the Company for monetary damages. The
effect of this provision in the Certificate of Incorporation is to eliminate
the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against
a director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. The provisions of the Certificate of Incorporation described above apply
to an officer of the Company only if

51
<PAGE>

he or she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
These provisions will not alter the liability of directors under federal
securities laws.

The Company's Certificate of Incorporation and Bylaws contain provisions
indemnifying the directors and officers of the Company to the fullest extent
permitted by the Delaware General Corporate Law ("DGCL"). The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors and officers.

CERTAIN PROVISIONS OF DELAWARE LAW, THE CERTIFICATE OF INCORPORATION AND THE
BYLAWS

The Company is subject to the provisions of Section 203 of the DGCL. Subject
to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the Board of Directors,
the business combination is approved in a prescribed manner or certain other
conditions are satisfied. A "business combination" includes, among other
transactions, mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.

The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise. These provisions are
intended to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control
of the Company to negotiate first with the Board of Directors. The Company
believes that the benefits of these provisions outweigh the potential
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals might result in an improvement of their terms.

Classified Board of Directors. The Certificate of Incorporation provides
that, upon consummation of an underwritten public offering of the Company
Common Stock, the Board of Directors will be divided into three classes of
directors, each class constituting approximately one-third of the total number
of directors and the classes serving staggered three-year terms. The
classification of directors will have the effect of making it more difficult
for stockholders to change the composition of the Board of Directors. The
Company believes, however, that the longer time required to elect a majority
of a classified Board of Directors will help to ensure continuity and
stability of the Company's management and policies. The classification
provisions could also have the effect of discouraging a third party from
accumulating large blocks of the Company's Common Stock or attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. Accordingly, stockholders could be
deprived of certain opportunities to sell their shares of Common Stock at a
higher market price than might otherwise be the case. See "Management--
Executive Officers and Directors."

Number of Directors; Removal; Filling Vacancies. The Certificate of
Incorporation provides that the number of directors will be fixed by, or
determined pursuant to, the Bylaws. The Bylaws provide that the Board of
Directors shall consist of six directors and that the Board of Directors may
increase or decrease the number of directors. The Bylaws also provide that the
number of directors shall not be increased by 50% or more in any 12-month
period without the approval of at least two-thirds of the directors then in
office. The Certificate of Incorporation provides that any vacancies will be
filled only by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum. Accordingly, the Board of
Directors could temporarily prevent any stockholder from enlarging the Board
of Directors and filling the new directorships with such stockholder's own
nominees. The Certificate of Incorporation also provides that directors (or
the entire Board) may be removed from office by the stockholders for cause by
the vote of the holders of at least a majority of the Common Stock.

52
<PAGE>

No Stockholder Action by Written Consent; Special Stockholder Meetings. The
Certificate of Incorporation provides that, after the consummation of an
underwritten public offering of the Company's Common Stock, stockholder action
can be taken only at an annual or special meeting of stockholders and can not
be taken by written consent in lieu of a meeting. The Bylaws provide that
special meetings of the stockholders may be called only by the Chairman of the
Board of Directors, a majority of the Board of Directors or the Chief
Executive Officer of the Company. These provisions may have the effect of
delaying consideration of a stockholder proposal until the next annual
meeting. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock.

Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that (i) only persons who are nominated by, or at the direction of, the Board
of Directors, or by a stockholder who has given timely written notice
containing specified information to the Secretary of the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company and (ii) at an annual meeting only such business may
be conducted as has been brought before the meeting by, or at the direction
of, the Board of Directors, or by a stockholder who has given timely written
notice to the Secretary of the Company of such stockholder's intention to
bring such business before the meeting. Except for stockholder proposals
submitted in accordance with the federal proxy rules as to which the
requirements specified therein shall control, notice of stockholder
nominations or business to be conducted at a meeting must be received by the
Company not less than 60 days nor more than 90 days prior to the date of the
annual meeting if the notice is to be submitted at an annual meeting, or not
later than 10 days following the day on which notice of the date of a special
meeting was given if the notice is to be submitted at a special meeting.

The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders.
Although the Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.

Amendment of Certificate of Incorporation and Bylaws. The Certificate of
Incorporation provides that, after consummation of an underwritten public
offering of the Company's Common Stock, the provisions therein relating to the
staggered Board of Directors, the availability of action by written consent by
stockholders, removal of directors and filling of vacancies on the Board of
Directors may be amended, altered, changed or repealed only by the affirmative
vote of the holders of at least two-thirds of the voting power of all the
shares of capital stock then entitled to vote, voting as a single class. The
Certificate of Incorporation also provides that, after consummation of an
underwritten public offering of the Company's Common Stock, the Bylaws may not
be adopted, amended, altered, changed or repealed by the affirmative vote of
the majority of the members of the Board of Directors. Any action taken by the
stockholders with respect to adopting, amending, altering, changing or
repealing any Bylaw may be taken only by the affirmative vote of the holders
of at least two-thirds of the voting power of all of the shares of capital
stock then entitled to vote, voting as a single class.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is .

53
<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, or the perception that such sales might occur, could adversely affect
the market price of the Common Stock and could impair the ability of the
Company to raise equity capital in the future.

Upon completion of this offering, the Company will have 28,937,500
outstanding shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 7,700,000 shares of Common Stock
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by
"affiliates" of the Company, as that term is defined under the Securities Act
and the regulations promulgated thereunder (an "Affiliate"). The remaining
21,237,500 shares of Common Stock (the "Restricted Shares") held by existing
stockholders were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted
securities" within the meaning of Rule 144 promulgated under the Securities
Act.

Of the Restricted Shares, 2,750,000 shares will be eligible for sale
beginning 90 days after the date of this Prospectus (of which will be
subject to 180-day lock-up agreements between certain shareholders and the
Representatives of the Underwriters), and 18,487,500 additional shares will be
eligible for sale beginning March 31, 1998 (of which will be subject to
180-day lock-up agreements).

The holders of shares of Common Stock have agreed with the
Representatives that, until 180 days from the date of this Prospectus, subject
to certain limited exceptions, they will not, directly or indirectly, sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock, owned directly by such holders or with respect to which they have the
power of disposition, without the prior written consent of Robertson, Stephens
& Company. Robertson, Stephens & Company may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to the lockup agreements.

In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this Prospectus, any holder of Restricted Shares, including an
Affiliate of the Company, as to which at least one year has elapsed since the
later of the date of the acquisition of such Restricted Shares from the
Company or an Affiliate, would be entitled within any three-month period to
sell a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (289,375 shares immediately following the
closing of this offering) or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Affiliates of the Company must
comply with the restrictions and requirements of Rule 144 (except for the one-
year holding period requirement) in order to sell shares of Common Stock which
are not "restricted securities" (such as shares acquired by Affiliates in this
offering).

Further, under Rule 144(k) a person who holds restricted shares as to which
at least two years have elapsed since the later of their acquisition from the
Company or an Affiliate, and who is not deemed to have been an Affiliate of
the Company at any time during the three months preceding a sale, is entitled
to sell such shares under Rule 144 without regard to volume limitations,
manner of sale provisions, notice requirements or availability of current
public information concerning the Company.

As of September 26, 1997, options to purchase 4,947,525 shares were
outstanding under the Stock Option Plan, and an additional 1,927,475 shares
were reserved for issuance under the Stock Option Plan. The Company intends to
file a registration statement on Form S-8 under the Securities Act covering
the shares issuable under the Stock Option Plan. Such registration statement
is expected to be filed and become effective

54
<PAGE>

as soon as practicable after consummation of this offering. After the
effective date of such registration statement, shares of Common Stock issued
under the Stock Option Plan will be immediately eligible for sale in the
public market, subject in certain cases to the lock-up restrictions described
above and to Rule 144 volume limitations applicable to Affiliates.

The holders of 18,487,500 Restricted Shares have been granted certain rights
to have their shares of Common Stock registered for sale under the Securities
Act. See "Certain Relationships and Transactions."

55
<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders 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. 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.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC...............................
Donaldson, Lufkin & Jenrette Securities Corporation.............
---------
Total....................................................... 7,700,000
=========
</TABLE>

The Company has been advised by the Representatives 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 more than $ per
share, of which $ per share 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.

The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this
Prospectus, to purchase an aggregate of up to an additional 1,115,000 shares
of Common Stock at the same price per share as the Company and the Selling
Stockholders receive for the 7,700,000 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 7,700,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those
on which the 7,700,000 shares are being sold. The Company and the Selling
Stockholders subject to such over-allotment option will be obligated, pursuant
to the option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.

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 of 1933, as
amended, and liability arising from breaches of representations and warranties
contained in the Underwriting Agreement.

All current officers and directors of the Company, and stockholders holding
shares of Common Stock, have agreed with the Representatives that, until
180 days from the date of this Prospectus, subject to certain limited
exceptions, they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to purchase, pledge, or otherwise dispose of or
transfer, any shares of Common Stock, or any securities convertible into or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock, now owned or hereafter acquired by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of Robertson, Stephens & Company LLC. Robertson,
Stephens & Company LLC may, in its sole discretion and without notice, release
all or any portion of the securities subject to the lock-up agreements. In
addition, the Company has agreed that, until 180 days from

56
<PAGE>

the date of this Prospectus, the Company will not, without the prior written
consent of Robertson, Stephens & Company LLC, subject to certain exceptions,
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 sale of shares in this offering, the issuance of Common Stock
upon the exercise of outstanding options, or the Company's grant of options
and issuance of stock under the Stock Option Plan. See "Shares Eligible for
Future Sale."

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

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected, where permitted, on the NYSE or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.

The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Common Stock offered hereby for employees of
the Company and certain individuals who have expressed an interest in
purchasing shares of Common Stock in this offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.

Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company and the
Representatives. The material factors to be considered in such negotiations
will be prevailing market and economic conditions, certain financial
information of the Company for recent periods, the market valuations of other
companies engaged in activities similar to those of the Company, estimates of
the business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors
deemed relevant. The estimated initial public offering price range set forth
on the cover of this preliminary prospectus is subject to change as a result
of market conditions and other factors. There can be no assurance that an
active or orderly trading market will develop for the Common Stock or that the
Common Stock will trade in the public market subsequent to this offering at or
above the initial trading price. See "Risk Factors--No Prior Market for Common
Stock and Possible Volatility of Common Stock Price".

57
<PAGE>

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Arnold & Porter,
Washington, D.C. Certain legal matters in connection with this offering will
be passed upon for the Underwriter by Hale and Dorr LLP, Washington, D.C.

EXPERTS

The consolidated financial statements and schedule of the Company as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996 have been included in this Prospectus and elsewhere in
the Registration Statement 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.

On July 11, 1997, the Company retained KPMG Peat Marwick LLP to act as its
independent public accountants and informed the prior auditors, Gocial &
Company, P.C., the Company's independent accountants since January 1992, of
its decision. In connection with its audit of the consolidated financial
statements for the years ended December 31, 1995 and 1996, there were no
disagreements with the prior auditors on any matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedures.
The prior auditors' report on the Company's consolidated financial statements
for the years ended December 31, 1995 and 1996 contained no adverse opinion or
disclaimer of opinion and was not modified or qualified as to uncertainty,
audit scope, or accounting principles. The decision to change was approved by
the Board of Directors of the Company. The Company has provided the prior
auditors with a copy of the disclosure contained in this section of the
Prospectus.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-1 (together with all amendments,
schedules and exhibits thereto, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other documents 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 and the exhibits and schedules hereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules which may
be obtained from the Commission at its principal office in Washington, D.C.
upon payment of the fees prescribed by the Commission.

The Registration Statement, including the exhibits and schedules forming a
part thereof, filed by the Company with the Commission can be inspected and
copies obtained from the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site (http:\\www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

58
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.............. F-3
Consolidated Statements of Operations for each of the years in the three-
year period ended December 31, 1996...................................... F-4
Consolidated Statements of Stockholder's Equity for each of the years in
the three-year period ended December 31, 1996............................ F-5
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1996...................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Unaudited Condensed Consolidated Balance Sheet as of June 30, 1997........ F-17
Unaudited Condensed Consolidated Statements of Operations for the six
months ended June 30, 1996, the three months ended March 31, 1997, and
the three months ended June 30, 1997..................................... F-18
Unaudited Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1996, the three months ended March 31, 1997, and
the three months ended June 30, 1997..................................... F-19
Notes to Unaudited Condensed Consolidated Financial Statements............ F-20
</TABLE>

F-1
<PAGE>

WHEN THE STOCK SPLIT TRANSACTION REFERRED TO IN NOTE 14 OF THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A
POSITION TO RENDER THE FOLLOWING REPORT.

/s/ KPMG PEAT MARWICK LLP

INDEPENDENT AUDITORS' REPORT

Board of Directors
Software AG Systems, Inc.:

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

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Software
AG Systems, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

McLean, Virginia
September 12, 1997, except for
note 14, which is as of

F-2
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents.................................. $ 1,573 $ 25,773
Accounts receivable, net of allowance for doubtful
accounts.................................................. 58,983 67,370
Notes receivable, SAG...................................... -- 30,000
Current portion of deferred income taxes................... 3,666 3,412
Prepaid expenses........................................... 1,600 3,298
Other current assets....................................... 816 2,686
-------- --------
Total current assets..................................... 66,638 132,539
Installment accounts receivable, net of current portion...... 19,114 10,955
Note receivable, SAG......................................... 20,000 --
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization................... 15,026 8,923
Deferred income taxes........................................ -- 1,469
Other assets................................................. 4,834 4,202
-------- --------
Total assets........................................... $125,612 $158,088
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Accounts payable........................................... $ 3,301 $ 6,773
Accrued payroll and employee benefits...................... 12,986 10,792
Payable to SAG............................................. 17,132 33,317
Income taxes payable....................................... 1,821 3,106
Other current liabilities.................................. 3,694 5,265
Current portion of deferred revenues, net of deferred
royalties of $7,126,000 and $7,923,000.................... 30,169 42,865
-------- --------
Total current liabilities................................ 69,103 102,118
Deferred revenues, net of deferred royalties of $7,131,000
and $7,415,000.............................................. 23,883 23,472
Deferred gain................................................ -- 2,690
Deferred income taxes........................................ 27 --
-------- --------
Total liabilities...................................... 93,013 128,280
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock ($.01 par value; 55,000,000 shares authorized,
27,500,000 shares issued and outstanding)................. 275 275
Additional paid-in capital................................. 11,877 11,877
Retained earnings.......................................... 20,447 17,656
-------- --------
Total stockholder's equity............................... 32,599 29,808
-------- --------
Total liabilities and stockholder's equity............. $125,612 $158,088
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Software license fees............. $ 51,832 $ 52,061 $ 52,163
Maintenance fees.................. 65,871 65,307 69,702
Professional services fees........ 29,552 35,194 34,975
------------- ------------- -------------
Total revenues.................. 147,255 152,562 156,840
------------- ------------- -------------
Cost of revenues:
Software license.................. 13,513 15,244 14,120
Maintenance....................... 29,823 23,488 25,885
Professional services............. 26,490 32,591 32,966
------------- ------------- -------------
Total cost of revenues.......... 69,826 71,323 72,971
------------- ------------- -------------
Gross profit........................ 77,429 81,239 83,869
------------- ------------- -------------
Operating expenses:
Software product development...... 900 900 1,372
Sales and marketing............... 50,422 52,512 48,677
Administrative and general........ 25,212 24,639 28,539
------------- ------------- -------------
Total operating expenses........ 76,534 78,051 78,588
------------- ------------- -------------
Income from operations.............. 895 3,188 5,281
Other income and expense, net....... 1,882 2,449 5,230
------------- ------------- -------------
Income before income taxes.......... 2,777 5,637 10,511
Income tax provision................ 1,395 2,311 4,302
------------- ------------- -------------
Net income.......................... $ 1,382 $ 3,326 $ 6,209
============= ============= =============
Net income per share................ $ 0.05 $ 0.11 $ 0.20
============= ============= =============
Shares used in computing net income
per share.......................... 30,584 30,584 30,584
============= ============= =============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE ADDITIONAL TOTAL
---------------- PAID-IN- RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- ------- ---------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993..................... 27,500 $ 275 $11,877 $18,039 $30,191
Net income................ 1,382 1,382
Cash dividends ($0.02 per
share)................... (600) (600)
-------- ------ ------- ------- -------
Balance at December 31,
1994..................... 27,500 275 11,877 18,821 30,973
Net income................ 3,326 3,326
Cash dividends ($0.06 per
share)................... (1,700) (1,700)
-------- ------ ------- ------- -------
Balance at December 31,
1995..................... 27,500 275 11,877 20,447 32,599
Net income................ 6,209 6,209
Cash dividends ($0.33 per
share)................... (9,000) (9,000)
-------- ------ ------- ------- -------
Balance at December 31,
1996..................... 27,500 $ 275 $11,877 $17,656 $29,808
======== ====== ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 1,382 $ 3,326 $ 6,209
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 3,952 3,921 3,660
Loss on sales of property and equipment.... 139 67 156
Deferred income taxes...................... 1,509 (408) (1,242)
Deferred gain.............................. -- -- (140)
Net proceeds from sales of accounts receiv-
able...................................... -- 28,852 28,448
Change in:
Accounts receivable, excluding net pro-
ceeds from sales........................ (14,303) (47,331) (28,674)
Prepaid expenses......................... (913) 348 (1,698)
Other current assets..................... (224) 225 (1,870)
Accounts payable......................... 451 (817) 3,472
Accrued payroll and employee benefits.... 508 3,181 (2,194)
Payable to SAG........................... 6,749 8,495 16,185
Other current liabilities................ 329 646 1,571
Income taxes payable..................... 967 1,678 1,285
Deferred revenues, net................... 7,210 27,435 12,285
-------- -------- --------
Net cash provided by operating activi-
ties................................. 7,756 29,618 37,453
-------- -------- --------
Cash flows from investing activities:
Additions to property, equipment and lease-
hold improvements.......................... (2,973) (1,839) (3,740)
Proceeds from sales of property and equip-
ment....................................... 18 200 9,044
Short-term investment....................... (150) 150 --
Notes receivable, SAG....................... -- (20,000) (10,000)
Change in other assets, net................. 41 (2,287) 443
-------- -------- --------
Net cash used in investing activi-
ties................................. (3,064) (23,776) (4,253)
-------- -------- --------
Cash flows from financing activities:
Payment of long-term obligations............ (3,882) (3,124) --
Dividends paid.............................. (600) (1,700) (9,000)
-------- -------- --------
Net cash used in financing activi-
ties................................. (4,482) (4,824) (9,000)
-------- -------- --------
Net increase in cash and cash equivalents.... 210 1,018 24,200
Cash and cash equivalents, beginning......... 345 555 1,573
-------- -------- --------
Cash and cash equivalents, ending............ $ 555 $ 1,573 $ 25,773
======== ======== ========
Noncash investing and financing activity:
Deferred gain on sale leaseback of customer
support facility .......................... $ -- $ -- $ 2,830
======== ======== ========
Supplemental disclosures:
Interest paid............................... $ 446 $ 350 $ 103
======== ======== ========
Income taxes paid (refunded), net........... $ (743) $ 387 $ 3,481
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994, 1995 AND 1996

(1) DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity and Principles of Consolidation

Software AG Systems, Inc. and subsidiaries (the "Company") is a wholly owned
subsidiary of Software AG, a German corporation ("SAG"). Subsequent to year-
end 1996, the Company was recapitalized. See note 14.

The consolidated financial statements include the accounts of Software AG
Systems, Inc. and its wholly owned subsidiaries, including Software AG
Americas, Inc. (formerly Software AG of North America, Inc.).

All inter-company balances and transactions between the Company and its
wholly owned subsidiaries have been eliminated.

Description of Operations

The Company provides software products and professional services utilized by
organizations to build and enhance enterprise-level applications. The
Company's products are used for mission-critical applications that require
reliability, scaleability and security, such as customer billing systems, cash
management systems, and inventory management. The Company's business is
focused on database management and applications development products. The
Company markets and sells its software products and services, as well as
third-party products, through direct and indirect channels in the United
States, Canada and Mexico, and through distributors worldwide.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants Statement of Position No.
91-1, Software Revenue Recognition.

Product license revenues are recognized when there is an executed license
agreement, the software and authorization code have been delivered,
collectibility from the customer is probable, and there are no significant
remaining obligations to the customer.

Maintenance revenues, which include unspecified when-and-if deliverable
software upgrades, user documentation, and technical support for software
products, are deferred and recognized on a straight-line basis over the term
of the maintenance agreement, generally one year.

Customer training revenues and revenues from time and material type
professional consulting and custom application contracts are recognized as the
services are provided and the work is performed. Revenues from long-term fixed
price professional consulting and custom application contracts are accounted
for under the percentage of completion method. When estimates of costs, on
long-term fixed price contracts, indicate a loss, such a loss is provided for
currently.

Sales of enterprise license agreements, which generally bundle a combination
of products, technical services, and professional consulting services, are
accounted for according to their component parts using the criteria described
above.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are recorded at cost.
Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful asset lives, generally 31.5 years for property and
three to five years for equipment. Leasehold improvements are amortized on a
straight-line basis over the lesser of the respective lease term or estimated
useful asset lives.

F-7
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

Income taxes

The Company uses the asset and liability method to account for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the future tax consequences attributable to future years for differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. 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 taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.

Use of Estimates

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

Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three
months or less at time of purchase to be cash equivalents. Cash equivalents
consist of commercial paper and overnight repurchase agreements.

Net Income per Share

Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the Company's initial public offering as
if they were outstanding for all periods presented. See note 14.

(2) CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk
include accounts receivable and cash. Management believes that credit risk
related to the Company's accounts receivable is limited due to a large number
of customers in differing industries and geographic areas. The Company does
not require collateral for accounts receivable. Historically, the Company has
not experienced significant losses on accounts receivable except in isolated
situations. The Company maintains depository relationships with several banks.
At times, the Company's cash deposits may exceed federally insured limits.
Periodically, the Company invests excess cash in low risk, highly liquid
repurchase agreements and other instruments through high credit quality
financial institutions. The Company has not experienced any losses in its
depository accounts or short-term investments and management believes that the
Company is not exposed to any significant credit risks.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, notes receivable from
SAG, accounts payable, payable to SAG, and amounts included in other current
assets and current liabilities that meet the definition of a financial
instrument, approximate fair value because of the short-term nature of these
amounts.

F-8
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

The carrying amount of installment accounts receivable, net of related
deferred revenues approximates the fair value.

(3) ACCOUNTS RECEIVABLE

At December 31, 1995 and 1996, accounts receivable include:

<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Domestic:
Currently billed......................................... $31,305 $40,581
Unbilled services........................................ 2,209 6,029
Installment.............................................. 35,790 26,255
Other.................................................... 2,745 1,059
------- -------
72,049 73,924
International.............................................. 10,814 9,381
------- -------
82,863 83,305
Less: allowance for doubtful accounts...................... 4,766 4,980
------- -------
78,097 78,325
Less: long-term portion of installment accounts
receivable................................................ 19,114 10,955
------- -------
Current portion of accounts receivable..................... $58,983 $67,370
======= =======
</TABLE>

Installment Accounts Receivable

Installment accounts receivable represent unbilled receivables from
enterprise license agreements and other long-term and short-term contracts
with deferred invoicing terms.

At December 31, 1995 and 1996, installment accounts receivable include:

<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Gross installment accounts receivable....................... $37,709 $27,258
Less: unearned interest..................................... 1,919 1,003
------- -------
35,790 26,255
Less: current portion....................................... 16,676 15,300
------- -------
$19,114 $10,955
======= =======
</TABLE>

The effective interest rate on the installment accounts receivable, net of
related deferred revenues, at December 31, 1995 and 1996 was approximately
12%.

F-9
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

At December 31, 1996, installment accounts receivable are scheduled to be
invoiced as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
------------------------- --------------
(in thousands)
<S> <C>
1997..................................................... $15,884
1998..................................................... 4,874
1999..................................................... 4,034
2000..................................................... 1,260
2001..................................................... 1,206
-------
$27,258
=======
</TABLE>

In 1995 and 1996, the Company sold installment accounts receivable relating
to certain enterprise license agreements and other long-term contracts to
unrelated financing companies, receiving net proceeds of $28,852,000 and
$28,448,000, respectively. The installment accounts receivable sold include
those relating to product and license fees, technical services, and
professional consulting services. Under the terms of the agreements with the
financing companies, the Company continues to service the receivables sold,
including invoicing and collection, and makes payments to the financing
companies under pre-determined amortization schedules based on the scheduled
invoicing dates of the receivables sold. The amortization schedules provide
rates of return to the financing companies ranging from 8.5% to 8.9%.

The agreements allow for substitution of contracts for early terminations
and require the Company to repurchase contracts that cease to meet eligibility
requirements, such as those contracts that become 90 days past due. At
December 31, 1995 and 1996, the Company remained contingently liable under the
recourse provisions for $26,468,000 and $44,801,000, respectively. The
Company's allowance for doubtful accounts is maintained at a level that
management believes is sufficient to cover potential losses under the recourse
provisions on receivables sold.

Under the terms of the agreements, the Company is required to maintain
specified amounts of net worth and cash availability, and a debt to equity
ratio that does not exceed a specified amount. If the Company fails to
maintain these specified amounts, the financing companies may assume the
servicing rights on receivables sold.

Unbilled Services

Unbilled services relate primarily to long-term professional consulting
services and custom application contracts accounted for using the percentage
of completion method. Billings on these contracts generally are tied to
achieving specific milestones.

At December 31, 1995 and 1996, unbilled services include:

<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Unbilled work in process.................................... $ 3,712 $ 6,775
Retainage................................................... 1,008 1,474
------- -------
4,720 8,249
Less: advance billings and prepayments...................... 2,511 2,220
------- -------
$ 2,209 $ 6,029
======= =======
</TABLE>

F-10
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

(4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Building and land........................................... $ 6,589 $ --
Computer equipment.......................................... 16,705 18,138
Furniture and other equipment............................... 7,032 7,713
Leasehold improvements...................................... 8,410 9,021
------- -------
38,736 34,872
Less: accumulated depreciation and amortization............. 23,710 25,949
------- -------
$15,026 $ 8,923
======= =======
</TABLE>

Depreciation and amortization for 1994, 1995, and 1996, was $3,829,000,
$3,733,000, and $3,473,000, respectively.

(5) SALE OF CUSTOMER SUPPORT FACILITY

In 1996, the Company recorded a sale-leaseback transaction for its customer
support facility. In connection with the sale, the Company realized a gain of
$2,830,000, which is being recognized on a straight-line basis over the term
of the related operating lease.

(6) TRANSACTIONS WITH RELATED PARTY

Royalties

Effective January 1, 1995, the Company and SAG entered into a license
agreement whereby the Company is required to pay royalties of 24% of the net
sales amount for licenses of, and technical services on, SAG's products. For
1994, 1995 and 1996, royalty expense related to SAG's products was
$29,026,000, $23,887,000 and $26,058,000, respectively.

Under the license agreement, SAG pays royalties to the Company on sales of
the Company's products under the same terms. For 1995 and 1996, royalty
revenues related to the Company's products were $295,000 and $294,000,
respectively.

As more fully described in note 14, the Company and SAG entered into a
Cooperation Agreement in connection with the Recapitalization Agreement
entered into on March 31, 1997.

Cost Reimbursements

As an accommodation to SAG, the Company houses certain product development
and quality assurance personnel. SAG reimburses the Company for the costs
incurred related to such product development and quality assurance activities.
All intellectual property resulting from this work is the sole property of
SAG. The reimbursements from SAG are netted against costs incurred and
included in software product development costs in the statement of operations.
Reimbursements for 1994, 1995, and 1996, were $7,518,000, $8,767,000, and
$15,931,000, respectively.

F-11
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

Notes Receivable/Payable

In 1995, the Company loaned $20,000,000 to SAG, which originally was
scheduled to be repaid in 2000. In 1996, the Company loaned an additional
$10,000,000 to SAG, which originally was scheduled to be repaid in 2001.
Interest at 6.5% and 7%, respectively, is payable quarterly on the 1995 and
1996 loans. Interest earned for 1995 and 1996 was $280,000 and $1,590,000,
respectively.

The payable to SAG of $17,132,000 and $33,317,000 at December 31, 1995 and
1996, respectively, includes royalties due under the license agreement on
sales of both product licenses and technical services, as well as net amounts
due on other transactions between the Company and SAG. These amounts are non-
interest bearing.

In March, 1997, the Company and SAG agreed to offset the entire balance of
the notes receivable from SAG as of December 31, 1996 against the payable to
SAG.

In 1995, SAG loaned $2,500,000 to the Company, which was repaid during the
year. Interest expense on this note was $119,000, computed at 8%.

Dividends

In 1994, 1995, and 1996, the Company paid dividends of $600,000, $1,700,000
and $9,000,000, respectively, to SAG, which at the time owned 100% of the
outstanding common stock of the Company.

(7) INCOME TAXES

Income tax expense for 1994, 1995, and 1996 consisted of:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Current expense:
Federal.............................................. $ (719) $1,744 $ 4,167
State................................................ (85) 274 586
Foreign.............................................. 690 701 791
------ ------ -------
(114) 2,719 5,544
------ ------ -------
Deferred expense (benefit):
Federal.............................................. 1,350 (265) (1,136)
State................................................ 159 (143) (106)
------ ------ -------
1,509 (408) (1,242)
------ ------ -------
$1,395 $2,311 $ 4,302
====== ====== =======
</TABLE>

F-12
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

(7) INCOME TAXES--(CONTINUED)

Income tax expense for 1994, 1995, and 1996, differed from the amounts
computed by applying the U.S. federal income tax rate of 34% to pretax income
as a result of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax expense:......................... $ 944 $1,917 $3,573
Increase (reduction), in income taxes resulting from:
State income taxes, net of federal benefit............. 106 181 296
Expenses, principally meals and entertainment, not de-
ductible.............................................. 310 277 224
Other, net............................................. 35 (64) 209
------ ------ ------
$1,395 $2,311 $4,302
====== ====== ======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of deferred income tax assets (liabilities) at December 31, 1995 and
1996 consist of:

<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets arising from deductible temporary differ-
ences:
Accrued compensation costs and other expenses.............. $ 1,808 $ 1,533
Allowance for doubtful accounts............................ 1,859 1,879
Depreciation and amortization.............................. 600 917
Deferred gain--installment method.......................... 172 1,022
------- -------
4,439 5,351
Deferred tax liabilities arising from taxable temporary dif-
ferences:
Leases of product licenses................................. 800 470
------- -------
Net deferred income taxes.................................... 3,639 4,881
Less: current portion, deferred tax assets................... 3,666 3,412
------- -------
Noncurrent portion, deferred tax assets (liabilities)........ $ (27) $ 1,469
======= =======
</TABLE>

In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Based upon the
level of historical taxable income and projections for future taxable income
over the periods for which the deferred tax assets are deductible, management
believes that it is more likely than not that the Company will realize the
benefits of these deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.

(8) RETIREMENT PLANS

The Company has a retirement plan covering substantially all of its
employees. This plan meets the requirements of Section 401(k) of the Internal
Revenue Code. The Company matches employee contributions and may make
additional contributions based on the Company's profitability. For 1994, l995,
and 1996, the Company's matching (and total) contributions were $1,967,000,
$l,789,000, and $1,854,000, respectively.

F-13
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

(8) RETIREMENT PLANS--(CONTINUED)

The Company also has entered into deferred compensation agreements with
certain key executives. Under these agreements, the executives are credited
with annual pre-determined amounts and amounts based on bonuses received, and
earn interest on the deferred amounts. Total deferrals, which are included in
accrued payroll and employee benefits, were $3,038,000 and $1,504,000, at
December 31, 1995 and 1996, respectively, net of loans of $0 and $558,000,
respectively. The expense for these agreements was $653,000 and $1,218,000,
for 1995 and 1996, respectively. To assist in the funding of these agreements
the Company has purchased corporate-owned life insurance on certain of these
executives. The cash surrender value of these policies, which is included in
other assets, was $1,067,000 and $668,000, at December 31, 1995 and 1996,
respectively.

(9) OPERATING LEASE COMMITMENTS

The Company leases office space and equipment under operating lease
agreements that expire at various dates through 2015.

Future minimum rent payments under operating leases, net of aggregate rents
of $1,924,000 expected to be received from subleasing of a portion of the
customer support facility and another facility, at December 31, 1996, are :

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, FACILITIES EQUIPMENT TOTAL
- ------------------------- ---------- --------- -------
(in thousands)
<S> <C> <C> <C>
1997.............................................. $ 5,770 $1,357 $ 7,127
1998.............................................. 5,969 1,162 7,131
1999.............................................. 6,102 811 6,913
2000.............................................. 6,030 148 6,178
2001.............................................. 5,426 39 5,465
Thereafter........................................ 29,392 -- 29,392
------- ------ -------
$58,689 $3,517 $62,206
======= ====== =======
</TABLE>

Facility rent expense for 1994, 1995, and 1996, was $5,942,000, $6,105,000,
and $7,002,000, respectively. Rent expense includes the current year effect of
determinable scheduled rent increases and initial rent abatement periods
contained in certain of the Company's facility lease agreements.

Equipment lease expense for 1994, 1995, and 1996, was $706,000, $l,532,000,
and $1,678,000, respectively.

The Company's operating lease agreement for its customer support facility
requires the Company to maintain minimum amounts of net worth and retained
earnings. If the minimum amounts are not maintained, the Company will be
required to post a $500,000 irrevocable letter of credit for each $2,000,000
shortfall, to be applied by the lessor in the event of default under the
lease.

(10) CONTINGENCIES

The Company is involved in various claims and legal proceedings of a nature
considered normal to its business, primarily relating to product and contract
performance issues, and employee termination matters. While it is not feasible
to predict or determine the final outcome of these proceedings, management
does not believe that they will have a material adverse effect on the
Company's financial position or results of operations.

F-14
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

(11) NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share," which is effective for all interim and annual periods ending after
December 15, 1997. This statement replaces "primary" and "fully diluted"
earnings per share (EPS) with "basic" and "diluted" EPS on the face of the
statement of operation.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the year ending December 31, 1998. This
statement established standards for the reporting and display of comprehensive
income and its components in the financial statements. Earlier application of
this standard is permitted. However, upon its adoption the Company will be
required to reclassify previously reported annual and interim financial
statements.

The Company does not expect that the adoption of these new accounting
standards will have a material effect on the Company's financial position or
results of operation.

(12) REVENUES FROM INTERNATIONAL DISTRIBUTORS

Royalty revenues from international distributors for 1994, 1995, and 1996
are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Japan............................................... $ 8,145 $ 8,607 $ 9,207
Brazil.............................................. 2,800 5,931 7,000
Canada.............................................. 4,410 3,981 4,640
Other............................................... 8,610 3,046 6,114
-------- -------- --------
Total royalty revenues from international distrib-
utors............................................ 23,965 21,565 26,961
Domestic revenues................................. 123,290 130,997 129,879
-------- -------- --------
Total revenues.................................. $147,255 $152,562 $156,840
======== ======== ========
</TABLE>

Royalty revenues from international distributors included in software
license fees and maintenance fees on the consolidated statements of operations
were approximately $12,379,000 and $11,586,000, respectively, in 1994,
$13,316,000 and $8,249,000, respectively, in 1995, and $16,982,000 and
$9,979,000, respectively, in 1996.

(13) OTHER INCOME AND EXPENSE, NET

Other income and expense, net on the consolidated statements of operations
primarily includes interest income of $1,293,000 in 1994; interest income of
$1,406,000 in 1995; and interest income of $2,914,000, and gain on sale of
other assets of $1,000,000 in 1996.

(14) SUBSEQUENT EVENTS

On March 31, 1997, the Company entered into a Recapitalization Agreement
under which the Company repurchased from its parent 24,750,000 shares of
common stock. Simultaneously, the Company sold 21,450,000 shares of common
stock to an unrelated entity and certain of the Company's managers.

In connection with the Recapitalization Agreement, the Company entered into
a perpetual Cooperation Agreement with SAG that superseded the license
agreement dated January 1, 1995. As consideration for the Cooperation
Agreement, the Company paid SAG approximately $22,600,000. Under the
Cooperation

F-15
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

DECEMBER 31, 1994, 1995 AND 1996

(14) SUBSEQUENT EVENTS--(CONTINUED)

Agreement, the Company and SAG are required to pay royalties of 24% of net
revenues from sales of licenses of, and technical services on, each other's
products for the initial 20 years of the perpetual term of the agreement. For
calendar years 1997 through 2000, the Company will be required to pay SAG
minimum annual royalties of $21,000,000, provided that SAG's worldwide product
and technical services revenues for each of those years are at least equal to
SAG's 1996 worldwide revenues. In the event of a future decrease in SAG's
worldwide revenues, the minimum annual royalty requirement will be reduced
proportionately.

In connection with the Recapitalization Agreement on March 31, 1997, the
Company authorized the issuance of options to acquire an aggregate of
$3,059,650 shares of common stock at an exercise price of $1.47. This exercise
price represents the amount per share that Thayer and management paid to
acquire an 89% interest in the Company on March 31, 1997. The Company also
adopted the 1997 Stock Option Plan (the "Plan") on April 29, 1997. On August
8, 1997, 749,650 and 106,975 options were granted with exercise prices of
$9.60 and $1.47 per share, respectively, under the Plan. On September 23,
1997, 1,031,250 options were granted with an exercise price of $12.00 per
share, under the Plan.

As of September 26, 1997, the Company signed an agreement to acquire all of
the outstanding stock of R.D. Nickel and Associates, Inc., for approximately
Cdn$14,000,000. The transaction will be accounted for under the purchase
method of accounting for a business combination. R.D. Nickel and Associates,
Inc. is a software company that has a family of application development
products and is the exclusive distributor of the Company's products in Canada.

In September, 1997, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common stock
to the public. The Company's Board of Directors also approved a 275-for-1
stock split. Common share and per share data in these consolidated financial
statements have been retroactively adjusted to reflect the stock split.
Additionally, the Company's Board of Directors authorized an additional
20,000,000 shares of $.01 par value common stock and 25,000,000 shares of $.01
par value preferred stock.

(15) QUARTERLY FINANCIAL DATA (UNAUDITED)

Unaudited summarized financial data by quarters for 1995 and 1996 is as
follows:

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1995 (in thousands, except per share data)
----
<S> <C> <C> <C> <C>
Revenue......................... $32,623 $38,736 $37,917 $43,259
Gross profit.................... 16,193 19,668 21,217 24,161
Net income (loss) .............. (3,637) 2,653 2,108 2,202
Net income (loss) per share..... $ (0.12) $ 0.09 $ 0.07 $ 0.07
<CAPTION>
1996
----
<S> <C> <C> <C> <C>
Revenue......................... $32,286 $37,109 $41,126 $46,319
Gross profit.................... 15,434 20,151 21,276 27,008
Net income (loss) .............. (212) (623) 2,745 4,299
Net income (loss) per share..... $ (.01) $ (.02) $ 0.09 $ 0.14
</TABLE>

F-16
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
(in thousands)
<S> <C>
ASSETS
Current:
Cash and cash equivalents.................................... $ 8,440
Accounts receivable, net of allowance for doubtful accounts.. 58,426
Current portion of deferred income taxes..................... 4,264
Income taxes receivable...................................... 765
Other current assets......................................... 6,154
--------
Total current assets....................................... 78,049
Installment accounts receivable, net of current portion........ 4,294
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization..................... 9,042
Deferred income taxes.......................................... 616
Cooperation agreement, net of accumulated amortization......... 22,948
Other intangible asset, net of accumulated amortization........ 6,269
Other assets................................................... 2,373
--------
Total assets............................................. $123,591
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable............................................. $ 6,310
Accrued payroll and employee benefits........................ 8,253
Payable to SAG............................................... 4,848
Other current liabilities.................................... 5,979
Current portion of deferred revenues, net of deferred
royalties................................................... 38,202
--------
Total current liabilities.................................. 63,592
Deferred revenues, net of deferred royalties................... 20,689
--------
Total liabilities ....................................... 84,281
--------
Stockholders' equity........................................... 39,310
--------
Total liabilities and stockholders' equity............. $123,591
========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-17
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------- ------------
THREE MONTHS THREE MONTHS
SIX MONTHS ENDED ENDED
ENDED JUNE 30, MARCH 31, JUNE 30,
1996 1997 1997
-------------- ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Software license fees.............................................................. $18,978 $ 7,341 $14,254
Maintenance fees................................................................... 34,396 17,352 18,394
Professional services fees......................................................... 16,021 9,948 10,299
------- ------- -------
Total revenues................................................................... 69,395 34,641 42,947
------- ------- -------
Cost of revenues:
Software license................................................................... 5,049 2,098 4,074
Maintenance........................................................................ 12,990 6,205 6,577
Professional services.............................................................. 15,771 9,211 9,451
------- ------- -------
Total cost of revenues........................................................... 33,810 17,514 20,102
------- ------- -------
Gross profit......................................................................... 35,585 17,127 22,845
------- ------- -------
Operating expenses:
Software product development....................................................... 1,001 -- 283
Sales and marketing................................................................ 21,427 7,317 11,477
Administrative and general......................................................... 16,133 8,500 8,932
------- ------- -------
Total operating expenses......................................................... 38,561 15,817 20,692
------- ------- -------
Income (loss) from operations........................................................ (2,976) 1,310 2,153
Other income and expense, net........................................................ 1,640 978 1,597
------- ------- -------
Income (loss) before income taxes.................................................... (1,336) 2,288 3,750
Income tax expense (benefit)......................................................... (501) 915 1,599
------- ------- -------
Net income (loss).................................................................... $ (835) $ 1,373 $ 2,151
======= ======= =======
Net income (loss) per share.......................................................... $ (0.03) $ 0.04 $ 0.08
======= ======= =======
Shares used in computing net income (loss) per share................................. 30,584 30,584 27,422
- --------------------------------------------------
======= ======= =======
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-18
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------- ------------
SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 30, MARCH 31, JUNE 30,
1996 1997 1997
---------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ (835) $ 1,373 $ 2,151
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................................ 1,798 941 1,670
Loss on sales of property and equipment.............................................. (5) -- --
Deferred gain........................................................................ -- (36) --
Net proceeds from sales of accounts receivable....................................... 9,258 -- --
Changes in operating accounts, net................................................... (4,398) 8,148 (4,574)
------- ------- --------
5,818 10,426 (753)
------- ------- --------
Cash flows from investing activities:
Additions to property, equipment and leasehold improvements............................ (1,291) (208) (1,791)
Proceeds from sales of property and equipment.......................................... 39 -- --
Purchase of Cooperation Agreement...................................................... -- -- (22,612)
------- ------- --------
(1,252) (208) (24,403)
------- ------- --------
Cash flows from financing activities:
Repurchase of common stock............................................................. -- -- (33,920)
Issuance of common stock............................................................... -- -- 31,525
Dividends paid......................................................................... (3,000) -- --
------- ------- --------
(3,000) -- (2,395)
------- ------- --------
Net increase (decrease) in cash and cash equivalents..................................... 1,566 10,218 (27,551)
Cash and cash equivalents, beginning..................................................... 1,573 25,773 35,991
------- ------- --------
Cash and cash equivalents, ending........................................................ $ 3,139 $35,991 $ 8,440
- --------------------------------------------------
======= ======= ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-19
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of Software AG Systems, Inc. and subsidiaries (the "Company") as of
June 30, 1997, and the results of its operations for the six months ended June
30, 1996 and the three-month periods ended March 31, and June 30, 1997. These
condensed consolidated financial statements are unaudited and do not include
all related footnote disclosures. The June 30, 1997 condensed consolidated
balance sheet reflects the Recapitalization of the Company (see note 2), and
is not comparative to the financial positions of prior periods. The interim
unaudited condensed financial statements should be read in conjunction with
the audited financial statements.

The Company's results of operations for the six months ended June 30, 1996
and the three month period ended March 31, 1997, respectively, are based on
operations which occurred prior to the acquisition of the Company by Thayer
Equity Investors III., L.P. ("Thayer") and certain members of the Company's
management and are not comparative with the results of operations for the
three month period ended June 30, 1997. The results of operations for the
three month periods ended March 31, 1997 and June 30, 1997 are not necessarily
indicative of the results of operations to be expected in the future.

(2) RECAPITALIZATION OF THE COMPANY

On March 31, 1997, the Company entered into a Recapitalization Agreement
under which the Company repurchased from its parent, Software AG, a German
corporation ("SAG"), 24,750,000 shares of common stock and sold 21,450,000
shares of common stock to a group consisting of Thayer and certain of the
Company's managers. As a result of this change in control, the acquisition by
Thayer was accounted for as a purchase business combination, and as such the
fair value of the Company's assets and liabilities was recorded as of April 1,
1997.

In connection with the Recapitalization Agreement, the Company entered into
a Cooperation Agreement with SAG that superseded the license Agreement dated
January 1, 1995. As consideration for the Cooperation Agreement, the Company
paid SAG approximately $22,600,000. Under the Cooperation Agreement, the
Company and SAG are required to pay royalties of 24% of net revenues from
sales of licenses of, and technical services on, each other's products for the
initial 20 years of the perpetual term of the agreement. For calendar years
1997 through 2000, the Company will be required to pay SAG minimum annual
royalties of $21,000,000, provided that SAG's worldwide product and technical
services revenues for each of those years are at least equal to SAG's 1996
worldwide revenues. In the event of a future decrease in SAG's worldwide
revenues, the minimum annual royalty requirement will be reduced
proportionately.

Thayer and certain of the Company's management acquired an 89% interest in
the Company for approximately $34 million. The determination of fair value
allocated to the identifiable assets and liabilities of the Company has been
estimated by management based on the nature of the assets and liabilities
acquired, and general economic factors. Based on this preliminary allocation,
the fair value of the Company's Cooperation Agreement has been estimated at
approximately $23,500,000, based on an independent appraisal. The fair value
of the Company's remaining assets and liabilities has been presumed to be
equal to the book value as of the date of the acquisition. Based on
preliminary allocation of the purchase price to the net assets and
liabilities, an excess of purchase price over net assets acquired (goodwill)
of approximately $6,401,000 was recorded. Such goodwill is being amortized on
a straight-line basis over 10 years. In the opinion of management of the
Company, the final allocation of the purchase price will not be materially
different from the preliminary purchase price allocation.

F-20
<PAGE>

SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) STOCK OPTION PLAN

In connection with the Recapitalization Agreement, on March 31, 1997, the
Company authorized the issuance of options to acquire an aggregate of
$3,059,650 shares of common stock at an exercise price of $1.47. This exercise
price represents the amount per share that Thayer and management paid to
acquire an 89% interest in the Company on March 31, 1997. The Company also
adopted the 1997 Stock Option Plan (the "Plan") on April 29, 1997. On August
8, 1997, 749,650 and 106,975 options were granted with exercise prices of
$9.60 and $1.47 per share, respectively, under the Plan. On September 23,
1997, 1,031,250 options were granted with an exercise price of $12.00 per
share, under the Plan.

(4) SUBSEQUENT EVENTS

As of September 26, 1997, the Company signed an agreement to acquire all of
the outstanding stock of R.D. Nickel and Associates, Inc., for approximately
Cdn$14,000,000. The transaction will be accounted for under the purchase
method of accounting for a business combination. R.D. Nickel and Associates,
Inc. is a Canadian software company that has a family of application
development products and has been the exclusive distributor of the Company's
products in Canada.

In September, 1997, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common stock
to the public. The Company's Board of Directors also approved a 275-for-1
stock split. Common share and per share data in these condensed consolidated
financial statements have been retroactively adjusted to reflect the stock
split. Additionally, the Company's Board of Directors authorized an additional
20,000,000 shares of $.01 par value Common Stock and 25,000,000 shares of $.01
par value Preferred Stock.

F-21
<PAGE>

[Outside Back Cover]

Graphical depiction of five computer screens, one large central screen and four
smaller screens in each corner, with the text "FREE YOUR INFORMATION"
superimposed over the large screen. aech of the four smaller screens have text
that describes certain of the Company's products or services. The text for each
smaller screen is set forth below:

1. ENTERPRISE DEVELOPMENT

Application Development & Database Management Tools

. NATURAL
. NATURAL LIGHTSTORM
. CONSTRUCT
. ADABAS
. PREDICT

2. ENTERPRISE ENABLEMENT

Middleware & Web Enabling Solutions

. iXpress
. ENTIRE BROKER
. ENTIRE NET-WORK
. ENTIRE SAF GATEWAY

3. DATA WAREHOUSE

Data Management & Access Technologies

. SourcePoint
. PASSPORT
. CONSTRUCT ES
. ESPERANT
. DSS Agent

4. PROFESSIONAL SERVICES

Customized Consulting

. Core Services
. Web Integration
. Data Warehouse
. Year 2000
. Education

<PAGE>

PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses in connection with the issuance and
distribution of the securities being registered, all of which will be paid by
the Company.

<TABLE>
<S> <C>
SEC registration fee............................................. $ 37,567
NASD filing fee.................................................. 12,897
New York Stock Exchange listing fee.............................. 179,100
Blue Sky fees and expenses....................................... 12,000
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 300,000
Transfer agent and registrar fees................................ 12,000
Miscellaneous.................................................... 46,436
----------
Total........................................................ $1,100,000
==========
</TABLE>
--------

The Company intends to pay all expenses of registration, issuance and
distribution, excluding underwriters' discounts and commissions, with respect
to the shares being sold by the Selling Stockholders.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 415 of the Delaware General Corporation Law sets forth conditions
and limitations governing the indemnification of officers, directors and other
persons. The Company has adopted provisions in its Second Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws which provide for
indemnification of its officers and directors to the maximum extent permitted
under the Delaware General Corporation Law.

As authorized by the Delaware General Corporation Law, the Second Amended
and Restated Certificate of Incorporation limits the liability of directors of
the Company for monetary damages. The effect of this provision is to eliminate
the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against
a director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as
an injunction or rescission in the event of breach of a director's duty of
care. These provisions will not alter the liability of directors under federal
securities laws.

The Company has purchased an insurance policy which purports to insure the
officers and directors of the Company against certain liabilities incurred by
them in the discharge of their functions as such officers and directors except
for liabilities resulting from their own malfeasance.

Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act against certain civil liabilities and liabilities arising from
breaches of representations and warranties contained in the Underwriter
Agreement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On March 31, 1997, the senior management of the Company and Thayer Equity
Investors III, L.P. ("Thayer") acquired approximately 89% of the then
outstanding Common Stock of the Company (the "Recapitalization") pursuant to
an agreement among the Company, Software AG ("SAG"), Thayer, and the

II-1
<PAGE>

following executive officers of the Company: Daniel F. Gillis, Harry K.
McCreery, Gary Hayes, James H. Daly, Derek M. Brigden and Thomas E. Gorley
(collectively, such individuals are referred to as the "Managers"). In
connection therewith, (i) 20,678,350 shares of Common Stock were issued and
sold to Thayer for an aggregate purchase price of $30,392,662.86, and (ii)
771,650 shares of Common Stock were issued and sold to the Managers for an
aggregate purchase price of $1,134,158. In addition, on August 22, 1997 the
Company entered into a subscription agreement with Timothy L. Hill, the
Company's Vice President--Marketing, pursuant to which the Company issued and
sold to Mr. Hill 137,500 shares of Common Stock for an aggregate purchase
price of $202,095. The Company has also granted options to purchase an
aggregate of 4,947,525 shares of Common Stock at a weighted average exercise
price equal to $4.90 per share. All such options and shares of Common Stock
were issued in private placements exempt from registration under Section 4(2)
of the Securities Act or Rule 701 thereunder. All such shares reflect a 275-
for-one stock split with respect to the Common Stock to be effected as a
dividend prior to the effective date of the Registration Statement. No
underwriters were involved in the sales or issuances of the securities
described above.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

An index to exhibits appears on page E-1.

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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the 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 of 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
479(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-2
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN RESTON, VIRGINIA ON SEPTEMBER 26,
1997.

Software AG Systems, Inc.

By: /s/ Daniel F. Gillis
-----------------------------------
DANIEL F. GILLIS
Director, President and Chief
Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON SEPTEMBER 26, 1997.

By: /s/ Daniel F. Gillis
-----------------------------------
DANIEL F. GILLIS
Director, President and Chief
Executive Officer
(Principal Executive Officer)

By: /s/ Harry K. McCreery
-----------------------------------
HARRY K. MCCREERY
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)

By: *
-----------------------------------
CARL J. RICKERTSEN
Chairman of the Board of Directors

By: *
-----------------------------------
DR. PHILIP S. DAUBER
Director

By: *
-----------------------------------
DR. ERWIN KOENIGS
Director

By: *
-----------------------------------
EDWARD E. LUCENTE
Director

By: *
-----------------------------------
DR. PAUL G. STERN
Director

*By: /s/ Harry K. McCreery
---------------------------------
Harry K. McCreery
Attorney-In-Fact

II-3
<PAGE>

ACCOUNTANT'S REPORT ON SCHEDULE

WHEN THE STOCK SPLIT TRANSACTION REFERRED TO IN NOTE 14 OF THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A
POSITION TO RENDER THE FOLLOWING REPORT.

/s/ KPMG PEAT MARWICK
LLP

The Board of Directors
Software AG Systems, Inc.

The audits referred to in our report dated September 12, 1997, except for
note 14, which is as of . . . included the related financial statement
schedule for each of the years in the three-year period ended December 31,
1996, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.

McLean, Virginia
September 12, 1997, except for Note 14, which is as of . . .

S-1
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
--------------------
BALANCE AT CHARGED TO CHARGED DEDUCTIONS BALANCE
BEGINNING COSTS AND TO OTHER (WRITE- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS OFFS) OF PERIOD
----------- ---------- ---------- -------- ---------- --------- ---
<S> <C> <C> <C> <C> <C> <C>
1/1/94 - 12/31/94
Allowance for Doubtful
Accounts 4,741,158 (262,269) 409,298 4,069,591
1/1/95 - 12/31/95
Allowance for Doubtful
Accounts 4,069,591 2,331,608 1,635,681 4,765,518
1/1/96 - 12/31/96
Allowance for Doubtful
Accounts 4,765,518 1,298,361 1,083,575 4,980,304
</TABLE>

S-2
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
**1.1 Form of Underwriting Agreement
*3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant
*3.2 Second Amended and Restated Bylaws of the Registrant
**4 Specimen Common Stock Certificate of the Registrant
**5 Opinion of Arnold & Porter regarding the legality of the shares of
Common Stock being registered
**10.1 Recapitalization Agreement among Software AG, Software AG Systems,
Inc., Thayer Equity Investors III, L.P. and certain Managers of
Software AG Systems, Inc. (dated as of March 18, 1997)
*10.2 Cooperation Agreement between Software AG and Software AG Americas,
Inc. (dated as of March 31, 1997)
**10.3 Share Purchase Agreement among Software AG Americas, Inc., Software AG
(Canada), Inc., Robert D. Nickel and Caelum Investments, Inc. (dated
as of September 26, 1997)
**10.4 Memorandum of Understanding between Daniel F. Gillis and Software AG
Systems, Inc. (dated as of April 24, 1997)
**10.5 Memorandum of Understanding between Harry K. McCreery and Software AG
Americas, Inc. (dated as of December 16, 1996)
**10.6 Memorandum of Understanding between Derek M. Brigden and Software AG
Americas, Inc. (dated as of December 13, 1996)
**10.7 Memorandum of Understanding between James H. Daly and Software AG
Americas, Inc. (dated as of December 18, 1996)
**10.8 Memorandum of Understanding between Thomas E. Gorley and Software AG
Americas, Inc. (dated as of August 22, 1996)
**10.9 Software AG Systems, Inc. 1997 Stock Option Plan
**10.10 Management and Consulting Agreement between TC Management LLC and
Software AG Americas, Inc. (dated as of April 1, 1997)
**10.11 Deferred Compensation Agreement between Daniel F. Gillis and Software
AG Americas, Inc. (dated as of July 1, 1995), as amended
**10.12 Deferred Compensation Agreement between James H. Daly and Software AG
Americas, Inc. (dated as of January 1, 1993), as amended
**10.13 Deferred Compensation Agreement between Harry K. McCreary and Software
AG Americas, Inc. (dated as of January 1, 1991), as amended
**10.14 Administrative Services Agreement between Software AG and Software AG
Americas, Inc. (dated as of March 31, 1997)
**10.15 Registration Rights Agreement between Software AG Systems, Inc. and
Thayer Equity Investors III, L.P.
**10.16 Subscription Agreement between Timothy L. Hill and Software AG
Systems, Inc. (dated as of August 22, 1997)
*11 Computations of Earnings per Share
**21 Subsidiaries of the Registrant
**23.1 Consent of Arnold & Porter (included in its opinion filed as Exhibit
5.)
*23.2 Consent of KPMG Peat Marwick LLP
*24.1 Powers of Attorney
*27 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
** To be filed by amendment.

E-1

<PAGE>

Exhibit 3.1

SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

SOFTWARE AG SYSTEMS, INC.

Software AG Systems, Inc., a corporation organized and existing under and
by virtue of the Delaware General Corporation Law (the "Corporation"), hereby
certifies as follows:

1. The name of the Corporation is Software AG Systems, Inc.; the
corporation was originally incorporated as Software AG International, Inc.; the
original certificate of incorporation was filed on February 26, 1981 with the
Secretary of State of the State of Delaware.

2. This Second Amended and Restated Certificate of Incorporation, the
entirety of which is set forth below, has been duly adopted in accordance with
Sections 242 and 245 of the Delaware General Corporation Law.

* * *

ARTICLE I
NAME
----

The name of the Corporation is Software AG Systems, Inc. (the
"Corporation").

ARTICLE II
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
-----------------------------

The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.

ARTICLE III
PURPOSE AND POWERS
------------------

The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "DGCL").
<PAGE>

- 2 -

ARTICLE IV
CAPITAL STOCK
-------------

Section 4.1. Total Number of Shares of Capital Stock. The total number of
---------------------------------------
shares of capital stock of all classes that the Corporation shall have authority
to issue is 100,000,000 shares. The authorized stock is divided into 75,000,000
shares of Common Stock, $.0l par value per share (the "Common Stock") and
25,000,000 shares of Preferred Stock, $.0l par value per share (the "Preferred
Stock").

Section 4.2. Preferred Stock. The Board of Directors is authorized,
---------------
subject to limitations prescribed by law and the provisions of this Article IV,
to provide for the issuance of one or more classes, or series thereof, of
Preferred Stock, and by filing a certificate pursuant to the DGCL, to establish
from time to time the number of shares to be included in each such class or
series, and to fix the designation, powers, preferences and rights of the shares
of each such class or series and the qualifications, limitations or restrictions
thereof.

The authority of the Board with respect to each class or series shall
include, but not be limited to, determination of the following:

(a) The number of shares constituting that class or series and the
distinctive designation of that class or series, which number the Board of
Directors may thereafter (except where otherwise provided in a resolution
designating a particular class or series) increase (but not above the total
number of authorized shares of the class or series) or decrease (but not below
the number of shares thereof then outstanding);

(b) The dividend rate on the shares of that class or series, the
conditions and dates upon which such dividends shall be payable, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
class or series;

(c) Whether the shares of that class or series shall have voting rights in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;

(d) Whether the shares of that class or series shall have conversion or
exchange privileges, and, if so, the times, prices, rates, adjustments and other
terms and conditions of such conversion or exchange,
<PAGE>

- 3 -

including provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;

(e) Whether or not the shares of that class or series shall be redeemable
by the Corporation, and, if so, the times, prices and other terms and conditions
of such redemption, including the date or dates upon or after which they shall
be redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates;

(f) Whether that class or series shall have a sinking fund for the
redemption or purchase of shares of that class or series, and, if so, the terms
and amount of such sinking fund;

(g) The rights of the holders of the shares of that class or series upon
or in the event of voluntary or involuntary liquidation, dissolution or winding
up of, or the distribution of assets of the Corporation, and the relative rights
of priority, if any, of payment of shares of that class or series; and

(h) Any other relative rights, preferences and limitations of that class
or series.

Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock shares with respect to
the same dividend period.

If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the assets available for distribution to holders of shares
of Preferred Stock of all classes and series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all classes and series
of Preferred Stock in accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.

Section 4.3. Common Stock. (a) Subject to all of the powers, rights and
------------
preferences of the holders of Preferred Stock provided by resolution or
resolutions of the Board of Directors pursuant to this Article IV or by the
DGCL, the holders of the shares of the Common Stock shall be entitled to one
vote for each share so held with respect to all matters voted on by the
stockholders of the Corporation. Subject to the powers, rights and
<PAGE>

- 4 -

preferences of any other class of stock and to any limitations on dividends
imposed by the DGCL, the holders of the Common Stock shall have the right to
receive dividends as and when declared by the Board of Directors in its sole
discretion.

ARTICLE V
STOCKHOLDER MEETINGS AND ACTIONS
--------------------------------

Section 5.1. Stockholder Meetings. Meetings of stockholders of the
--------------------
Corporation may be held within or without the State of Delaware, as the Bylaws
of the Corporation (the "Bylaws") may provide. An annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may come before the meeting shall be held
at such time and place as shall be determined in accordance with the Bylaws.
Elections of directors need not be by written ballot unless otherwise provided
in the Bylaws.

Section 5.2. Written Consent. Except as may be provided in a resolution
---------------
or resolutions providing for any class or series of Preferred Stock pursuant to
Article IV hereof, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such stockholders and may not be effected by any consent in
writing by any such stockholders. This Section 5.2 shall become effective only
upon the consummation of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(an "IPO").

ARTICLE VI
BOARD OF DIRECTORS
------------------

Section 6.1. Powers of the Board of Directors. The business, property and
--------------------------------
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors. In furtherance, and not in limitation, of the powers
conferred by the DGCL, the Board of Directors is expressly authorized to:

(a) adopt, amend, alter, change or repeal the Bylaws; provided,
--------
however, that no Bylaws hereafter adopted shall invalidate any prior act of the
- -------
directors that was valid at the time such action was taken;

(b) determine the rights, powers, duties, rules and procedures that
affect the power of the Board of Directors to manage and direct the business and
<PAGE>

- 5 -

affairs of the Corporation, including the power to designate and empower
committees of the Board of Directors to elect, appoint and empower the officers
and other agents of the Corporation, and to determine the time and place of, and
the notice requirements for, Board meetings, as well as quorum and voting
requirements for, and the manner of taking, Board action; and

(c) exercise all such powers and do all such acts as may be exercised
or done by the Corporation, subject to the provisions of the DGCL, this
Certificate of Incorporation, and the Bylaws.

Section 6.2. Number of Directors. The number of directors constituting
-------------------
the Board of Directors shall be as specified in, or as determined pursuant to,
the Bylaws.

Section 6.3 Classes, Election and Term. The Board of Directors shall be
--------------------------
divided into three classes, with each class to be as nearly equal in number as
reasonably possible, and with the initial term of office of the first class of
directors to expire at the first annual meeting of stockholders held after an
IPO, the initial term of office of the second class of directors to expire at
the second annual meeting of stockholders held after an IPO, and the initial
term of office of the third class of directors to expire at the third annual
meeting of stockholders held after an IPO. Commencing with the first annual
meeting of stockholders held after an IPO, directors elected to succeed those
directors whose terms have expired at an annual meeting shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, and upon the election and qualification of their
successors. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain or attain the number of
directors in each class as nearly equal as reasonably possible, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director. The provisions of this Section 6.3 shall become effective upon the
consummation of an IPO. Prior to an IPO, however, the Board of Directors by
resolution shall establish and determine the classes into which the directors in
office immediately following an IPO shall be divided.

Section 6.4. Vacancies. Any vacancies in the Board of Directors for any
---------
reason and any newly created directorships resulting by reason of any increase
in the number of directors may be filled only by the Board of Directors, acting
by a majority of the remaining
<PAGE>

- 6 -

directors then in office, although less than a quorum, or by a sole remaining
director, and any directors so appointed shall hold office until the next
election of the class for which such directors have been chosen and until their
successors are elected and qualified.

Section 6.5. Removal of Directors. Except as may be provided in a
--------------------
resolution or resolutions providing for any class or series of Preferred Stock
pursuant to Article IV hereof, with respect to any directors elected by the
holders of such class or series, any director, or the entire Board of Directors,
may be removed from office at any time for cause by the affirmative vote of the
holders of at least a majority of the voting power of all of the shares of
capital stock of the Corporation then entitled to vote generally in the election
of directors, voting together as a single class.

Section 6.6. Meetings of the Board of Directors. Meetings of the Board of
----------------------------------
Directors may be held within or without the State of Delaware, as the Bylaws may
provide.

ARTICLE VII
LIMITATION ON LIABILITY OF DIRECTORS
------------------------------------

As to any act or omission occurring after this provision becomes effective,
a director of the Corporation shall, to the maximum extent permitted by the
DGCL, have no personal liability to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article VII by the stockholders of the Corporation shall
not adversely affect any right or protection of any director of the Corporation
existing at the time of such repeal or modification.

ARTICLE VIII
INDEMNIFICATION
---------------

Section 8.1. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact:

(a) that he or she is or was a director or officer of the Corporation, or
<PAGE>

- 7 -

(b) that he or she, being at the time a director or officer of the
Corporation, is or was serving at the request of the Corporation as
a director, trustee, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit
plan (collectively, "another enterprise" or "other enterprise"),

whether either in case (a) or in case (b) the basis of such proceeding is
alleged action or inaction (x) in an official capacity as a director or officer
of the Corporation, or as a director, trustee, officer, employee or agent of
such other enterprise, or (y) in any other capacity related to the Corporation
or such other enterprise while so serving as a director, trustee, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by Section 145 of the DGCL (or any successor
provision or provisions) as the same exists or may hereafter be amended (but, in
the case of any such amendment, with respect to actions taken prior to such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such person in connection
therewith if such person satisfied the applicable level of care to permit such
indemnification under the DGCL. The persons indemnified by this Article VIII
are hereinafter referred to as "indemnitees." Such indemnification as to such
alleged action or inaction shall continue as to an indemnitee who has after such
alleged action or inaction ceased to be a director or officer of the
Corporation, or director, officer, employee or agent of another enterprise; and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators. The right to indemnification conferred in this Article VIII:
(i) shall be a contract right; (ii) shall not be affected adversely as to any
indemnitee by any amendment of this Certificate of Incorporation with respect to
any action or inaction occurring prior to such amendment; and (iii) shall,
subject to any requirements imposed by law and the Bylaws, include the right to
be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition.

Section 8.2. Relationship to Other Rights and Provisions Concerning
------------------------------------------------------
Indemnification. The rights to indemnification and to the advancement of
- ---------------
expenses
<PAGE>

- 8 -

conferred in this Article VIII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, this Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise. The Bylaws may contain such other provisions concerning
indemnification, including provisions specifying reasonable procedures relating
to and conditions to the receipt by indemnitees of indemnification, provided
that such provisions are not inconsistent with the provisions of this Article
VIII.

Section 8.3. Agents and Employees. The Corporation may, to the extent
--------------------
authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of expenses, to any employee or agent of
the Corporation (or any person serving at the Corporation's request as a
director, trustee, officer, employee or agent of another enterprise) or to
persons who are or were a director, officer, employee or agent of any of the
Corporation's affiliates, predecessor or subsidiary corporations or of a
constituent corporation absorbed by the Corporation in a consolidation or merger
or who is or was serving at the request of such affiliate, predecessor or
subsidiary corporation or of such constituent corporation as a director,
officer, employee or agent of another enterprise, in each case as determined by
the Board of Directors to the fullest extent of the provisions of this Article
VIII in cases of the indemnification and advancement of expenses of directors
and officers of the Corporation, or to any lesser extent (or greater extent, if
permitted by law) determined by the Board of Directors.

ARTICLE IX
BOOKS AND RECORDS
-----------------

The books of the corporation may be kept (subject to any provision
contained in the laws of the State of Delaware) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws.

ARTICLE X
COMPROMISE
----------

Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may,
<PAGE>

- 9 -

on the application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of Section 291 of Title 8 of the DGCL,
as that section may read from time to time, or any successor provision, or on
the application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8 of
the DGCL, as that section may read from time to time, or any successor
provision, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.

ARTICLE XI
AMENDMENT OF BYLAWS
-------------------

The Board of Directors shall have the power to adopt, amend, alter,
change or repeal the Bylaws. In addition to any requirements of the DGCL (and
notwithstanding the fact that a lesser percentage may be specified by the DGCL),
any adoption, amendment, alteration, change or repeal of any Bylaws by the
stockholders of the Corporation after an IPO shall require the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
combined voting power of all of the shares of all classes of capital stock of
the Corporation then entitled to vote generally in the election of directors.

ARTICLE XII
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------

Section 12.1. General Right to Amend. The Corporation hereby reserves
----------------------
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and all rights conferred upon stockholders are
granted subject to this
<PAGE>

- 10 -

reservation. Except as may be provided in a resolution or resolutions providing
for any class of Preferred Stock pursuant to Article IV hereof and which relate
to such class of Preferred Stock and except as provided in Article IV hereof,
any such amendment, alteration, change or repeal shall require the affirmative
vote of both (a) a majority of the members of the Board of Directors then in
office and (b) a majority of the combined voting power of all of the shares of
all classes of capital stock of the Corporation then entitled to vote generally
in the election of directors.

Section 12.2. Abandonment of Proposed Amendment. By a vote of the
---------------------------------
majority of the Board of Directors then in office, the Board may adopt a
resolution providing that at any time prior to the filing of any such amendment
with the Secretary of State, notwithstanding authorization of the proposed
amendment by the stockholders, the Board of Directors may abandon such proposed
amendment without further action by the stockholders.

Section 12.3. Amendment of Certain Provisions. Notwithstanding anything
-------------------------------
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of
the combined voting power of all of the shares of all classes of capital stock
of the Corporation then entitled to vote generally in the election of directors
shall be required to amend, repeal or adopt any provision inconsistent with
Sections 5.2, 6.3, 6.4 and 6.5 and Article XI hereof and this Section 12.3. This
Section 12.3 shall become effective upon consummation of an IPO.

ARTICLE XIII
DURATION
--------

The Corporation shall have perpetual existence.

* * *
<PAGE>

- 11 -

I, THE UNDERSIGNED, being the duly elected Vice President, Treasurer and
Chief Financial Officer of the corporation, do on behalf of the Corporation make
this Second Amended and Restated Certificate of Incorporation of the
Corporation, hereby declaring and certifying, under penalties of perjury, that
this is the act and deed of the Corporation and that the facts herein stated are
true, and accordingly have hereunto set my hand this 25th day of September,
1997.

By: /s/ Harry K. McCreery
---------------------------------------
Harry K. McCreery
Vice President, Treasurer and
Chief Financial Officer

<PAGE>

Exhibit 3.2

SECOND AMENDED AND RESTATED BYLAWS OF
Software AG Systems, Inc.
(as amended on September 24, 1997)

ARTICLE I.
Offices

Section 1.1. Registered Office. The registered office of Software AG
-----------------
Systems, Inc. (hereinafter called the "Corporation") within the State of
Delaware shall be at 1209 Orange Street, Wilmington, Delaware 19801, and the
name of the registered agent of the Corporation at such address shall be The
Corporation Trust Company.

Section 1.2. Executive Office. The principal executive office of the
----------------
Corporation shall be located in Reston, Virginia or such other location as may
be specified by the Board of Directors (hereinafter sometimes referred to as the
"Board"). The books of account and records shall be kept in such office.

Section 1.3. Other Offices. The Corporation may also have offices at
-------------
such other places, both within and without the State of Delaware, as the Board
of Directors from time to time shall determine or the business of the
Corporation may require.

ARTICLE II.
Meetings of Stockholders

Section 2.1. Place of Meetings. All meetings of the stockholders shall
-----------------
be held at any such place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors and stated in
the notice of meeting or in a duly executed waiver thereof.

Section 2.2. Annual Meeting. The annual meeting of the stockholders for
--------------
the election of directors and for the transaction of such other business as may
come before the meeting shall be held at such time and place as shall be
determined by the Chief Executive Officer or the Board of Directors and stated
in the notice of the meeting. Only such business may be conducted as has been
brought before an annual meeting of stockholders by, or at the direction of, the
Board of Directors or by a stockholder who has given timely written notice to
the
<PAGE>

- 2 -

Secretary of the Company of such stockholder's intention to bring such business
before the meeting pursuant to these Bylaws.

Section 2.3. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes, unless otherwise prescribed by statute, may be
called only by the Board, the Chairman of the Board or the Chief Executive
Officer. The only business which may be conducted at such a meeting, other than
procedural matters and matters relating to the conduct of the meeting, shall be
the matter or matters described in the notice of the meeting.

Section 2.4. Notice of Meetings. Notice of meetings of stockholders
------------------
shall be given as required by applicable law not less than ten days nor more
than sixty days before such meeting (unless a different time is specified by
law) to every stockholder entitled by law to notice of such meeting. Notice of
any such meeting need not be given to any stockholder who shall, either before
or after the meeting, submit a signed waiver of notice or who shall attend such
meeting, except when he shall attend for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.

Section 2.5. List of Stockholders. A complete list of the stockholders
--------------------
entitled to vote at any meeting of stockholders, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder, shall be prepared by the Secretary and shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held,
for at least ten days before the meeting and at the place of the meeting during
the whole time of the meeting.

Section 2.6. Quorum. A majority in voting power of the outstanding
------
shares of the Corporation entitled to vote on the matters at issue, present in
person or represented by proxy, shall constitute a quorum, except as otherwise
required by the Delaware General Corporation Law (the "DGCL") . When a quorum
is once present to organize a meeting of stockholders, it is not broken by the
subsequent withdrawal of any stockholders.
<PAGE>

- 3 -

The holders of a majority of the voting power of the outstanding shares present
in person or represented in proxy and entitled to vote at any meeting of
stockholders, may adjourn such meeting from time to time without notice other
than an announcement at the meeting, whether or not a quorum is present. At any
such adjourned meeting at which there is a quorum, any business may be
transacted that might have been transacted at the meeting originally called.

Section 2.7. Organization. At every meeting of stockholders, the
------------
Chairman of the Board, or in his absence or inability to act, the Chief
Executive Officer or, in his absence or inability to act, the person whom the
Chief Executive Officer shall appoint, shall act as chairman of, and preside at,
the meeting. The Secretary or, in his absence or inability to act, the person
whom the chairman of the meeting shall appoint secretary of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.

Section 2.8. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.

Section 2.9. Stockholder Nominations and Proposals. (a) No proposal
-------------------------------------
for a stockholder vote shall be submitted by a stockholder (a "Stockholder
Proposal") to the Corporation's stockholders unless the stockholder submitting
such proposal (the "Proponent") shall have filed a written notice setting forth
with particularity (i) the names and business addresses of the Proponent and all
Persons (as such term is defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended through the date of adoption of these Bylaws) acting in
concert with the Proponent; (ii) the names and addresses of the Proponent and
the Persons identified in clause (i), as they appear on the Corporation's books
(if they so appear); (iii) the class and number of shares of the Corporation
beneficially owned by the Proponent and the Persons identified in clause (i);
(iv) a description of the Stockholder Proposal containing all material
information relating thereto; and (v) such other information as the Board of
Directors reasonably determines is necessary or appropriate to enable the Board
of Directors and stockholders of the Corporation to consider the Stockholder
Proposal. Upon receipt of the Stockholder Proposal and prior to the stockholder
meeting at which such Stockholder Proposal will be considered, if the Board of
Directors or a designated committee or the
<PAGE>

- 4 -

officer who will preside at the stockholders meeting determines that the
information provided in a Stockholder Proposal does not satisfy the
informational requirements of these Bylaws or is otherwise not in accordance
with law, the Secretary of the Corporation shall promptly notify such Proponent
of the deficiency in the notice. Such Proponent shall have an opportunity to
cure the deficiency by providing additional information to the Secretary within
the period of time, not to exceed five days from the date such deficiency notice
is given to the Proponent, determined by the Board of Directors, such committee
or such officer. If the deficiency is not cured within such period, or if the
Board of Directors, such committee or such officer determines that the
additional information provided by the Proponent, together with the information
previously provided, does not satisfy the requirements of this Section 2.9, then
such proposal shall not be presented for action at the meeting in question.

(b) Only persons who are selected and recommended by the Board of
Directors or the Nominating Committee thereof, or who are nominated by
stockholders in accordance with the procedures set forth in this Section 2.9,
shall be eligible for election, or qualified to serve, as directors.
Nominations of individuals for election to the Board of Directors of the
Corporation at any annual meeting or any special meeting of stockholders at
which directors are to be elected may be made by any stockholder of the
Corporation entitled to vote for the election of directors at that meeting by
compliance with the procedures set forth in this Section 2.9. Nominations by
stockholders shall be made by written notice (a "Nomination Notice"), which
shall set forth (i) as to each individual nominated, (A) the name, date of
birth, business address and residence address of such individual; (B) the
business experience during the past five years of such nominee, including his or
her principal occupations and employment during such period, the name and
principal business of any corporation or other organization in which such
occupations and employment were carried on and such other information as to the
nature of his or her responsibilities and level of professional competence as
may be sufficient to permit assessment of his or her prior business experience;
(C) whether the nominee is or has ever been at any time a director, officer or
owner of 5% or more of any class of capital stock, partnership interests or
other equity interest of any corporation, partnership or other entity; (D) any
directorships held by such nominee
<PAGE>

- 5 -

in any company with a class of securities registered pursuant to section 12 of
the Securities Exchange Act of 1934, as amended, or subject to the requirements
of section 15(d) of such Act or any company registered as an investment company
under the Investment Company Act of 1940, as amended; and (E) whether, in the
last five years, such nominee has been convicted in a criminal proceeding or has
been subject to a judgment, order, finding or decree of any federal, state or
other governmental entity, concerning any violation of federal, state or other
law, or any proceeding in bankruptcy, which conviction, judgment, order,
finding, decree or proceeding may be material to an evaluation of the ability or
integrity of the nominee; and (ii) as to the Person submitting the Nomination
Notice and any Person acting in concert with such Person, (x) the name and
business address of such Persons, (y) the name and address of such Persons and
as they appear on the Corporation's books (if they so appear) and (z) the class
and number of shares of the Corporation which are beneficially owned by such
Persons. A written consent to being named in a proxy statement as a nominee, and
to serve as a director if elected, signed by the nominee, shall be filed with
any Nomination Notice. If the presiding officer at any stockholders meeting
determines that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, he shall so declare to the meeting and the defective
nomination shall be disregarded.

(c) Nomination Notices and Stockholder Proposals shall be delivered to
the Secretary at the principal executive office of the Corporation not less than
sixty and not more than ninety days prior to the date of the meeting of
stockholders if such Nomination Notice or Stockholder Proposal is to be
submitted at an annual stockholders meeting (provided, however, that if such
annual meeting is called to be held before the date specified in Section 2.2
hereof, such Nomination Notice or Stockholder Proposal shall be so delivered no
later than the close of business on the tenth day following the day on which
notice of the date of the annual stockholders meeting was given). Nomination
Notices and Stockholder Proposals shall be delivered to the Secretary at the
principal executive office of the Corporation no later than the close of
business on the tenth day following the day on which notice of the date of a
special meeting of stockholders was given if the Nomination Notice or
Stockholder Proposal is to be submitted at a special stockholders meeting.
<PAGE>

- 6 -

(d) The provisions of this Section 2.9 shall become effective upon the
consummation of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (an "IPO").

Section 2.10. Voting. Unless otherwise provided in a resolution or
------
resolutions providing for any class or series of Preferred Stock pursuant to
Article IV of the Corporation's Certificate of Incorporation (the "Certificate
of Incorporation"), any other provision of the Certificate of Incorporation or
the DGCL, every stockholder shall be entitled to one vote, in person or by
written proxy, for each share of capital stock held of record by such
stockholder which is entitled to vote generally in the election of directors.
If the Certificate of Incorporation provides for more or less than one vote for
any share, on any matter, every reference in these Bylaws or the DGCL to a
majority or other proportion of stock shall refer to such majority or other
proportion of the votes of such stock. The provisions of Section 212 and 217 of
the DGCL shall apply in determining whether any shares of capital stock may be
voted and the persons, if any, entitled to vote such shares, but the Corporation
shall be protected in treating the persons in whose names shares of capital
stock stand on the record of stockholders as owners thereof for all purposes.
All elections for the Board of Directors shall be decided by a plurality of the
votes cast and all other questions shall be decided by a majority of the votes
cast, except as otherwise required by law, by the Certificate of Incorporation
or by these Bylaws. Abstentions shall not be considered to be votes cast. In
voting on any question on which a vote by ballot is required by law, by the
Certificate of Incorporation, or is demanded by any stockholder entitled to
vote, the voting shall be by written ballot. Each ballot shall be signed by the
stockholder voting or by his proxy, and shall state the number of shares voted.
On all other questions, the voting may be viva voce. Every stockholder entitled
---------
to vote at a meeting of stockholders may authorize another person or persons to
act for him by proxy. The validity and enforceability of any proxy shall be
determined in accordance with applicable law.

Section 2.11. Inspectors. The Board of Directors may, in advance of any
----------
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the
<PAGE>

-7-

chairman of the meeting shall, or if inspectors shall not have been appointed,
the chairman of the meeting may, appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors shall
determine the number of shares of capital stock of the Corporation outstanding
and the voting power of each, the number of shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the results, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting, the inspectors shall make a report in writing of
any challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.

ARTICLE III.
Board of Directors

Section 3.1. General Powers. The business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Boards of
Directors.

Section 3.2. Number, Qualifications, Election and Term of Office. The
---------------------------------------------------
Board shall consist of six (6) directors, provided that the Board from time to
time may increase or decrease the number of directors to any number not less
than one, and provided that, after consummation of an IPO, the number of
directors shall not be increased by fifty percent (50%) or more in any twelve-
month period without the approval by at least sixty-six and two-thirds percent
(66 2/3%) of the members of the Board of Directors then in office. No reduction
in the number of directors shall have the effect of shortening the term of any
director in office at the time such reduction becomes effective. The retirement
age of and other restrictions and qualifications for directors constituting the
Board of Directors shall be as authorized from time to time by a majority vote
of the members of the Board of Directors then in office. Members of the Board
need not be
<PAGE>

- 8 -

residents of the State of Delaware and need not be stockholders of the
Corporation. Unless otherwise provided in the Certificate of Incorporation, each
director shall be elected at the annual meeting of the stockholders and shall
hold office until his successor shall have been elected and qualified or until
his earlier death, removal or resignation in the manner provided herein.

Section 3.3. Place of Meetings. Meetings of the Board of Directors
-----------------
shall be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting. Each regular meeting of the Board
of Directors shall be held at the location specified in the notice with respect
to such meeting or, if no such notice is provided or no location is specified
therein, at the principal executive offices of the Corporation.

Section 3.4. Annual Meeting. The Board of Directors shall meet for the
--------------
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting of stockholders
shall be held. Notice of such Board meeting need not be given. In the event
such annual meeting of stockholders is not so held, the annual meeting of the
Board of Directors may be held at such other time or place (within or without
the State of Delaware) as shall be specified in a notice thereof given as
hereinafter provided in Section 3.7 hereof.

Section 3.5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such time and place as the Board of Directors may
fix. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by applicable law or these Bylaws.

Section 3.6. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board of Directors or at the
request of a majority of the directors.

Section 3.7. Notice of Meetings. Notice of each special meeting of the
------------------
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 3.7, in which notice shall stated the
<PAGE>

- 9 -

time and place of the meeting. Notice of a special meeting shall state the
general purpose of the meeting, but other routine business may be conducted at a
special meeting without such matter being stated in the notice. Notice of each
such meeting shall be (i) mailed, postage prepaid, to each director at his
designated address at least seven days before the day on which such meeting is
to be held, (ii) sent by overnight courier to each director at his designated
address at least two days before the day on which such meeting is to be held
(with delivery scheduled to occur no later than the day before the meeting), or
(iii) given orally by telephone or other means, or by facsimile, telegraph,
cable, telex, telecopier or other similar means, to each director at his
designated address at least twenty-four hours before the time at which such
meeting is to be held. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting, except when he shall attend for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

Section 3.8. Quorum and Manner of Acting. A majority of the entire
---------------------------
Board of Directors shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, and, except as otherwise expressly
required by the DGCL, the Certificate of Incorporation or these Bylaws, the act
of a majority of the directors then in office shall be the act of the Board of
Directors at any such meeting. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to all of the directors unless such time and
place were announced at the meeting at which the adjournment was taken, in which
case such notice shall only be given to the directors who were not present
thereat. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board and the individual directors
shall have no power as such.

Section 3.9. Organization. At each meeting of the Board of Directors,
------------
the Chairman of the Board or, in his absence, another director chosen by a
majority of the directors present, shall act as chairman of the meeting and
preside thereat. The Secretary or, in his
<PAGE>

- 10 -

absence, any person appointed by the chairman, shall act as secretary of the
meeting and keep the minutes thereof.

Section 3.10. Resignations. Any director of the Corporation may resign
------------
at any time by giving written notice of his resignation to the Chairman of the
Board, the Chief Executive Officer, or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt.
Unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

Section 3.11. Compensation. Directors shall receive such compensation,
------------
including fees and reimbursement of expenses, for their services as the Board of
Directors may determine. Any director may serve the Corporation in any other
capacity and receive compensation therefor.

Section 3.12. Action by Consent. Unless restricted by the Certificate
-----------------
of Incorporation or these Bylaws, any action required or permitted to be taken
by the Board of Directors or any committee thereof may be taken without a
meeting if all members of the Board of Directors or of such committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the Board of Directors or such committee,
as the case may be.

Section 3.13. Telephonic Meeting. Unless restricted by the Certificate
------------------
of Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.

Section 3.14. Nominating Committee. The Board may, by resolution passed
--------------------
by a majority of the members of the Board of Directors then in office, designate
a Nominating Committee to consist of two or more members of the Board. A
majority of the Board of Directors then in office shall have the power to change
the membership of the Nominating Committee, fill vacancies therein or remove any
members thereof, either with or without
<PAGE>

- 11 -

cause, at any time. Unless otherwise provided by the Board of Directors or the
Nominating Committee, quorum, voting, and other procedures of the Nominating
Committee shall be the same as those applicable to actions taken by the Board of
Directors. The Nominating Committee may fix its rules of procedure, determine
its manner of acting and fix the time and place, whether within or without the
State of Delaware, of its meetings and specify what notice thereof, if any,
shall be given, unless the majority of the Board of Directors shall otherwise by
resolution provide.

Section 3.15. Other Committees. The Board of Directors may, by
----------------
resolutions passed by a majority of the members of the Board of Directors then
in office, designate members of the Board of Directors to constitute other
committees which shall in each case consist of such number of directors, and
shall have and may execute such powers as may be determined and specified in the
respective resolutions appointing them. Any such committee may fix its rules of
procedure, determine its manner of acting and fix the time and place, whether
within or without the State of Delaware, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board of Directors shall otherwise
by resolution provide. Unless otherwise provided by the Board of Directors or
such committee, quorum, voting and other procedures shall be the same as those
applicable to actions taken by the Board of Directors. A majority of the
members of the Board of Directors then in office shall have the power to change
the membership of any such committee at any time, to fill vacancies therein and
to discharge any such committee or to remove any member thereof, either with or
without cause, at any time. The Corporation shall be governed by subsection (2)
of Section 141(c) of the DGCL.

Section 3.16. Presumption of Assent. A director of the Corporation who
---------------------
is present at a meeting of the Board of Directors when a vote on any matter is
taken is deemed to have assented to the action taken unless he votes against or
abstains from the action taken, or unless at the beginning of the meeting or
promptly upon arrival, the director objects to the holding of the meeting or the
transacting of specified business at the meeting. Any such dissenting votes,
abstentions or objections shall be entered in the minutes of the meeting.
<PAGE>

- 12 -

ARTICLE IV.
Officers

Section 4.1. Designation. The officers of the Corporation shall be
-----------
elected by the Board of Directors and shall include the Chief Executive Officer,
President, Chief Financial Officer, any number of Vice-Presidents, Treasurer,
Secretary and such other officers and assistant officers as the Board may from
time to time appoint, or authorize the Chief Executive Officer to appoint.

Section 4.2. Election and Tenure. Officers and assistant officers of
-------------------
the Corporation may, but need not, also be members of the Board. At its first
meeting after each annual meeting of the stockholders, the Board of Directors
shall elect the officers or provide for the appointment thereof. Unless
otherwise provided by the Certificate of Incorporation, the term of each officer
elected by the Board of Directors shall be until the first meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor is elected and qualified or until his earlier death, resignation or
removal in the manner specified in this Section 4.2. Any officer elected or
appointed by the Board may be removed by the Board at any time with or without
cause by the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of
the members of the Board then in office. Any officer or assistant officer
appointed by another officer may be removed from office with or without cause by
such officer. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights. Any officer of the
Corporation may resign at any time by giving written notice of his resignation
to the Chairman of the Board, the Chief Executive Officer, or the Secretary.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Should any vacancy
occur among the officers, the position shall be filled for the unexpired portion
of the term by appointment made by the Board or, in the case of offices held by
officers who may be appointed by other officers, by any officer authorized
<PAGE>

- 13 -

to appoint such officer. Any individual may be elected to, and may hold, more
than one office of the Corporation.

Section 4.3. Duties. The powers and duties of the several officers
------
shall be as provided from time to time by resolution or other directive of the
Board. In the absence of such provisions, the respective officers shall have
the powers and shall discharge the duties customarily and usually held and
performed by like officers of corporations similar in organization and business
purposes to the Corporation.

Section 4.4. Compensation. Officers may be paid such reasonable
------------
compensation as the Board may from time to time authorize and direct. The Board
of Directors may delegate its authority to determine compensation to a
committee.

ARTICLE V.
Stock Certificates and Their Transfer

Section 5.1. Stock Certificates. Every holder of stock in the
------------------
Corporation shall be entitled to have a certificate certifying the number of
shares of the Corporation owned by such holder. Such certificates shall be in
such form (consistent with applicable law) as shall be determined by the Board.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a lost
destroyed, stolen, or mutilated certificate a new one may be issued therefor on
such terms and indemnity to the Corporation as the Board may prescribe.

Section 5.2. Registered Stockholders. A record of the name and address
-----------------------
of the holder of each certificate, the number of shares represented thereby and
the date of issue thereof shall be made on the Corporation's books. The
Corporation shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to receive dividends
and to vote as such owner, shall be
<PAGE>

- 14 -

entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Delaware.

Section 5.3. Transfers of Stock. Transfer of shares of stock of the
------------------
Corporation shall be made in accordance with the DGCL. Transfers of stock shall
be made on the books of the Corporation only by direction of the person named in
the stock certificate or such person's attorney, lawfully constituted in
writing, and only upon the surrender of the certificate therefor accompanied by
a written assignment of the shares evidenced thereby, which certificate shall be
cancelled before any new certificate is issued.

Section 5.4. Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars. If any certificate is countersigned (a) by a
transfer agent other than the Corporation or its employee, or (b) by a registrar
other than the Corporation or its employee, any signature on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.

Section 5.5. Regulations. The Board of Directors may make such
-----------
additional rules and regulations, not inconsistent with these Bylaws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.

Section 5.6. Fixing the Record Date. In order that the Corporation may
----------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or, unless prohibited by the
Certificate of Incorporation, to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or
<PAGE>

- 15 -

entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which date shall be a permitted record date
under the DGCL with respect to such meeting or action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

Section 5.7. Lost Certificates. Any person claiming a stock certificate
-----------------
in lieu of one lost, stolen or destroyed shall give the Corporation an affidavit
as to such person's ownership of the certificate and of the facts which go to
prove its loss, theft or destruction. Such person shall also, unless waived by
an authorized officer of the Corporation, give the Corporation a bond, in such
form as may be approved by the Corporation, sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of the certificate or the issuance of a new certificate.

ARTICLE VI.
Indemnification

Section 6.1. Indemnification Provisions in Certificate of Incorporation.
----------------------------------------------------------
The provisions of this Article VI are intended to supplement Article VIII of the
Certificate of Incorporation pursuant to Section 8.2 of the Certificate of
Incorporation. To the extent that this Article VI contains any provisions
inconsistent with said Article VIII, the provisions of the Certificate of
Incorporation shall govern. Terms defined in such Article VIII shall have the
same meaning in this Article VI.

Section 6.2. Undertakings for Advances of Expenses. If and to the
-------------------------------------
extent the DGCL requires, an advancement by the Corporation of expenses incurred
by an indemnitee pursuant to clause (iii) of the last sentence of Section 8.1 of
the Certificate of Incorporation (hereinafter an "advancement of expenses")
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right
<PAGE>

- 16 -

to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under Article VIII of the
Certificate of Incorporation or otherwise.

Section 6.3. Claims for Indemnification. If a claim for indemnification
--------------------------
under this Article VI is not paid in full by the Corporation within sixty (60)
days after it has been received in writing by the Corporation, except in the
case of a claim for an advancement of expenses in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and in any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses only upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in Section
145 of the DGCL (or any successor provision or provisions). Neither the failure
of the Corporation (including the Board of Directors, independent legal counsel
or its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
Section 145 of the DGCL (or any successor provision or provisions), nor an
actual determination by the Corporation (including the Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to have or
retain such advancement of
<PAGE>

- 17 -

expenses, under Article VIII of the Certificate of Incorporation or this Article
VI or otherwise, shall be on the Corporation.

Section 6.4. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, trustee, officer, employee or agent
of the Corporation or another enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the DGCL.

Section 6.5. Severability. In the event that any of the provisions of
------------
this Article VI (including any provision within a single section, paragraph or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.

ARTICLE VII.
General Provisions

Section 7.1. Seal. The seal of the Corporation shall be in such form as
----
shall be approved by the Board of Directors.

Section 7.2. Fiscal Year. The fiscal year of the Corporation shall be
-----------
the calendar year, unless it is changed by resolution of the Board of Directors.

Section 7.3. Checks. Notes. Drafts, Etc. All checks, notes, drafts or
--------------------------
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.

Section 7.4. Execution of Contracts, Deeds, Etc. The Board may authorize
----------------------------------
any officer, employee or agent to enter into any contract or execute and deliver
any instrument in the name and on behalf of the Corporation. Such authority may
be general or confined to specific instances, or otherwise limited, and if the
Board so provides may be delegated by the person so authorized.
<PAGE>

- 18 -

Section 7.5. Mechanical Endorsement. The Chairman of the Board, Chief
----------------------
Executive Officer, any Vice President or the Secretary may authorize any
endorsement on behalf of the Corporation to be made by such mechanical means or
stamps as any of such officers may deem appropriate.

Section 7.6. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board. Such authority may be general or
confined to specific instances, or otherwise limited, and if the Board so
provides may be delegated by the person so authorized.

Section 7.7. Voting of Stock in Other Corporations. Unless otherwise
-------------------------------------
provided by resolution of the Board of Directors, the Chief Executive Officer,
from time to time, may (or may appoint one or more attorneys or agents to) cast
the votes that the Corporation may be entitled to cast as a shareholder or
otherwise in any other corporation, any of whose shares or securities may be
held by the Corporation, at meetings of the holders of the shares or other
securities of such other corporation, or consent in writing to any action by any
such other corporation. In the event one or more attorneys or agents are
appointed, the Chief Executive Officer may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent. The
Chief Executive Officer may, or may instruct the attorneys or agents appointed
to, execute or cause to be executed in the name and on behalf of the Corporation
and under its seal or otherwise, such written proxies, consents, waivers or
other instruments as may be necessary or proper in the circumstances relating to
securities owned by the Corporation.

Section 7.8. Dividends. Subject to the provisions of the DGCL and the
---------
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of
the Corporation, unless otherwise provided by the DGCL or the Certificate of
Incorporation.
<PAGE>

- 19 -

ARTICLE VIII.
Amendments

These Bylaws of the Corporation may be amended, altered, changed, adopted
and repealed or new bylaws adopted by the affirmative vote of at least a
majority of the members of the Board of Directors then in office at any regular
or special meeting. The stockholders also shall have the power to amend, alter,
change, adopt and repeal the Bylaws of the Corporation at any annual or special
meeting pursuant to the requirements of the Certificate of Incorporation.

<PAGE>

Exhibit 10.2

EXECUTION COPY

COOPERATION AGREEMENT
---------------------

This Cooperation Agreement (the "Agreement") is made this 31st day of
March, 1997 (the "Effective Date") by and between Software AG ("SAG"), a German
corporation, with its principal place of business in Darmstadt, Germany, and
Software AG Americas, Inc. ("SAGA"), a Virginia corporation, with its principal
place of business in Reston, Virginia, USA.

WHEREAS, each of SAG and SAGA is the developer and/or owner of certain
computer software products; and

WHEREAS, prior to the Effective Date, SAGA has been an indirect wholly-
owned subsidiary of SAG; and

WHEREAS, SAGA has been distributing products of SAG, and providing
support and maintenance for such products, within the Territory (as defined
herein); and

WHEREAS, SAG has been distributing products of SAGA, and providing
support and maintenance for such products, outside the Territory; and

WHEREAS, until the Effective Date, the parties' relationship has been
subject to the terms of a Cooperation Agreement dated January 1, 1995, which is
hereby terminated and superseded by this Agreement; and

WHEREAS, the parties desire to continue their relationship with respect
to the distribution and maintenance of products, as it has been prior to the
Effective Date, except as specifically modified herein;

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

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

1.1. "Affiliate," with respect to a party, means any corporation or
---------
other entity or person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such party.

1.2. "Change in Control" means a change in control of a party where,
-----------------
after the date hereof, any person, together with its Affiliates (i) becomes,
directly or indirectly, whether by merger, consolidation, purchase or any other
form of acquisition or transfer, the beneficial owner of 50% or more of the
combined voting power of such party's then outstanding securities or other
equity interests, (ii) otherwise acquires,
<PAGE>

- 2 -

directly or indirectly, the power to direct, or cause the direction of, the
management and policies of such party, whether through the ownership of
securities or other interests, by contract or otherwise, or (iii) acquires all
or substantially all of the assets of such party.

1.3. "Distributing Party," with respect to a SAG Product or SAGA
------------------
Product, means SAGA or SAG, respectively, which is not the Originating Party,
but instead acquires rights with respect to the SAG Product or SAGA Product
pursuant to this Agreement.

1.4. "Distribution Charge" means either (i) an amount paid by a party to
-------------------
a third party for obtaining from an End User an order for Products or
Maintenance, which order is placed directly to such party, or (ii) the amount
retained by a Distributor for the distribution of Products or the enrollment of
End Users for Maintenance, which amount is determined by deducting from the
applicable Amounts Invoiced (as defined in Section 6.2) any amounts payable to
the party that appointed the Distributor.

1.5. "Distributor" means any distributor (including, but not limited to,
-----------
a value added reseller, subdistributor, Affiliate, consultant, or systems
integrator) directly or indirectly appointed by SAG or SAGA to distribute
Products.

1.6. "End User" means a person or entity that has the right to use a
--------
Product pursuant to an End User Agreement with SAG, SAGA or a Distributor.

1.7. "End User Agreement" means an agreement between SAG, SAGA or a
------------------
Distributor and an End User, pursuant to which the End User receives the right
to use a Product and/or Maintenance.

1.8. "First Level Support" means any technical support given by SAG or
-------------------
SAGA in response to an End User's request for Maintenance, which technical
support does not reasonably require access to or use of the Source Code for the
relevant Products.

1.9. "Maintenance" means the provision of reasonable and customary
-----------
technical support services for Products to End Users, as generally described in
Section 4 of the form "Software License and Technical Services Agreement"
attached as Exhibit A and practiced by the parties prior to the Effective Date,
or as subsequently agreed by the parties, including, but not limited to,
supplying telephone support, new versions and releases, and periodic fixes and
error corrections.
<PAGE>

- 3 -

1.10. "Object Code" means the executable computer code related to a
-----------
Product produced by processing (e.g., compiling, assembling or interpreting) the
Source Code.

1.11. "Originating Party," with respect to a SAG Product or SAGA
-----------------
Product, means SAG or SAGA, respectively, which developed the SAG Product or
SAGA Product or otherwise caused the SAG Product or SAGA Product to be brought
within the scope of this Agreement.

1.12. "Product" means either a SAG Product or a SAGA Product, as the
-------
case might be.

1.13. "SAG Product" means any presently existing or future computer
-----------
software, including, but not limited to, computer programs, parts thereof,
documentation therefor and related materials, (i) that a SAG Entity develops or
has developed for it, whether through employees or independent contractors and
whether alone or with others, except as provided in Section 3.3, (ii) in which a
SAG Entity owns or acquires proprietary or license rights (other than under this
Agreement), (iii) announced as a product of a SAG Entity (other than by virtue
of its being licensed by SAGA under this Agreement), (iv) distributed or offered
for distribution by a SAG Entity (other than by virtue of its being licensed by
SAGA under this Agreement), or (v) which a SAG Entity has the right to
distribute within the Territory, at any time during the term of this Agreement;
provided that computer software that is or becomes a SAG Product solely because
it is a Third Party Product shall remain a SAG Product only for so long as SAG
has the right to grant SAGA rights hereunder with respect to such computer
software. For purposes of this Agreement, SAG computer software programs
intended for use on different platforms shall be deemed separate SAG Products.
The SAG Products shall include, but not be limited to, the products listed in
Exhibit B.

1.14. "SAGA Product" means any presently existing or future computer
------------
software, including, but not limited to, computer programs, parts thereof,
documentation therefor and related materials, (i) that a SAGA Entity develops or
has developed for it, whether through employees or independent contractors and
whether alone or with others, except as provided in Section 3.3, (ii) in which a
SAGA Entity owns or acquires proprietary or license rights (other than under
this Agreement), (iii) announced as a product of a SAGA Entity (other than by
virtue of its being licensed by SAG under this Agreement), (iv) distributed or
offered for distribution by a SAGA Entity (other than by virtue of its being
licensed by SAG under this Agreement), or (v) which a SAGA Entity has the right
to distribute outside the Territory, at any time during the
<PAGE>

- 4 -

term of this Agreement; provided that computer software that is or becomes a
SAGA Product solely because it is a Third Party Product shall remain a SAGA
Product only for so long as SAGA has the right to grant SAG rights hereunder
with respect to such computer software. For purposes of this Agreement, SAGA
computer software programs intended for use on different platforms shall be
deemed separate SAGA Products. The SAGA Products shall include, but not be
limited to, the products listed in Exhibit C.

1.15. "SAG Entity" means SAG, a successor to SAG, or an Affiliate of
----------
SAG.

1.16. "SAGA Entity" means SAGA, a successor to SAGA, or an Affiliate of
-----------
SAGA.

1.17. "Second Level Support" means any technical support given by SAG or
--------------------
SAGA in response to an End User's request for Maintenance, which technical
support reasonably requires access to or use of the Source Code for the relevant
Products, but which is not Third Level Support.

1.18. "Source Code" means the human readable computer programming
-----------
language code related to a Product.

1.19. "Technical Materials" means all of the Source Code, Object Code,
-------------------
user documentation and training materials for a Product, and any other technical
documentation prepared by or available to the Originating Party, or any
Affiliate of or successor to the Originating Party, in the normal course of its
operations related to the relevant Product, including, but not limited to, flow
diagrams, program design documents, programmer work papers, descriptions of data
structures, programming conventions and standards.

1.20. "Territory" means (i) the geographical area within the western
---------
hemisphere that is contained within the boundaries of 30(degrees) W longitude
through 170(degrees) W longitude, excluding Greenland, (ii) the additional
countries of Japan and Israel, and (iii) any additional islands in the Pacific
Ocean that have installations funded by the U.S. government.

1.21. "Third Level Support" means any technical support given by SAG or
-------------------
SAGA in response to an End User's request for Maintenance, which technical
support reasonably requires the involvement of the research and development
staff of the Originating Party.

1.22. "Third Party Product" means a Product developed by or for a third
-------------------
party other than a party's Affiliate that qualifies as a Product solely by
virtue of a limited license or
<PAGE>

- 5 -

distributorship granted to a SAG Entity or SAGA Entity, whether on an exclusive
or nonexclusive basis.

2. Rights Granted with Respect to Products
---------------------------------------

2.1. Subject to the provisions of Section 2.3, SAG hereby grants to SAGA
a perpetual, irrevocable (except by written agreement of the parties), exclusive
(except as provided in Section 2.4) license under all of SAG's patents,
copyrights, trade secrets and other proprietary and license rights to (i)
reproduce, distribute, perform, display, transmit and otherwise use all SAG
Products within the Territory, (ii) adapt SAG Products in object code form only,
within the Territory, (iii) provide Maintenance for SAG Products to End Users
within the Territory, and (iv) authorize others to do the same. SAG expressly
retains all such rights outside the Territory.

2.2. Subject to the provisions of Section 2.3, SAGA hereby grants to SAG
a perpetual, irrevocable (except by written agreement of the parties), exclusive
(except as provided in Section 2.4) license under all of SAGA's patents,
copyrights, trade secrets and other proprietary and license rights to (i)
reproduce, distribute, perform, display, transmit and otherwise use all SAGA
Products outside the Territory, (ii) adapt SAGA Products in object code form
only, outside the Territory, (iii) provide Maintenance for SAGA Products to End
Users outside the Territory, and (iv) authorize others to do the same. SAGA
expressly retains all such rights within the Territory.

2.3. Notwithstanding the other provisions of this Agreement, each
party's rights hereunder with respect to a Third Party Product shall be subject
to the terms of the agreement between the Originating Party or its Affiliate and
a third party pursuant to which the Third Party Product becomes a Product. When
a party or its Affiliate acquires from a third party a license or
distributorship with respect to computer software that thereby becomes a Product
of such party, such party shall use its best efforts to permit the other party
to have the full rights contemplated by Section 2.1 or 2.2, as applicable, and
Section 3.5. Each party shall have the rights granted in Section 2.1 or 2.2, as
applicable, and Section 3.5, and have the obligations arising under this
Agreement, with respect to a Third Party Product to the maximum extent
consistent with the other party's or its Affiliate's agreements with the third
party. Thus, for example, and not as a limitation, if the Originating Party of
a Third Party Product is a nonexclusive distributor of such Third Party Product,
the Distributing Party shall, to the maximum extent consistent with
<PAGE>

- 6 -

the agreement appointing the Originating Party as a distributor, have a
subdistributorship in the relevant geographic area, exclusive as to the
Originating Party, but nonexclusive as to third parties likewise appointed as
distributors by the third party that appointed the Originating Party. Each
party granting rights under this Agreement with respect to a Third Party Product
shall inform the other party of the other party's rights and obligations as a
sublicensee or subdistributor under the agreements between such first party or
its Affiliate and the third party, and the other party shall comply with such
obligations. As of the Effective Date, there are certain agreements to which
one party to this Agreement is a party concerning one or more Products of the
other party, as Products are identified in Exhibits B and C, including, but not
limited to, the Value Added Reseller Agreement among Carleton Corporation,
Carleton Europe, SAGA and SAG dated April 14, 1995. Promptly after the
Effective Date, the parties shall use their best efforts to renegotiate or
otherwise restructure, such as through an assignment and delegation, any rights
and obligations of the parties under such agreements to be consistent with the
designation of the Originating Party through the inclusion of a Product in
Exhibit B or C and the respective rights and obligations of the parties under
this Agreement as a result thereof. To the extent that the parties have been
unable to do so, such as because a third party does not wish to renegotiate such
an agreement, or the parties otherwise have not done so, the parties' payment
obligations under this Agreement with respect to the relevant Third Party
Products shall be adjusted to obtain a financially-equivalent result and the
parties otherwise shall cooperate to give the Originating Party, as designated
in this Agreement, the benefits of such status. At the request of either party,
the parties shall take any actions reasonably required to confirm the parties'
respective rights and obligations with respect to Third Party Products.

2.4. SAGA, within the Territory, and SAG outside the Territory, each
shall, with respect to the other, be the sole and exclusive distributor of all
of the Products and of Maintenance therefor. The parties may, in their
discretion, waive such exclusivity for any Product, in any country, by mutual
written agreement. If either party believes it desirable to enter into either a
"Multinational End User Agreement" (i.e. an End User Agreement with an End User
that requires installation of Products in two or more countries) or a
"Multinational Distributor Agreement" (i.e. an agreement appointing a
Distributor authorized to enter into End User Agreements in two or more
countries) , and at least one of such countries is within the Territory and at
least one of such countries is outside the Territory, then (i) if the End User's
or Distributor's principal office or headquarters is within the
<PAGE>

- 7 -

Territory, SAGA may enter into such an agreement with SAG's written consent, and
(ii) if the End User's or Distributor's principal office or headquarters is
located outside the Territory, SAG may enter into such an agreement with SAGA's
written consent.

2.5. A Distributing Party shall distribute, and cause its Distributors
to distribute, the Products of the Originating Party only pursuant to End User
Agreements that contain provisions at least as protective of the interests of
the Originating Party as Sections 1.2, 5, 6, 7.3, 8, 10 and 13.3 of the form
"Software License and Technical Services Agreement" attached as Exhibit A, or
such other provisions that may be approved in writing by the Originating Party
from time to time; provided that such provisions may be modified as reasonably
required to conform to local law and business practice.

2.6. A Distributing Party shall distribute, and cause its Distributors
to distribute, each Product of the other party in Object Code form only, except
to the extent that the Originating Party distributes, or otherwise permits the
distribution of, the Source Code for the Product to third parties.

2.7. Each party shall use its best efforts to distribute Products of the
other party and provide Maintenance for such Products, either within the
Territory (in the case of SAGA) or outside of the Territory (in the case of
SAG), except to the extent that doing so would be in conflict with an obligation
that such party owes to a third party at the time the relevant Product becomes a
Product, such as a covenant not to compete in an agreement with a third party
appointing such party as a distributor of the third party's product.

3. Cooperation and Technical Assistance
------------------------------------

3.1. The parties shall use their best efforts to cooperate with each
other, and to provide each other information and assistance, as they have done
prior to the Effective Date or otherwise agree, in all aspects of the
development of Products, of the marketing and distribution of Products by SAGA
within the Territory and by SAG outside the Territory, and of the provision of
Maintenance by SAGA within the Territory and by SAG outside the Territory.

3.2. The parties shall form a "Strategic Advisory Board" consisting of
the Chief Executive Officer and Chief Technology Officer of each party. The
Strategic Advisory Board shall meet no less often than quarterly, together with
its members' respective advisors, if any, at mutually agreeable
<PAGE>

- 8 -

times and places. The Strategic Advisory Board shall provide a forum for
discussing matters of interest to either party. The Strategic Advisory Board
also shall provide a formal means for the exchange between the parties of
information relevant to their respective rights and obligations under this
Agreement, including, but not limited to, plans for new or modified Products,
marketing plans, information concerning functional, performance, technical,
operational and other characteristics, interfaces and features of Products,
Technical Materials and other information relating to Products. Within the
general provisions of this Section 3.2, the Strategic Advisory Board shall
establish its own operating rules and agenda.

3.3. The parties may from time to time desire to perform a joint Product
development project. Any such project shall be made the subject of a written
agreement addressing at least the following subjects: the scope of the project,
the allocation of project costs between the parties, the schedule for any
payments and the allocation of the proprietary rights arising from the project.
Notwithstanding the foregoing, unless the parties agree otherwise in writing, if
either party funds or has funded substantially all of the costs of any
development effort, that party shall own all of the proprietary rights arising
from that effort and any resulting computer software shall be a Product of such
funding party for purposes of this Agreement. Accordingly, for example, and not
as a limitation, if one party develops a Product, but the other party makes an
incidental contribution to the development of the Product, such as through the
consultations of the Strategic Advisory Board, such first party shall own all of
the proprietary rights arising from the development of the Product and any
resulting computer software shall be a Product of such first party for purposes
of this Agreement. In addition, as of the Effective Date and pursuant to a
separate agreement between the parties, certain designated employees of SAGA
perform computer software development for SAG under the management of SAG, and
SAG reimburses SAGA for all of its costs associated with such employees. For so
long as any such employees continue to be so designated, and SAG continues to
reimburse SAGA for such costs, SAG shall own all of the proprietary rights
arising from such development, and any computer software developed by such
designated employees of SAGA shall be a SAG Product for purposes of this
Agreement.

3.4. Each party acknowledges that for the other party effectively to
perform its obligations under this Agreement, and to receive the benefit of its
rights under this Agreement, the other party must have prompt, full and
unfettered access to Technical Materials in the possession of such first party.
The Originating Party shall provide to the other party, promptly after any
computer software becomes a "Product" hereunder,
<PAGE>

- 9 -

copies of the complete Source Code and Object Code for the Product, a reasonable
number of copies of any user documentation for the Product, and significant
existing Technical Materials relating to the Product, except that in the case of
a Third Party Product, such items only shall be provided to the extent legally
permitted under any applicable agreement between the Originating Party and the
third party proprietor of the Third Party Product. Thereafter, an Originating
Party shall provide Technical Materials relating to a Product to the other party
when requested by the other party or when such Originating Party determines that
doing so would materially enhance the other party's ability to develop, market,
distribute or provide Maintenance, except that in the case of a Third Party
Product, such Technical Materials only shall be provided to the extent legally
permitted under any applicable agreement between the Originating Party and the
third party proprietor of the Third Party Product.

3.5. Subject to the provisions of Section 2.3, each party hereby grants
the other party a perpetual, irrevocable (except by written agreement of the
parties), exclusive (except as provided in Section 2.4) license under all of the
licensor's patents, copyrights, trade secrets and other proprietary rights to
(i) reproduce, distribute, perform, display, transmit and otherwise use
Technical Materials, either within the Territory (in the case of SAGA) or
outside the Territory (in the case of SAG), (ii) adapt Technical Materials other
than the Source Code for Products, either within the Territory (in the case of
SAGA) or outside the Territory (in the case of SAG), and (iii) authorize others
to do the same to the extent that doing so is reasonably required in the
performance of their work on behalf of the licensee. Each party may use the
Technical Materials of the other party for any lawful purpose, to whatever
extent it deems appropriate to develop markets for Products and Maintenance,
either within the Territory (in the case of SAGA) or outside the Territory (in
the case of SAG). Such use may include, but is not limited to, development of
new interfaces and add-on Products; ports to other platforms; and making
performance improvements. Each party shall maintain the confidentiality of
Technical Materials of the other party as provided in Article 10. Each party
shall take reasonable and customary measures to assure that its employees,
agents, independent contractors and Distributors appropriately protect Technical
Materials of the other party, which in no event shall be less rigorous than the
measures that such first party takes to protect its own similar Technical
Materials.

3.6. To provide accountability for Technical Materials that either party
deems particularly sensitive, but without affecting the parties' rights and
obligations with respect to such Technical Materials, (i) a party providing
Technical
<PAGE>

- 10 -

Materials to the other party may require the other party to sign a receipt
therefor in the form of Exhibit D, and (ii) a party receiving Technical
Materials from the other party may require the other party to sign a transmittal
therefor in the form of Exhibit E.

3.7. Each party shall provide First Level Support and Second Level
Support for all Products installed or distributed, either within the Territory
(in the case of SAGA) or outside the Territory (in the case of SAG), except as
the parties may agree otherwise pursuant to Section 2.4. Each Originating Party
shall provide Third Level Support for its Products anywhere in the world. The
parties shall use their best efforts to coordinate the provision of Third Level
Support as described in the "Escalation Management Process Description" of
Exhibit F and as they have done prior to the Effective Date or otherwise agree.

3.8. SAG shall develop, and provide to SAGA under the terms of this
Agreement, year 2000 compliant versions of all SAG Products in accordance with
the schedule set forth in Exhibit G, unless the parties agree otherwise in
writing. If either party requests a modification to such schedule, and the
parties cannot otherwise reach agreement concerning the modification, the
request shall be presented to the Strategic Advisory Board, which may approve a
modification to such schedule by unanimous vote of all its members. For the
purpose of this Section 3.8, a "year 2000 compliant" Product at least (i)
accommodates date values, and accurately processes date data, from years in the
same century and in different centuries, and (ii) will neither fail due to, nor
produce incorrect results in, date-related processing, including, but not
limited to, in connection with dates after 1999. SAG shall identify all such
year 2000 compliant SAG Products to SAGA in writing. The year 2000 compliance
of such SAG Products is subject to verification by SAGA, at SAGA's cost, using a
third party consultant mutually acceptable to SAG and SAGA.

4. Marketing of Products
---------------------

4.1. Each party shall use its best efforts to develop markets for
Products of the other party and for Maintenance for such Products, either within
the Territory (in the case of SAGA) or outside of the Territory (in the case of
SAG), except to the extent that doing so would be in conflict with an obligation
that such party owes to a third party at the time the relevant Product becomes a
Product, such as a covenant not to compete in an agreement with a third party
appointing such party as a distributor of the third party's product.
<PAGE>

- 11 -

4.2. Unless the parties agree otherwise in writing, each party shall
structure its agreements appointing Distributors and otherwise conduct its
business so that (i) for each End User license for a Product granted by a
Distributor, a license fee is paid by the End User to the Distributor and an
amount is paid by the Distributor to the party that has appointed the
Distributor, (ii) license fees and other amounts payable are fairly allocated to
Products and there is no other unfair discrimination between SAG Products and
SAGA Products.

4.3. SAG hereby grants to SAGA a perpetual, irrevocable (except by
written agreement of the parties), exclusive (except as provided in Section 2.4)
license under all of SAG's trademark, service mark and trade name rights to (i)
use SAG's trademarks, service marks and trade names within the Territory and
(ii) authorize others to do the same. Such trademarks, service marks and trade
names shall include, but not be limited to those listed in Exhibit H. SAGA
hereby grants to SAG a perpetual, irrevocable (except by written agreement of
the parties), exclusive (except as provided in Section 2.4) license under all
of SAGA's trademark, service mark and trade name rights to (i) use SAGA's
trademarks, service marks and trade names outside the Territory and (ii)
authorize others to do the same. Such trademarks, service marks and trade names
shall include, but not be limited to, those listed in Exhibit I.

4.4. Any use by the licensee of a trademark, service mark or trade name
licensed under Section 4.3 shall be (i) consistent with the high quality image
of the parties so as to enhance the trademarks, service marks and trade names
licensed under Section 4.3 and the goodwill relating thereto, and (ii) generally
as used prior to the Effective Date or otherwise agreed. A licensee under
Section 4.3 shall identify the trademarks, service marks and trade names
licensed under Section 4.3 as such, including, but not limited to, through
appropriate use of the symbols "(TM)" and "(R)" or other means appropriate
under applicable law. Each licensee under Section 4.3 acknowledges the
ownership and validity of the trademarks, service marks and trade names licensed
under Section 4.3 and shall do nothing inconsistent with such validity and
ownership. All uses of the trademarks, service marks and trade names licensed
under Section 4.3 shall inure to the benefit of the licensor. A licensee under
Section 4.3 shall employ appropriate quality control standards and cooperate
with the licensor's efforts to verify that it does so.

4.5. Each party may from time to time elect to develop advertising or
other promotional materials relating to Products (collectively, "Advertising
Materials"). If so, it shall provide the other party a copy in printed and
electronic format of any Advertising Materials that it distributes. Each party
<PAGE>

- 12 -

hereby grants the other party a perpetual, irrevocable (except by written
agreement of the parties), exclusive (except as provided in Section 2.4) license
under all of the licensor's copyrights and other proprietary rights to (i)
reproduce, adapt, distribute, perform, display, transmit and otherwise use
Advertising Materials, either within the Territory (in the case of SAGA) or
outside the Territory (in the case of SAG), and (ii) authorize others to do the
same. A party distributing Advertising Materials in a particular jurisdiction
shall be solely responsible for the contents of such materials and for
compliance with requirements of local law in their distribution.

4.6. As of the Effective Date, SAG may be a party to certain agreements
appointing a Distributor in the Territory or with an End User in the Territory,
and SAGA may be a party to certain agreements appointing a Distributor outside
the Territory or with an End User outside the Territory. Promptly after the
Effective Date, the parties shall use their best efforts to renegotiate or
otherwise restructure, such as through an assignment and delegation, any rights
and obligations of the parties under such agreements to be consistent with the
parties' respective rights and obligations under this Agreement in the relevant
geographic areas. To the extent that the parties have been unable to do so,
such as because the Distributor or End User does not wish to renegotiate such an
agreement, or the parties otherwise have not done so, the parties' payment
obligations under this Agreement shall be adjusted to obtain a financially-
equivalent result and the parties otherwise shall cooperate to give the party in
the geographic area of which each such Distributor distributes Products, or each
such End User is located, the benefits of this Agreement. At the request of
either party, the parties shall take any actions reasonably required to confirm
the parties' respective rights and obligations with respect to a Distributor or
End User.

5. User Documentation and Other End User Materials
-----------------------------------------------

5.1. An Originating Party promptly shall provide the Distributing Party
a copy in printed and electronic format of the user documentation or other
materials that the Originating Party generally distributes with a Product.

5.2. Each party shall make available for purchase by the other party
additional copies of user documentation or other materials that the Originating
Party generally distributes with a Product as well as any available Advertising
Materials and available software media and "PC-Kits." All such materials shall
be provided F.O.B. place of shipment, at
<PAGE>

- 13 -

production cost, excluding freight, insurance, import duties, sales tax, VAT and
other taxes, in accordance with price lists provided by each party to the other
from time to time.

6. Payments
--------

6.1. As consideration for the termination of the Cooperation Agreement
between the parties dated January 1, 1995, and its replacement with this
Agreement, SAGA shall pay SAG on the Effective Date the sum of thirty-eight
million Deutsche Marks (38 million DM).

6.2. From the Effective Date through December 31, 2017, and thereafter
unless the parties agree otherwise in writing, (i) SAGA shall pay SAG twenty-
four percent (24%) of SAGA's "Net Revenues" (as defined below) from the
distribution of SAG Products and the provision of Maintenance for SAG Products
within the Territory, and SAG shall pay SAGA twenty-four percent (24%) of SAG's
Net Revenues from the distribution of SAGA Products and the provision of
Maintenance for SAGA Products outside the Territory. For the purpose of this
Section 6.2, "Net Revenues" shall be computed as follows:

Net Revenues = Amounts Invoiced
- External Distribution Charges
- Third Party Obligations
- Japan Adjustment

Where:

"Amounts Invoiced" are the gross amounts invoiced by a party or one
of its Distributors (and any additional amounts not invoiced but
recognized as revenue in accordance with the relevant entity's revenue
recognition policies) for the distribution of Products of the other party
and the provision of Maintenance for such Products to End Users (less
applicable interest income and all sales, use, VAT and other taxes), and
other revenues, such as amounts recovered by a party for infringement of
proprietary rights licensed to that party hereunder (less attorneys' fees
and other expenses incurred to recover such amounts).

"External Distribution Charges" are Distribution Charges for the
distribution of Products of the other Party or the enrollment of End
Users for Maintenance for such Products that are payable to or retained
by a third party that is not an Affiliate of a party.
<PAGE>

- 14 -

"Third Party Obligations" are amounts due to a third party other
than an Affiliate of a party pursuant to an agreement for the
acquisition, or for the right to distribute, the relevant Product. (The
Originating Party shall notify the Distributing Party when there are
Third Party Obligations for a Product, and the Distributing Party
promptly shall remit such amounts to the Originating Party for
disbursement to the third party.)

"Japan Adjustment" equals 76% of the aggregate amounts owed or
payable to a party with respect to the distribution of Adabas C on Unix,
Windows/NT and VAX platforms, and the provision of Maintenance therefor,
in Japan prior to October 1, 2006. This adjustment is only applicable to
the computation of Net Revenues owed by SAGA to SAG.

6.3. Each Distributing Party shall report to the Originating Party all
its relevant Amounts Invoiced, External Distribution Charges and Third Party
Obligations in detail within sixty (60) days after the end of the month in which
they occur. Based on each such report, which report shall be substantially in
the form attached hereto as Exhibit J, the Originating Party may invoice the
Distributing Party for the applicable payment under Section 6.2.

6.4. From time to time, a Distributing Party may fail to collect from an
End User or Distributor amounts for which payments have been made under Section
6.2, including, but not limited to, as a result of product problems, warranty
claims, bad debt or the cancellation or termination of an End User Agreement (it
being understood that amounts collected from an End User or Distributor and then
credited back to the End User or Distributor, such as when an End User "trades
in" a Product to obtain a different Product, are not amounts that the
Distributing Party has failed to collect from the End User or Distributor). If
such failure continues for one hundred and twenty (120) days after such amounts
accrue as Amounts Invoiced, the amounts payable under this Agreement shall be
adjusted to reflect such failure, and the Distributing Party shall receive an
appropriate credit for any Amounts Invoiced with respect to which payment has
not been received by the Distributing Party. If the Distributing Party
thereafter receives a payment for which it has received such a credit, such
payment shall be treated as Amounts Invoiced in the month in which the payment
is received.

6.5. For the calendar years 1997 through and including 2000, SAGA shall
pay to SAG a minimum annual aggregate payment under this Agreement of twenty-one
million
<PAGE>

- 15 -

U.S. dollars ($21 million); provided that if SAG's Worldwide Revenues in 1998,
1999, or 2000 are less than SAG's published 1996 Worldwide Revenues, then such
minimum annual aggregate payment shall be reduced proportionately for that year
and each subsequent year through 2000. For purposes of this Section 6.5,
"Worldwide Revenues" for any year shall consist of revenues derived during such
year by SAG from the distribution of SAG Products and Maintenance for SAG
Products and shall be determined on a basis consistent with past practice,
except that such revenues shall be calculated based on the currency exchange
rates utilized to determine SAG's published 1996 Worldwide Revenues. Should the
amounts payable to SAG under Section 6.2 for any year be less than the minimum
annual aggregate payment under this Section 6.5 for such year, SAG may invoice
SAGA for the difference when SAG invoices SAGA for the payment under Section 6.2
for December of such year.

6.6. SAGA shall not consummate a Change in Control of SAGA after January
1, 1999, or permit a Change in Control of SAGA to be consummated after such
date, involving the sale of a controlling interest in SAGA or all or
substantially all of the assets of SAGA to any of Oracle Corporation, Sybase,
Inc. or Informix Corporation unless the successor of SAGA following the Change
in Control has agreed in a writing in which SAG is expressly identified as an
intended third party beneficiary that such successor shall pay to SAG a minimum
annual aggregate payment under this Agreement from the later of (i) the first
day of the month following the month during which the Change in Control occurs
(such first day being referred to herein as the "Trigger Date") and (ii) January
1, 2001, through the date which is two years from the Trigger Date (such period
being referred to herein as the "Payment Period"). During the Payment Period,
the minimum annual aggregate payment required by this Section 6.6 shall equal
eighty percent (80%) of the average annual payment under Section 6.2 of this
Agreement for the twenty-four (24) months preceding the month in which the
Change in Control occurs, provided, however, that such minimum payment shall be
applied on a pro rated basis for any Payment Period (or part thereof that
extends beyond one year) that is less than a full year. If the amounts payable
to SAG under Section 6.2 with respect to the Payment Period (or part thereof)
are less than required under this Section 6.6, SAG may invoice SAGA's successor
for the difference when SAG invoices SAGA's successor for the payment under
Section 6.2 for the last month of the applicable period.

6.7. All payments due to either party under this Agreement shall be due
thirty (30) days after the date of the applicable invoice, or if such due date
is a Saturday, Sunday or legal holiday observed by either party, the first
business day thereafter.
<PAGE>

- 16 -

6.8. If any payment due hereunder is received after the date when due,
such payment will accrue interest at a rate equal to the currency-related FIBOR
rate available on the due date, plus three percent (3%).

7. Records, Reports and Audits
---------------------------

7.1. Each party shall prepare and maintain complete and accurate books
and records documenting its distribution of Products and provision of
Maintenance pursuant to this Agreement and its receipt of all fees and other
revenues related thereto. Each party shall maintain such books and records for
a minimum of three (3) years from the date of distribution of Products or
provision of services, respectively.

7.2. Within thirty (30) days following the end of each calendar quarter,
each party shall provide the other with a copy of the standard package of
financial information it uses for its own internal reporting purposes for such
quarter. In addition, within six (6) months following the end of each calendar
year, each party shall provide the other with a copy of its audited consolidated
financial statements, including a balance sheet and statement of income, as of
the end of such year.

7.3. During the term of this Agreement and for one (1) year thereafter,
each party shall have the right, one time during each calendar year, at its
expense and upon reasonable notice, to examine or have examined by its
authorized representative, the other party's books and records relating to the
immediately preceding calendar year in order to determine or verify performance
under this Agreement, the amounts due hereunder and the accuracy of any reports
furnished hereunder.

8. Warranties and Limitation of Liability
--------------------------------------

8.1. Each party represents and warrants that it has the right to enter
into this Agreement and to grant the other party the rights granted herein.

8.2. Each party represents and warrants that its Products will conform
with the related Product documentation it provides. A party's sole obligation
with respect to any Product or documentation errors will be to use its best
efforts to correct, at its expense, any error about which it receives written
notice. The warranty and obligations of this Section 8.2 are contingent upon
proper use of a Product and
<PAGE>

- 17 -

shall not apply to the extent that any failure is caused by (i) modification of
a Product by the other party or by any third party without prior written
approval or (ii) use of a Product in a hardware or software environment other
than the environment in which the Product is intended to be used, as described
in the Product's documentation at the time of such use.

8.3. Each party represents and warrants that its Products do not contain
any virus, Trojan horse, worm, or other software designed to permit unauthorized
access to, or improperly to modify, delete, damage, deactivate or disable, any
software, hardware, or data.

8.4. THE FOREGOING EXPRESS WARRANTIES ARE IN LIEU OF ANY AND ALL OTHER
WARRANTIES. EACH PARTY, WITH RESPECT TO ITS PRODUCTS, DISCLAIMS ANY AND ALL
OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

8.5. No party hereto shall be liable in any event for any damages
incurred by the other party or by any other person or entity as a result of any
misuse of any of the Products, even if such first party had been advised of the
possibility of such damages. The parties shall not be liable for any
consequential, special, or incidental damages, lost profits, or for any claim or
demand against them by any other person or entity, except as provided in Article
9 with respect to claims for indemnification thereunder.

9. Indemnities
-----------

9.1. Subject to Section 9.4, the Originating Party shall defend,
indemnify and hold harmless the Distributing Party, its Affiliates and their
respective employees, agents, independent contractors, Distributors and End
Users from and against any claims, losses, damages, liabilities and costs
(including, but not limited to, reasonable attorneys' fees) ("Claims") relating
to or resulting from infringement of any third party's patent, copyright or
other proprietary rights by the Originating Party's Products or the distribution
or use thereof, except to the extent that a Claim is based on modification of a
Product without authorization of the Originating Party. In the event an
infringement is found, the Originating Party shall use its best efforts promptly
to obtain a license for the continued distribution and use of the affected
Products, replace the affected Products with substantially equivalent
noninfringing products or modify the affected Products so that they are
noninfringing.
<PAGE>

- 18 -

9.2. Subject to Section 9.4, the Distributing Party shall defend,
indemnify and hold harmless the Originating Party, its Affiliates and their
respective employees and agents from and against any Claims relating to or
resulting from modification of a Product by the Distributing Party.

9.3. Subject to Section 9.4, each party shall defend, indemnify and hold
harmless the other party, its Affiliates and their respective employees and
agents from and against any Claims relating to or resulting from (i) the
indemnitor's breach of this Agreement or an End User Agreement or (ii) the
negligence of the indemnitor, its Affiliates and their respective employees and
agents, including, but not limited to, Claims relating to or resulting from
inadequate installation of Products and inadequate Maintenance.

9.4. Each of the foregoing indemnities is subject to the following
conditions:

9.4.1. An indemnified person or entity promptly shall notify the
indemnifying party in writing of any Claim (provided that the failure of
an indemnified person or entity to provide prompt notice shall not
relieve the indemnifying party of its obligations under this Article 9,
except to the extent that the indemnifying party is actually prejudiced
by such failure);

9.4.2. The indemnifying party shall have the right, if it so
chooses, to control and direct, at its expense and through counsel of its
choosing, the investigation and defense of any third party Claim, but may
compromise or settle the same only with the consent of the indemnified
person or entity, which consent shall not be unreasonably withheld. The
indemnified person or entity shall cooperate fully with the indemnifying
party in the defense of any such Claim.

9.5. Upon receipt of a notice of a Claim for indemnification, the
indemnifying party shall promptly pay to the indemnified person or entity the
amount of such Claim in accordance with and subject to the provisions of this
Article 9, provided, however, that no such payment shall be due during any
period in which the indemnifying party is contesting in good faith either its
obligation to make such indemnification or the amount of the Claim that is
payable.
<PAGE>

- 19 -

10. Confidentiality
---------------

10.1. For the purpose of this Article 10, the term "Confidential
Information" means any information used in or relating to the business of one
party or its Affiliates (collectively, the "Disclosing Party"), including, but
not limited to, the Disclosing Party's Product plans, Technical Materials and
financial and customer information, that the Disclosing Party maintains in
confidence, and all tangible embodiments of such information, that is received
by the other party or its Affiliates (the "Receiving Party"), or to which the
Receiving Party has access, in any form; provided that "Confidential
Information" does not include any information that the Receiving Party can
demonstrate (i) is or becomes publicly known through no fault of the Receiving
Party; (ii) is developed independently by the Receiving Party; or (iii) is
rightfully obtained by the Receiving Party from a third party not obligated to
preserve its confidentiality who did not receive the material or information
directly or indirectly from the Disclosing Party.

10.2. A Receiving Party shall not use the Disclosing Party's
Confidential Information for any purpose other than in accordance with this
Agreement and shall not disclose Confidential Information to any person or
entity other than its employees and agents, and its independent contractors and
Distributors, which persons and entities have a need to know such Confidential
Information and each of which is subject to a nondisclosure obligation
comparable in scope to this Article 10.

10.3. Notwithstanding Section 10.2, a Receiving Party may disclose
Confidential Information to the extent required by a court or other governmental
authority, provided that (i) the Receiving Party gives the Disclosing Party
reasonable notice of the disclosure, (ii) the Receiving Party uses reasonable
efforts to resist disclosing the Confidential Information, and (iii) upon
request of the Disclosing Party, the Receiving Party cooperates with the
Disclosing Party to obtain a protective order or otherwise limit the disclosure.

10.4. The parties acknowledge that either party's breach of Section 10.2
would cause the other party irreparable injury for which it would not have an
adequate remedy at law. In the event of a breach, the non-breaching party shall
be entitled to injunctive relief in addition to any other remedies it may have
at law or in equity, without having to prove any actual damages sustained.
<PAGE>

- 20 -

11. Certain Additional Matters
--------------------------

11.1. During the term of this Agreement, except as provided in Section
2.4, or with the written consent of the other party, neither party shall, nor
shall such party permit its Affiliates or the employees or agents of such party
or its Affiliates to, directly or indirectly (i) engage, or assist any other
person or legal entity to engage, in the distribution of computer software or
provision of computer software-related services, or in any other business in
which the other party is then actively engaged, or (ii) solicit, actively
interfere with the other party's relationship with (or the relationship of such
other party's Affiliates or Distributors with), or attempt to divert or entice
away, any employee, licensee or customer of such other party, in each of clauses
(i) and (ii) either within the Territory (in the case of SAG) or outside of the
Territory (in the case of SAGA); provided that any party and its Affiliates may
collectively own a passive investment of not more than ten percent (10%) of the
stock of any corporation. Each party acknowledges that its obligations under
this Article 11 are founded upon valuable consideration, necessary to protect
the legitimate interests of the other party (including, but not limited to, the
rights granted pursuant to this Agreement), and reasonable with respect to
geographic and temporal scope.

11.2. During the term of this Agreement, before either party or its
Affiliates may assign, grant any exclusive license with respect to, or otherwise
transfer (each such act a "Transfer"), proprietary rights with respect to one of
its Products, either within the Territory (in the case of SAGA) or outside of
the Territory (in the case of SAG) (such Transfers being precluded by this
Agreement outside the Territory (in the case of SAGA) or within the Territory
(in the case of SAG)), the other party shall be offered the following rights
with respect to such Product:

11.2.1. The transferring party shall first deliver a written
notice to the other party stating (i) that the transferring party desires
to make a Transfer of such proprietary rights, (ii) the nature of the
proposed Transfer and (iii) the price and other material terms of the
proposed Transfer. Such notice shall be accompanied by a certificate of
the transferring party certifying that it has received from a third party
a bona fide offer to acquire such proprietary rights at such price and on
such terms as are set forth in the notice and shall identify such third
party.

11.2.2. Within thirty (30) days after receipt of a notice as
described in Paragraph 11.2.1, the other
<PAGE>

- 21 -

party may elect, by delivering to the transferring party a written notice
of its election, to acquire the proprietary rights with respect to the
Product on the same terms and conditions specified in such notice. In
the event that the other party does so, the parties shall consummate the
Transfer within ninety (90) days after the date that the other party
receives the notice described in Paragraph 11.2.1.

11.2.3. To the extent the other party does not exercise its
rights under Paragraph 11.2.2 within the time period specified therein,
the transferring party may Transfer such proprietary rights to the third
party specified in the notice described in Paragraph 11.2.1 at such price
and on such terms as are set forth in such notice, provided that (i) such
Transfer is consummated within one hundred twenty (120) days of the date
of delivery of such notice and (ii) prior to the Transfer, such third
party agrees in writing, in a form satisfactory to the other party and as
a condition of the Transfer, that such third party shall assume all of
the obligations of the transferring party under this Agreement relevant
to the proprietary rights transferred and the Products embodying such
proprietary rights, and that such proprietary rights shall be subject to
the rights of the other party under this Agreement.

11.3. SAG shall not consummate a Change in Control of SAG or permit a
Change in Control of SAG to be consummated unless the successor of SAG following
the Change in Control has agreed, in a writing in which SAGA is expressly
identified as an intended third party beneficiary, that such successor shall
continue to support the research and development of SAG Products existing or
planned before the Change in Control was contemplated and that, in each of the
two (2) years following the Trigger Date (as defined in Section 6.6), such
successor shall spend an amount on research and development for SAG Products
that is at least equal to eighty percent (80%) of SAG's average annual research
and development expenses for SAG Products for the twenty-four calendar months
preceding the month in which the Change in Control occurs.

11.4. Unless the parties agree otherwise in writing, in the event of a
Change in Control of either party, the parties shall cooperate to identify and
document all of the then existing Products of the party that is the subject of
the Change in Control as of the date of the Change in Control, including
Products at all stages of development, whether or not announced to the public as
available for distribution. Unless the parties agree otherwise in writing, the
party that is the subject of the Change in Control shall not consummate the
<PAGE>

- 22 -

Change in Control or permit the Change in Control to be consummated unless the
successor of such party following the Change in Control has agreed in writing
(i) to be bound by all of the terms of this Agreement relevant to such existing
Products to the same extent as the party that is the subject of the Change in
Control, (ii) that all of the terms of this Agreement relevant to such existing
Products shall apply to future products of such successor derived in any
material respect from such Products, and (iii) that the other party is an
intended third party beneficiary of such agreements required by clauses (i) and
(ii).

11.5. If either party enters into negotiations or material discussions
relating to a potential transaction that could involve a Change in Control of
such party, such party shall promptly notify the other party hereto in writing
of such discussions or negotiations.

11.6. In addition to the parties' rights and obligations under Sections
11.2 and 12.2, during the term of this Agreement, before SAG decides to stop
further enhancement or support of Adabas C for the Unix, Windows/NT or VAX
platforms, SAG shall notify SAGA in writing of the extent to which SAG is
considering doing so. Within thirty (30) days after receipt of such a notice
(the "Election Period"), SAGA may elect, by delivering to SAG a written notice
of its election, to continue such enhancement and support to the extent that SAG
is considering stopping it. If SAGA makes such an election, then the parties
promptly shall negotiate in good faith an arrangement whereby (i) the Products
for which SAG is considering stopping further enhancement or support shall
become SAGA Products for all purposes under this Agreement at no charge to SAGA,
and (ii) after the parties' agreement to such an arrangement, SAGA shall bear
the costs of ongoing enhancement and Third Level Support of such Products. The
parties shall structure such an arrangement so that it does not constitute
"Software AG decid[ing] to stop further enhancement and support" of such
Products within the meaning of paragraph 4 of the letter dated October 2, 1996
from Peter Schnell to Yoshioki Ishii. SAG shall not decide to stop further
enhancement or support of Adabas C for the Unix, Windows/NT or VAX platforms
unless such Election Period has expired without such an election by SAGA.

12. Term, Termination and Remedies
------------------------------

12.1. This Agreement shall be perpetual from the Effective Date unless
terminated by the written agreement of the parties. Notwithstanding either
party's breach of this Agreement, this Agreement shall not be terminable other
than by
<PAGE>

- 23 -

the written agreement of the parties. In the event of a breach, the non-
breaching party shall be entitled to money damages, specific performance or
other remedies available at law or in equity, but not to termination or
rescission of this Agreement.

12.2. In the event that either party (the "Nonperforming Party") (i)
fails materially to fulfill its obligation under Section 3.7 to provide Third
Level Support for its Products to End Users of either party, and fails to remedy
that breach within thirty (30) days after receiving written notice of such
breach from the other party or (ii) becomes insolvent or enters into bankruptcy,
liquidation, dissolution or proceedings of a similar nature, then the other
party (the "Performing Party") may elect in writing to assume responsibility
for providing Third Level Support to all or any of its End Users of all or any
of the Nonperforming Party's Products. To the extent that the Performing Party
makes such an election, it thereafter shall be excused from making any payment
under Section 6.2 for the provision of Maintenance for those Products to those
End Users and for any additional distributions of those Products and provision
of Maintenance therefor; the Nonperforming Party thereafter shall be excused
from any obligations hereunder that are expressly assumed by the Performing
Party. Notwithstanding any assumption by the Performing Party of any
responsibilities hereunder, the Nonperforming Party shall remain liable for any
breach by it of this Agreement. In the event that the Performing Party elects
to assume responsibility for providing Third Level Support with respect to any
Product of the Nonperforming Party, the licenses granted by the Nonperforming
Party to the Performing Party under Section 2.1 or 2.2 and Section 3.5 shall
automatically be expanded to include a perpetual, irrevocable (except by written
agreement of the parties), exclusive (except as provided in Section 2.4) license
to adapt such Product in Source Code form, including, but not limited to, by
developing modifications and enhancements to such Product.

13. Notices
-------

All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, by
facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
<PAGE>

- 24 -

If to SAG:

Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: Dr. Erwin Koenigs
Facsimile: 49-6151-921868

with a copy to:

Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: Christine Schwab
Facsimile: 49-6151-921600

If to SAGA:

Software AG Americas, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attention: Harry McCreery
Facsimile: 703-391-6504

All such deliveries shall be deemed effective when received by the person
entitled to such receipt or when delivery has been attempted but refused by such
person. Any party may change the person or address to which such deliveries
shall be made with respect to such party by delivering notice thereof to the
other party hereto in accordance with this Article 13.

14. Miscellaneous
-------------

14.1. This Agreement is confidential, and neither party shall disclose
it without the prior written consent of the other party to any third party,
other than its attorneys, consultants, accountants, auditors and others to whom
a party has a bona fide business reason for disclosing the Agreement; provided
that each party may disclose this Agreement as may be required by law or to
enforce the provisions hereof.

14.2. To the extent that either party has copyright or other
proprietary rights with respect to a Product identified in Exhibit B or C as
being a Product of the other party, such first party hereby irrevocably assigns
to such other party its entire right, title and interest in and to such
proprietary rights.

14.3. Each party shall take such actions, and sign such documents, as
reasonably may be requested by the other party to
<PAGE>

- 25 -

obtain, confirm, maintain or enforce the rights granted in this Agreement.

14.4. A party receiving an exclusive license hereunder shall have the
exclusive right to enforce any proprietary rights so licensed, either within the
Territory (in the case of SAGA) or outside the Territory (in the case of SAG).
If reasonably required to do so, the licensee may join the licensor as a
plaintiff.

14.5. The parties shall use the English language in exchanging all
documents and other information exchanged between them.

14.6. The provisions of this Agreement are severable, and the
unenforceability of any provision of this Agreement shall not affect the
enforceability of the remainder of this Agreement. The parties acknowledge that
it is their intention that if any provision of this Agreement is determined by a
court to be invalid, illegal or unenforceable as drafted, that provision should
be construed in a manner designed to effectuate the purpose of that provision to
the greatest extent possible under applicable law.

14.7. The rights and remedies provided in this Agreement are, to the
extent permitted by law, cumulative and not exclusive of any other right or
remedy now or hereafter available at law or in equity. Neither asserting a
right nor employing a remedy shall preclude the concurrent assertion of any
other right or employment of any other remedy, nor shall the failure to assert,
or the delay in asserting, any right or remedy constitute a waiver of that right
or remedy.

14.8. The rights of the parties under this Agreement are unique, and
the failure of a party to perform its obligations hereunder would irreparably
harm the other party. Accordingly, the parties shall, in addition to such other
remedies as may be available at law or in equity, have the right to enforce
their rights hereunder by actions for specific performance to the extent
permitted by law.

14.9. Except as specifically provided in this Agreement, no party may
assign any of its rights or delegate its obligations hereunder without the
written consent of the other party; provided that in the event of a Change in
Control of a party, such party may assign all of its rights and delegate all of
its obligations under this Agreement to the successor of such party following
the Change in Control, if such successor agrees in a writing in which the other
party is expressly identified as an intended third party beneficiary to assume
all of the obligations of such party under this
<PAGE>

- 26 -

Agreement. Any purported assignment or delegation in violation of this Section
14.9 shall be void. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, permitted assigns and
legal representatives.

14.10. This Agreement may be modified or amended only by written
agreement of the parties.

14.11. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of Virginia
applicable to agreements made and entirely to be performed within such
jurisdiction. The party bringing any action under this Agreement shall only be
entitled to choose the federal or state courts in the Commonwealth of Virginia
as the venue for such action, and each party consents to the jurisdiction of the
court chosen in such manner for such action.

14.12. This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.

14.13. This Agreement and the Recapitalization Agreement dated as of
March 18, 1997 among SAG, Software AG Systems, Inc. ("Systems"), Thayer Equity
Investors III, L.P. and certain managers of Systems, including their respective
exhibits and attachments, constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all previous agreements,
written or oral, with respect to the subject matter hereof, including, but not
limited to, the Cooperation Agreement dated as of January 1, 1995 between the
parties hereto.
<PAGE>

- 27 -

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.

SOFTWARE AG

By: /s/ Erwin Koenigs
---------------------------------------
Dr. Erwin Koenigs
Chairman of the Board

and

By: /s/ Volker Dawedeit
---------------------------------------
Volker Dawedeit
Board Member

SOFTWARE AG AMERICAS, INC.

By: /s/ Daniel Gillis
----------------------------------------
Daniel Gillis
President and Chief
Executive Officer

<PAGE>

EXHIBIT 11
SOFTWARE AG SYSTEMS, INC.
WEIGHTED AVERAGE SHARES

<TABLE>
<CAPTION>
PREDECESSOR COMBINED PREDECESSOR SUCCESSOR
----------------------------------- -------- ----------- ---------
SIX SIX THREE THREE
MONTHS MONTHS MONTHS MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
-------------------------- JUNE 30, JUNE 30, MARCH 31, JUNE 30,
1994 1995 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding..... 27,500 27,500 27,500 27,500 24,338 27,500 24,338
Options issued within
one year
of filing of initial
public offering........ 3,084 3,084 3,084 3,084 3,084 3,084 3,084
-------- -------- -------- ------ ------ ------- ------
30,584 30,584 30,584 30,584 27,422 30,584 27,422
======== ======== ======== ====== ====== ======= ======
CALCULATION OF NET
INCOME (LOSS) PER
SHARE:
Net income (loss) ...... $ 1,382 $ 3,326 $ 6,209 $ (835) $3,524 $ 1,373 $2,151
======== ======== ======== ====== ====== ======= ======
Net income (loss) per
share.................. $ 0.05 $ 0.11 $ 0.20 $(0.03) $ 0.13 $ 0.04 $ 0.08
======== ======== ======== ====== ====== ======= ======
</TABLE>

<PAGE>

EXHIBIT 23.2

ACCOUNTANT'S CONSENT

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

/s/ KPMG Peat Marwick LLP

McLean, Virginia
September 26, 1997

<PAGE>

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Software AG Systems, Inc., a corporation organized under the laws of
the State of Delaware (the "Corporation"), hereby constitutes and appoints
Daniel F. Gillis, Harry K. McCreery, James H. Daly, Robert B. Ott, Daniel A.
Raskas and Joseph Turitz, and each of them (with full power to each of them to
act alone), his true and lawful attorneys-in-fact and agents for him and on his
behalf and in his name, place and stead, in all cases with full power of
substitution and resubstitution, in any and all capacities, to sign, execute and
affix his seal to and file with the Securities and Exchange Commission (or any
other governmental or regulatory authority) a Registration Statement on Form S-1
or any other appropriate form and all amendments or supplements (including any
post-effective amendments) thereto with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration under
the Securities Act of 1933 of shares of the Corporation's common stock, and
grants to each of them full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as he
himself might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand and seal, as of the date specified.

DATED: 9/24/97 /s/ Daniel F. Gillis
-------------------------- -----------------------------------
Signature

Daniel F. Gillis
-----------------------------------
Name

<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand and seal, as of the date specified.

DATED: 9/24/97 /s/ Carl J. Rickertsen
-------------------------- -----------------------------------
Signature

Carl J. Rickertsen
-----------------------------------
Name
<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand and seal, as of the date specified.

DATED: 9/24/97 /s/ Philip S. Dauber
-------------------------- -----------------------------------
Signature

Philip S. Dauber
-----------------------------------
Name
<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand and seal, as of the date specified.

DATED: 9/26/97 /s/ Dr. Erwin Koenigs
-------------------------- -----------------------------------
Signature

Dr. Erwin Koenigs
-----------------------------------
Name
<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand and seal, as of the date specified.

DATED: 9/23/97 /s/ Paul G. Stern
--------------------------- -----------------------------------
Signature

Paul G. Stern
-----------------------------------
Name
<PAGE>

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand and seal, as of the date specified.

DATED: 9/25/97 /s/ Edward E. Lucente
-------------------------- -----------------------------------
Signature

Edward E. Lucente
-----------------------------------
Name

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOFTWARE AG
SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 8,440 25,773
<SECURITIES> 0 0
<RECEIVABLES> 69,206 108,325
<ALLOWANCES> 6,486 4,980
<INVENTORY> 0 0
<CURRENT-ASSETS> 78,049 132,539
<PP&E> 36,862 34,872
<DEPRECIATION> 27,820 25,949
<TOTAL-ASSETS> 123,591 158,088
<CURRENT-LIABILITIES> 63,592 102,118
<BONDS> 0 0
0 0
0 0
<COMMON> 243 275
<OTHER-SE> 39,067 29,533
<TOTAL-LIABILITY-AND-EQUITY> 123,591 158,088
<SALES> 77,588 156,840
<TOTAL-REVENUES> 77,588 156,840
<CGS> 37,616 72,971
<TOTAL-COSTS> 37,616 72,971
<OTHER-EXPENSES> 36,509 78,588
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 6,038 10,511
<INCOME-TAX> 2,514 4,302
<INCOME-CONTINUING> 3,524 6,209
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-PRIMARY> .08 .20
<EPS-DILUTED> 0 0

</TABLE>